Will Yahoo! Blow It Again?

In a plot twist to rival Groundhog Day, Yahoo! (Nasdaq: YHOO  ) finds itself in an all-too-familiar place.

The meandering dot-com is negotiating the purchase of a rising star in the Web 2.0 world, a few years after it let a similar opportunity slip through its purple fingers.

Right now, the target is Foursquare, according to BusinessInsider.com's Silicon Alley Insider. A source tells the blog that Yahoo! is in negotiations to buy the location-based social check-in site for roughly $100 million.

If this sounds familiar, it's because Yahoo! was in talks to buy Facebook for roughly $1 billion four years ago.

Can you imagine Yahoo! today if it had nabbed the country's most popular website? It wouldn't have had to outsource its search-engine soul to Microsoft (Nasdaq: MSFT  ) . Jerry Yang wouldn't have had to hand over the keys to Carol Bartz. Yahoo! would still have been a speck in Google's (Nasdaq: GOOG  ) rearview mirror, but at least it would have been driving in a fast car.

Before we ask whether history is repeating itself, let's point out that Foursquare is no Facebook. It's a sticky app with thin smartphone support, but a rabid following. The number of people who will gravitate to checking in to certain places to earn badges and points may very well be limited to hip twentysomethings. Then again, Facebook was once just a Harvard coed network that reached out to other college campuses.

Facebook overcame the shortcomings of Friendster, News Corp.'s (NYSE: NWS  ) MySpace, and to a certain extent, United Online's (Nasdaq: UNTD  ) Classmates.com and photo-sharing giant Shutterfly (Nasdaq: SFLY  ) , to become the universal site for nostalgia-fueled social connections.

If Foursquare is open to a deal this early in its growth cycle, it may realize that it's close to peaking in popularity. It may as well jump while there are still open arms waiting to catch it. Web 2.0 is loaded with shooting stars that let pride get in the way of buyout premiums.

Whether Foursquare is a true game-changer or just a passing craze, Yahoo! will have to make a few sexy acquisitions to remind investors that it's still a dot-com force. It had plenty of cash in the bank before its recent sale of HotJobs to Monster Worldwide (NYSE: MWW  ) for even more money.

Given Yahoo!'s uninspiring quarterly performances lately, it needs to look beyond its organic potential. If not Foursquare, something has to change, unless Yahoo! wants its dismal history to keep on repeating.

Should Yahoo! buy Foursquare? If not Foursquare, who should it buy? Share your thoughts in the comment box below.

Microsoft is a Motley Fool Inside Value recommendation. Google is a Motley Fool Rule Breakers selection. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletter services, free for 30 days. One of them may be just what you're "searching" for.

Longtime Fool contributor Rick Munarriz wonders what would happen if he were to one day cut himself and start bleeding purple. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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  • Report this Comment On April 08, 2010, at 5:46 AM, babuds wrote:

    The popular Internet started with Yahoo! Though Headquartered in US it attained international status and now is slowly loosing that status. I think the reason is its loosing battle to gain US share of viewers. Instead it should concentrate on emerging countries in South east Asia and try to monetize from there. Instead if it sticks to US and runs after the ever changing fads of teen somethings it is eventually going to loose and loose badly.

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