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My friend's phone pinged the other day.

"Near Bar 43?" asked the notification, with a certain forced casualness, as if his phone didn't know full well that Bar 43 was right around the corner. Then it justified itself: "Because you like nachos," it said, showing him a little ad from Bar 43 (which, he learned, was about to hold "Trivia Tuesday with Ty Sullivan").

The future of advertising is here, and it looks like little classified ads for trivia bars. For years, location-based advertising has been talked up as the next great hope of the advertising industry. After all, most of us have been carrying small tracking devices in our pockets since 2007. But evidence of location-aware ads themselves has been thin on the ground. At long last, it looks like that's changing.

My friend's notification came from Foursquare, a service that once was at the forefront of location-aware technology. In the early years of smartphones, Foursquare users would "check in" at, say, a restaurant, alerting their friends to their location, and Foursquare to their habits. But the service (which raised $160 million in venture capital funding) was gimmicky, the business model didn't fly and it faded from view. Now, however, it's back, and it's offering up its vast database of information about who clicks where to prospective partners. And it's pointing the way to how location-aware advertising might actually work in the real world.

In online advertising, everything revolves around targeting. Online ad networks track users' movements from website to website, building up profiles of what they look at and what they're interested in, trying to promise advertisers the best possible return on their money. Advertisers, of course, want their ad spend to reach just the right eyeballs at just the right time.

Yet, the limits of tracking Internet usage are apparent to anybody who is actually looking at the ads they're being served. The results are hit-and-miss at best. Would you like a subscription to a newspaper you already subscribe to? How about a terrible free-to-play online game? Are you absolutely sure about that online game?

Enter location-based advertising.

Every smartphone is packed with radios that offer a fistful of ways to track its owner's location. To sellers of online advertising, this seems like a bit of a silver bullet—something that competes with the in-the-moment savvy of search advertising.

To this line of thought, compiling a profile by tracking a user's physical location is just like compiling one by tracking their online movements, but brought into the real world. Foursquare has gone so far as to coin an aphorism for it: "The places you go are the best indicator of who you are." The aphorism is completely self-serving, of course, since Foursquare is sitting on a giant database of the places people go—seven billion check-ins since 2009, according to the company—and which it would very much like to sell.

The problem with location-based advertising is that location isn't enough.

For one thing, location and place are not the same thing: Knowing a user's rough latitude and longitude isn't the same as knowing which establishment they're frequenting. A location that's accurate to, say, 50 feet won't always tell you which store in a mall or on a main street a user is in, which makes all the difference in knowing which ads to show, if the cookware store is right next to the adult-novelty shop.

For another, the real world doesn't stay still. Stores go in and out of business all the time. With its years of urging users to check in when they arrive at a location, Foursquare has crowdsourced an enormous database of human-verified data about which businesses are where, which it is now trying to sell to partners who can put it to use.

Foursquare, for all its technology and data, remains a niche service, a toy for the technorati. That's why it's talking about sealing a deal with services that have more eyeballs, like Twitter, which could use it to tie in its hordes of geolocated users with a more meaningful sense of where they are (and then, of course, offer that meaningful sense to advertisers). Takeover talk involving giants like Yahoo is also swirling.

But perhaps the oddest hurdle to overcome is the weirdness factor of location-tracking itself. Internet users like to feign outrage about privacy invasions, but for the most part they're happy to keep using the devices that track them—unless that tracking becomes conspicuous.

That puts location-based advertisers in a bind: They might have location information, but if they use it the wrong way ("You there! At the corner of 5th and 23rd!"), users will feel stalked and become skittish.

For location-based ads to fly, they need to disguise themselves as ones that pop up because they somehow sense their reader's desires—which, as it so happens, can be met by a nearby store.

This is the artfulness of the little classified ad my friend received: It justified its existence based on his taste in food. It didn't make a show of knowing where he was; it mentioned it in a way that suggested it was a lucky guess.

It's not easy to get all these things working together, but as globe-spanning databases of what's found where and who wants what come together, it's becoming increasingly practical, and we can expect to see more and better ads like this on more and better web services.

My friend still doesn't know how his phone knew he liked nachos.

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