On the heels of Twitter's Promoted Tweets, Google's Sponsored Results, and YouTube videos and Facebook's experimental sponsored updates, location-tracking service Foursquare is jumping in the ad revenue game with Promoted Updates.
It's the latest in the wave of social media capitalization after years of hooking in Internet users to free networks, and it's the first attempt to generate revenue for a company funded by $70 million in venture capital.
"Promoted Updates are just like the local updates that you see in your friends tab, except that businesses can pay to promote them in our Explore results," Foursquare says on its company blog. "The update can be a money-saving special, an update on a new fashion line, or a photo of their latest dish. It works similar to ads on Google; there, if you search for 'laptops,' you'll see an ad for an electronics Web site next to the results."
Foursquare, which was founded in 2009 by Dennis Crowley and Naveen Selvadurai and now has about 20 million users, promises to "make the world easier to use" by recommending businesses frequented by user's friends. It allows users to check-in to locations recognized by the application via their mobile devices. If they frequent a location more than other users, they get to be "mayor" of that venue.
Ads targeting specific people based on their associations, location, spending habits or browsing history are fueling a surging mobile advertising market that is expected to grow by 85 percent to $11.6 billion as smartphones, tablets and other connected devices make their way into more consumers' hands, according to a report by Strategy Analytics.
"Mobile and location-based marketing has enormous potential,"said digital advertising and media analyst Rebecca Lieb of the Altimeter Group. "We're
already seeing national brands like Walgreen's and American Express
experiment with Foursquare, but mostly it's at check-in, not a recommendation based on proximity.
Proximity Isn't Everything
But Lieb noted that familiarity with a consumer is more essential to an advertiser than simply knowing his or her location.
"Proximity isn't everything," she told us. "For example, if a user only checks into high-end, luxury retail locations like Barneys or Hermes, promoting a nearby H&M won't work, either for the user experience or the brand.
"It will be interesting to see how these algorithms work. Proximity is a start for targeting, but combining it with deeper behavioral data is where promise lies."
Foursquare launched its Explore search engine for mobile users in March 2011 and rolled it out to fixed-computer users in January. It allows users to search for businesses and get results based on tips, friends and what the algorithm determines are your preferences.
Last week Foursquare added Local Updates, which allow businesses you frequent to send messages the same as friends do, appearing in the friends tab, offering specials or just inviting you to drop by.
"The best part is there's no extra work for you to do," Foursquare says. "We already know you care about a place if you've checked in often or liked it, and will show you updates from it when you're in the same city."
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