Foursquare Unveils Paid Ads for Pilot Group

'Promoted Updates' Will Be Paid For on a Cost-Per-Action Basis

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While Foursquare was notable as an early-stage startup that sought to partner with brands, it's now officially courting them as paying customers.

The location-based social network today is officially lifting the veil on its first paid ads, which Ad Age first reported on in April.

Roughly 20 merchants, ranging from national retailers to local chains, are participating in a pilot for "promoted updates," which will appear in the "Explore" tab where users can surface locations and specials that Foursquare's algorithm deems relevant based on signals including their location, past check-ins, check-ins by their friends, engagement by the Foursquare user base at large, and the time of day.

Now Foursquare is looking to enable merchants to attract customers in the vicinity of their local stores by inserting their paid messages about specials and events into the Explore feed, which will be marked with yellow text saying "Promoted." At least initially, the messages will appear at the top of the stream.

Similar to the "local updates" rolled out last week, which enables merchants to show messages to people who have repeatedly checked in at their locations or "liked" them in the same place where users see check-ins from their friends, paid messages will only surface for those who are close enough to a local store to be able to visit.

For example (pictured left), a New Yorker near SoHo might open the Explore tab and see a promoted special from Old Navy telling him he can save $15 off a $75 or greater purchase if he checks in at the store on Broadway.

Other pilot advertisers include Gap, Hilton, New York cupcake store Butter Lane, the Standard Miami hotel (pictured right), BR Guest, Batali Group, JC Penney, 'Wichcraft, Best Buy, Hertz, Walgreens, Macy's and Dave & Buster's.

Not all Foursquare users will see an ad if they open Explore, however. According to Noah Weiss, the Foursquare product manager who oversees merchant-facing tools, "promoted updates" are still being served to users based on relevancy. For example, a Dunkin' Donuts update might be more likely to appear in the morning, and a Hertz update would be more likely to crop up after a user checks in at an airport.

"We think about these as Google search ads for real world places, so the relevancy is really important," said Mr. Weiss, an ex-Googler on the search-quality team.

Foursquare declined to discuss details about pricing, but merchants will be charged on a cost-per-action model and not by impression volume, according to Steven Rosenblatt, Foursquare's chief revenue officer, who stepped into his role in May. The participants in the pilot group who will be testing the ads over the next few months will pay based on engagements like check-ins, unlocked specials, likes of a brand and likes of an offer that result from a promoted update, he said.

"One of the things we're going to be experimenting with is : How do people want to be paying for this?" Mr. Rosenblatt said.

Macy's is one brand that 's looking at Foursquare as a compelling testing ground to search for new customers who might be missing its ads on TV and in print. According to Jennifer Kasper, group VP-digital media and multicultural marketing, the plan is to experiment with "promoted updates" in the third quarter in order to gauge their effectiveness for the crucial fourth quarter.

The intention for the launch is to push out national Labor Day offers that can then be served to Foursquare users who are near a store. The particular goal is to spur more check-ins from women between the ages of 18 and 30, she said.

"We will be looking with great curiosity at how millennials respond in particular," said Ms. Kasper, who characterized the Foursquare investment as a "test -and-learn" budget. She also noted that Macy's is testing Facebook "offers" (using a mix of organically posted stories and ads to amplify their reach) and the location-based shopping app Shopkick, which was rolled out nationally at Macy's stores last week.

Foursquare has 20 million users as of the last official reporting, but the company declined to say how many are actively using the Explore feature, which is central to its effort to cast itself as a recommendation engine that can help users make smart decisions about where to go based on its billions of data points about user activity.

Explore was given more prominent real estate in the June redesign of the app and enhanced functionality, such as the ability to automatically suggest locations without the user needing to search for a category like "seafood." According to Mr. Weiss, use of Explore has more than doubled since the redesign went live.

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