Facebook Is Holding An Ax Over The Neck Of Foursquare

One of the stranger mysteries of Facebook's $1 billion acquisition of Instagram is this: Why does Facebook allow Instagram to use Foursquare for photo-location services when Facebook has its own location app, Check In?

Facebook and Foursquare are competitors. They both have "check in" services that create a huge location "underlayer" database for the internet, showing where people are and what they're doing there.

Foursquare recently started its own ad exchange, which at least technically competes with Facebook's ad exchange, FBX. Turn, an online ad buyer, places business in both exchanges. Foursquare also launched a check-in-based advertising rewards scheme of a type that Facebook has previously tried, and failed at.

Yet Instagram CEO Kevin Systrom (and by extension his corporate boss, Facebook CEO Mark Zuckerberg) turn blind eyes to the fact that Instagram is actually helping Foursquare build a bigger, better location database than Facebook's.

Foursquare has only 40 million users. Instagram has 150 million. It's entirely possible that Instagram users are creating more Foursquare data than Foursquare users are. (A spokesperson for Foursquare declined to say what portion of the company's data comes from Instagram.)

We spoke to a couple of sources inside Facebook who gave us the same rough explanation: Instagram began using Foursquare to tag photos with locations a long time before Facebook bought the company. Zuckerberg has a "hands off" attitude toward Instagram, which is a fantastic product that he is letting develop on its own. He has no desire to screw with a winning team. Also, the Instagram team has much bigger priorities than location services - it's gearing up to serve video ads sometime soon. And, frankly, Foursquare works pretty well on Instagram, so why mess with it?

Nonetheless, Facebook is still able to evict Foursquare from Instagram any time it wants, seamlessly replacing it with the Facebook's Check-In feature.

A spokesperson for Foursquare tells us that Instagram is just one of 50,000 app developers who use Foursquare for location services. Other huge apps include Waze, Uber, and Evernote. In terms of location data, "Foursquare is probably the most robust out there," the spokesperson says. He denied that Foursquare was in any way dependent on Instagram. "There's not an over-reliance on one over the other," for any app, he says.

But that answer also restates the underlying long-term problem: Waze - the traffic map app - is owned by Google, and Google is building its own location database through a service called Location Sharing in Google+ and Google Now. So in theory, Waze could switch out Foursquare in favor of Waze's own user-data and Google's Location Sharing data.

Foursquare has the same problem with Google that it does with Facebook, in other words - some of its biggest clients are now running competing services.

Of course, Foursquare's live, real-time data is likely a lot more robust than either Facebook's or Google's. But the latter pair have larger user bases.

So the ax isn't set to fall ... yet. It may never. But it certainly exists.