Foursquare Launches Ad Platform For Small Businesses

Today, the location-based mobile service launches a new self-service advertising product for independent merchants who want to its 40 million users when they happen to be in the neighbhorhood. “This is the first at-scale global platform that lets small businesses all around the world buy on a hyperlocal level to find nearby customers,” says Steven Rosenblatt, Foursquare’s chief revenue officer.

Over 1,000 advertisers have been participating in a beta trial that been running since last summer. The aim is to get all of the 1.5 million businesses already enrolled in Foursquare’s ecosystem to start spending money there. If a substantial slice of them do, it would have a huge effect on Foursquare’s revenues, which are expected to total less than $20 million in 2013.

On the auction-based platform, advertisers bid for a set number of user actions (eg. check-ins to a venue). “They’re only paying for customers,” says Rosenblatt. “We’re taking a lot of the guesswork and confusion out that way.” An action at a coffee shop, where consumers are only likely to spend a few bucks, might cost the advertisers $1 to $3, while the same action at an upscale restaurant would probably be $5.

Keeping the process simple was paramount because so many small businesses are still lacking in digital and social media literacy, Rosenblatt says. “They don’t really know what a like means. They don’t really understand clicks for that matter.”

What they do know is the experience of dealing with Groupon GRPN +1.91% and Living Social, who have been the biggest digital force in the small business space for the last few years. While some merchants certainly benefited from running promotions with them, many have horror stories, often involving hordes of low-quality customers who showed up once to redeem a deal and never returned, costing the merchant money.

“Some of the daily deals stuff hasn’t been very good for their business,” says Rosenblatt.