tion-based social networking company Foursquare launched a pilot program on Wednesday to test paid ads. The program will feature about 20 companies including big names like the Gap, and smaller food businesses such as Butter Lane and 'wichcraft.
More than 1 million merchants use Foursquare. By accessing Foursquare's app on mobile devices, consumers receive business updates and deals based on their location and preferences. Until now, those updates from merchants have been free.
"Those tools are effective enough that we can start charging merchants for using them," Foursquare CEO Dennis Crowley said on CNBC's "Squawk on the Street."
Last week, Foursquare launched Local Updates, which allows merchants to ship business updates for free. Foursquare's new service launched Wednesday — called Promoted Updates — would have merchants paying for promotions. The launch is part of a larger trend, where social media and advertising are converging.
"It's about being able to help connect businesses with the people that they think are going to be their best customers," Crowley said.
About 20 merchants have been selected for the pilot-program launch of Promoted Updates. The companies include big retailers including Gap and Best Buy . Smaller businesses are participating, too, including 'witchcraft, a hand-crafted sandwich maker, andButter Lane, a cupcake bakery.