Foursquare looks to personalized offers to generate revenue

Foursquare plans to distribute personalized offers through a redesigned app in July, part of a larger effort to start making money through the location-based social network. The Wall Street Journal reported Tuesday that Foursquare will allow merchants to pay for special placement of personalized local offers.

Foursquare already offers specials for users, but it hasn’t charged merchants for special billing of those coupons. Soon, when users discover new places and businesses in Foursquare’s Explore feature, merchants will get a chance to highlight their offers for users.

This could go a long way toward answering Foursquare’s big question: how will it raise money? It announced last week it would charge merchants $10 to instantly verify their business instead of doing it through the mail. That’s probably not a big money maker in the grand scheme of things. But combined with the coupons, it shows how Foursquare is looking to make money. It’s trying to get to the point where merchants who are using Foursquare’s free tools will be ready to start paying for them.

Foursquare CEO and co-founder Dennis Crowley said the company is working both on building out the product and generating revenue from it. Ultimately, he said, the best way to make money is to continue to get better at connecting people with places. It’s not just about helping consumers find places, but it’s also about helping merchants find their customers, he said.

“Instead of serving up places we think you might be interested in, we can do the same things for businesses, and [tell them] these are the folks that are most likely to come here, based upon their check-in habits, based upon the places they’ve been to and their friends have been,” Crowley told the Wall Street Journal.

Foursquare will have plenty of competition, from Groupon (s grpn), Yelp (s yelp) and others who trying to help local businesses attract and retain customers. But the company has 20 million users, who continue to use the app not just to check-in but increasingly as a guide for local discovery. That’s still a great foundation to build a profitable business. Foursquare has to just figure out how to make it happen.