Bloomberg reports that Microsoft is in discussions with Foursquare to acquire an equity stake in the social location business. Bloomberg says that Microsoft is in competition with American Express, according to people "with knowledge of the discussions", and that Foursquare is also talking to other companies.

From the Microsoft point of view, the move would be similar to Microsoft $240 million investment in Facebook, made in 2007, which signalled the beginning of a closer strategic partnership between the two companies, one that continues to this day (e.g. Bing as back up search for provider for Facebook Social Graph search).

Foursquare provides its users with a social location check-in service, allowing people to share status updates about the places they are visiting. Foursquare has native apps available for most mobile platforms, including Windows Phone. Foursquare tracks around 6 million check-ins every day, allowing it to build not only a database of locations, but also information about consumer behaviour at those locations (e.g. popularity of a location, time at which a location is busiest, type of people visiting a location).

This rich location and behaviour data, together with a desire to generate revenue streams, has led Foursquare, over the last year, to tweak its mobile apps to emphasise its capability as a location discovery and recommendation service (i.e. the app can be useful, as a local search tool, even if you don't check in) and the ability to sell local advertising against locations results. 

Windows Phone Foursquare app

Bloomberg sees a potential equity investment as a way of giving Microsoft a "bigger role in social media, areas where it has lagged behind competitors". The deal would also help lock Microsoft in as a provider of search and other services to Foursquare, and, more critically, guarantee Microsoft's access to Foursquare's valuable location data. For Foursquare the deal would be about receiving a cash injection that would allow it to continue developing the business model.

Microsoft's Bing search engine is already using some Foursquare data to enrich its local search service, but, given the amount of location behaviour data that Foursquare has access, there's room to do a lot more around ranking of locations and personalised recommendations. In a similar way Foursquare's data could improve Microsoft's mapping products, although how this would work in the context of its partnership with Nokia's HERE is unclear.

In both cases there's the obvious filling in of locations (Foursquare database includes more than 10 million venues), but it is Foursquare's location behaviour data that is more valuable, as it enables the identification of location recommendations / hotspots (e.g. if a place is popular in Foursquare at a certain time off day, it should probably be near the top of local search results at that time of day) and provides extra information about a location (reviews, tips, ratings).

Improvements to local search and mapping would have an obvious impact on Windows Phone, but a closer relationship between Microsoft and Foursquare could also see deeper integration of Foursquare into Microsoft's mobile platform.

At this stage any discussion about Microsoft and Foursquare is speculative, especially as Foursquare is likely to be talking to a number of strategic investors and or potential acquirers, but Microsoft is one of the more obvious candidates.  Even so, there may yet be battle between tech giants to see who can gets the best access to Foursquare data and expertise.