Foursquare is building a new advertising product that will leverage users’ check-in data and sell it to other businesses to help create targeted ads on external platforms, according to a report by Ad Age.

The article refers to “executives familiar with the situation,” but warns that the new platform is still in development.

If it comes to fruition though, such an ad product would be a significant step forward in Foursquare’s attempt to find a viable revenue stream. Advertisers would be able to buy certain datasets from the company and then use that information to display relevant ads on other networks, applications or platforms.

Foursquare hasn’t denied the rumors, but said in a statement that it is always looking at ways to makes its data more useful for advertisers and partners while respecting user privacy.

“We’re really excited about our 2013 monetization roadmap, and will provide more details when the time comes,” a company spokesperson told Ad Age.

The rumored ad platform is notable as it follows a $41 million private equity fund given to Foursquare only yesterday by Silver Lake Partners, Andreessen Horowitz, Union Square Ventures, O’Reilly AlphaTech Ventures and Spark Capital.

Dennis Crowley, co-founder of Foursquare hinted on the company’s blog that the investment would be used to improve the core app experience, however, rather than additional advertising opportunities.

“We’ve got a ton left to do,” he said. “We’re building that location layer for the internet – the platform that all other companies use to power location in their apps. This takes time and a lot of work, and great investors.”

Foursquare is expected to update its mobile apps this summer so that any merchant can buy an ad inside the app. In this scenario, users who check-in at a particular café or restaurant may see an ad related to a similar establishment or event happening near their location.

It will be an expansion of its current revenue stream, which allows businesses to buy promoted listings and special offers available exclusively through the app.

An ad product for companies to use with external products would  be lucrative for the platform, but could possibly face resistance from its users. Foursquare says it will respect user privacy, but communicating to its fans exactly which data will be taken, as well offering some kind of opt-out option, will be a trickier proposition.

Foursquare updated its iOS app earlier this week with a tweaked interface and recommendation features, bringing the app’s search functionality front and center.

The company has transitioned well from being a badge ‘collectathon’ to a location-based recommendation service. Creating a stable revenue stream and business model is Crowley’s next immediate challenge.