Foursquare's Business Model Finally Starts Showing Signs of Life

Today, Foursquare, the location-based services company, announced that it’s opening up its advertising platform to 1.5 million merchants in an effort to generate revenue for the company.  Foursquare has long been a darling of social media with its check-in system, but was said to be on the verge or bankruptcy prior to its $41 million cash infusion that it raised in a financing deal earlier this year.  The company since transitioned into a promising search and discovery platform, where ads are beginning to play a more prominent role in attracting potential customers to venues.

Foursquare has been testing its ad product for months with select partners as noted back in July, but only now is it finally giving its 1.5 million merchants access to the service.

Businesses can create ads using Foursquare’s business tools. They can target relevant customers; set a monthly budget for ad spend; and track ad performance on the service. A pizza place, for example, might want to promote its menu during a slow lunch day. When a Foursquare user opens the service during lunchtime, he or she might see, say, a promoted suggestion for that nearby pizza place on the app–an ad that might attract attention because the restaurant is offering a special (“spend $20 and get $5 off!”) or highlighting popular user tips. (“The buffalo chicken pizza is amazing!”).

Another example would be to automatically issue a 20% off Toys R Us coupon to users that check-in to a Toys R Us store after seeing the promoted spot in Foursquare.

Steven Rosenblatt, the company’s chief revenue officer, told FastCompany that Foursquare’s location-based approach to mobile makes the service more effective and transparent. “[Merchants] are so confused in the market as to what they’re actually getting: Are ads actually driving customers? We’ll take all the guesswork out,” he says. “It’s pretty simple: People see an ad when they’re by your business, and it drives them into the store. They’re seeing real customers–real ROI.”

So far with the select partners Foursquare is seeing about $200 to $500 per month in revenue per merchant.  Additionally, according to Ben Horowitz, a Foursquare investor, the company has already increased revenue in 2013 by more than four times the amount it had generated in 2012 (reportedly around $2 million).

Right now I’d say things are looking up at Foursqaure, but lets see how many merchants jump onboard with the new business tools before we say everything is going very well.