Is Foursquare’s SMB Monetization Here for Real?

Foursquare has been through the wringer over the past year. Following its ascent as a tech media darling (during which it managed to make local sexy), the company has faced backlash and skepticism over its sustainability as a business. I was an early skeptic — not of its chances of monetizing but of the media’s overly gushing love affair with the well-helmed startup.

Since then, I’ve gone the opposite direction of most of the market — coming around to see some of the company’s vision and direction, even though usage growth may be flattening. But the market’s pressure may be exactly what Foursquare needs to shed an erstwhile blasé sense of urgency to monetize. And there are signs that the pressure is setting in — a good thing.

Foursquare’s latest move is towards its most expected yet elusive monetization source: small and medium-sized businesses (SMBs). The company announced last week that it will offer the previously announced Promoted Updates and Promoted Specials to a wider swath of SMBs. When these ad units launched last July, they were only available to large advertisers including Gap, Walgreens and Hilton.

My speculation at the time was that Foursquare’s next move would be to take this ad offering down market to the massive (but ever-challenging) SMB sector. The company has done that in spurts, starting with a few NYC businesses. Now it’s available to “a few thousand” SMBs on a self-serve basis, and it will open up to more in the next few months.

Known as Foursquare Ads for Small Business, these units will live within the central Explore Tab as shaded messages and promotions. They’ll be matched to users’ past check-ins or other signals like friend recommendations or To-Do list items. This personalization and integration with the feed creates a native discovery experience, similar Facebook’s Sponsored Stories. From the Foursquare Blog:

The idea behind these new ads is simple – connect people looking for somewhere to go with businesses that want to drive traffic to their stores. Foursquare is the best way for those businesses to reach nearby customers. In our ad pilots over the past year, we’ve been honing our targeting technology, using the same algorithm that powers our Explore recommendation engine.

Like its Promoted Updates/Specials forebear, Ads for Small Business will be charged on a cost-per-action basis. This is Foursquare’s decision to appeal to cost-conscious SMBs with the performance-based advertising and tangible ROI that data-driven mobile local advertising is capable of. Foursquare’s emphasis on big data furthers this opportunity.

Investigating further, it appears that Foursquare defines a monetizable action as visiting the business or the businesses listing on Foursquare. The former is presumably via check-in and the latter sounds like it’s basically a click-through (in which case the term CPA is a stretch). Foursquare is a bit vague about the terms but stresses it’s performance/action oriented.

Either way, it may discover that SMBs paradoxically prefer the simplicity of flat pricing over relatively complex (albeit more efficient) performance-based ads. The latter requires some degree of ongoing maintenance which challenges non-tech-savvy or time-starved (read: majority) SMBs. This is one reason for famously high churn for SMB self-serve advertising.

Still, Foursquare has a strong value proposition that will increase in with generational shifts of SMB proprietors, not to mention a general evolution in advertiser mobile adoption/comfort. This has led to its 1.4 million SMB claimed listings (includes franchisees) who saw value in its dashboard to analyze check in behavior and accordingly offer specials.

This most recent move takes that one level deeper by letting SMBs generate demand through targeted advertising that’s served to high intent Foursquare users in explore mode (literally). It took a while to get here but the Foursquare backlash likely accelerated it — a period the company will look back on as the market’s version of tough love.

Mike Boland is senior analyst at BIA/Kelsey, where he heads up the firm’s mobile local coverage. Previously, he was a tech journalist for Forbes, Red Herring, Business 2.0, and other outlets.