Microsoft Corp. and American Express Co. are vying to take an equity stake in Foursquare Labs Inc., according to people with knowledge of the discussions.
The two companies are competing to invest in Foursquare rather than cooperating on a joint bid, said one of the people, who asked not to be identified because the information isnt public. Foursquare is talking with other companies about a possible investment, and the talks may not lead to a deal, said another person with knowledge of the matter.
Foursquare, which lets users check in to show theyre visiting a place like a restaurant or shop, is also negotiating with venture capitalists who own convertible debt about turning their holdings into equity, said one of the people.
The discussions suggest that potential investors are more bullish on Foursquares prospects after it began reaping the benefits of a new advertising approach that lets brands target users when theyve checked into a locale. Foursquare in April raised $41 million in debt, a move that let it keep tinkering with an unproven business model while delaying debate about the companys true worth.
A stake in Foursquare would give Microsoft, the worlds largest software maker, a bigger role in social media and mobile, areas where it has lagged behind competitors such as Apple Inc. Microsoft has previously put money into other startups, notably with a 2007 investment in Facebook Inc. That has grown in value and helped unite the software makers against their common foe, Google Inc.
American Express hopes to compete with credit-card rivals by tying marketing and loyalty programs to social-media sites. It already offers discounts to users who check-in to a shop or restaurant on Foursquare and pay their tab using an American Express card, and lets customers buy items using a promotional hashtag in posts on Twitter Inc.s site.
Foursquare, based in New York, had no comment on the talks with investors, said Jon Steinback, vice president of marketing. Peter Wootton, a spokesman for Redmond, Washington-based Microsoft, declined to comment on any talks with Foursquare. Leah Gerstner, a spokeswoman for American Express in New York, said the company does not comment on rumors or speculation.
Foursquare is on track to beat its sales goals for the year, Chief Revenue Officer Steven Rosenblatt said in an interview. Last month, the closely held company started letting companies send ads to users after they check into a location. Those advertisements are bringing in three times the revenue Foursquare had expected, Rosenblatt said.
I think weve proven our business model, Rosenblatt said. Our business model is very clear and its working, doing what we thought it would do, if not more. Its all well ahead of what we anticipated.
Rosenblatt declined to comment on the companys targets.
Foursquares results are an encouraging sign to investors who valued the company at $600 million in 2011 and have waited for it to deliver on promises. The company, which pulled in just $2 million in sales last year, has introduced more advertising products in the past few months to make money off its applications. Users click on or save ads delivered after check- ins more than 15 percent of the time on average, Rosenblatt said -- a rate that beats the less than 1 percent engagement on a typical mobile ad.
Earlier this year, when Foursquare needed money to continue operating, it made forecasts for investors about how successful its products were going to be. Because the targeting methods hadnt been tested, investors didnt come to an agreement with Foursquare on how much the company was worth.
Rather than raising equity and debating the $600 million valuation with venture capitalists, the company took on debt from two sources -- a loan from a Silver Lake Management LLC debt fund and convertible notes, which can be changed into shares later, from investors that already owned pieces of Foursquare.
The company has been putting the money to work. Foursquare hired about 20 more people for its engineering and sales teams, and has started opening up its advertising platforms to businesses that want to create their own promotions. The companys first international customers are among the thousands using the service so far, Rosenblatt said.
Were ramping up as fast as we can, he said, noting that the company has had some single advertising purchases of more than $1 million apiece. I didnt think we would see a dollar from anyone overseas this year.
In the next three months, Foursquare will have 50 to 100 customers buying the post-check-in advertising product, he said. The self-serve advertisements will be open to the companys entire base of merchants by the end of the year.
The company still sees about 6 million users checking into locations each day -- a rate that hasnt changed since April. To help boost the figure, the startup updated its mobile applications on iOS and Android operating systems, plus a new version for Windows 8. The updates included a feature that lets people check their friends into locations in addition to themselves.
The company said yesterday its also unveiling a technology that will send users automatic recommendations when they visit a new restaurant or neighborhood, without having to open the application.
Foursquare has helped Microsoft by making an application for its Windows 8 operating system, which has had trouble attracting developers because of the popularity of Googles Android and Apples iOS software for smartphones and tablets.