Foursquare begins generating revenue with promoted updates

For the first time, foursquare will allow businesses to pay to promote themselves right inside the app with “promoted updates.” The updates from select businesses will appear in the Explore tab starting today.

Promoted updates are based on the local updates foursquare launched last week. Instead of appearing in the friends tab of loyal customers, promoted updates — and specials — will appear in the Explore tab, where foursquare has been conditioning users to look to find recommended places to visit. Each one features a “Promoted” logo.

The updates will be powered by the same algorithm that powers Explore results. Users should only see updates that are relevant to them, based on a variety of factors including the places they’ve been, places their friends have been, current location and time of day. They could appear in the general Explore results or when they’re relevant to a search you’ve performed. A search for “sushi” for instance could reveal a sushi place promoting a half off special.

“With the launch of Promoted Updates, we believe we’ve created a suite of tools that will truly drive business and build loyalty for merchants,” said Steven Rosenblatt, foursquare’s Chief Revenue Officer in a press release. “Business owners have been asking for these types of products for many years. We’re on our way to helping them solve some of their biggest problems by delivering the right messages to the people who are most likely to love a business when they’re nearby.”

Foursquare is rolling out promoted updates as a pilot program with about 20 partners, ranging from small companies (like ‘wichcraft and Butter Lane) to large chains (including Best Buy, Old Navy, Lowe’s and jcpenney). They’ll be working closely with account executives to build campaigns and monitor the results over the next few months. They’ll become available for other merchants in the coming months.

The updates are foursquare’s first real foray into revenue generation (a few paid badges existed, but most were traded for publicity). They’ve waited until they felt the timing was right and the product was in the right place. A lot of thought has been but into the design and implementation of these updates so they’ll be useful for both businesses and consumers.

The biggest question, perhaps, is whether foursquare can convince users that they’re no longer a check-in company and are more focused on being a social city guide. Usage of the Explore tab has increased since the release of foursquare 5.0, but has it increased enough that these updates will gain traction and draw people to businesses? Or could people avoid the Explore tab altogether since it will now be the home for ads (along with lots of other useful content)?

If those questions can be overcome, these updates could be incredibly helpful to businesses, giving them a way to reach out the people who are most likely to visit their actual stores in real time. That’s a form of engagement that foursquare is in a unique position to offer since no other network is so intimately tied to places.

What do you think of promoted updates? Can they help businesses reach real potential customers?