So get ready, Twitter users: you are going to see more ads in your message stream, especially if you live overseas.
You may also see Twitter become more like a flash-sale site, with offers to buy products appearing in your message stream along with a way to buy them with a quick click or tweet.
In documents filed on Thursday to inform investors ahead of its initial public offering of stock, Twitter noted that it has been greatly expanding its inventory of advertising slots, especially for promoted tweets, which are sponsored messages that use the same format as the 140-character postings, or tweets, that are the core of the service.
The company, based in San Francisco, said that across its base of 218 million users, the average person is checking the service more frequently — about 230 times a month, compared with 197 times a month a year ago. And users are also interacting with more ads.
But Twitter revealed that it has also significantly increased the number of ads it sells, and prices for those ads have fallen. The company said it believes cheaper, more targeted ads will draw in more advertising, more than making up for the price drop.
So far, the strategy seems to be working — the company said advertising revenue more than doubled in the first six months of this year, to $221 million, compared with the same period last year.
Joy Baer, executive vice president of Strata, which makes software that helps advertisers and ad agencies buy online ads, said that the 1,000 ad agencies that use Strata had been rapidly increasing their purchases of Twitter ads over the last two years. Although Facebook still dwarfs Twitter in overall revenue, she said that for every $100 in Facebook ads her customers buy, they are buying $33 of Twitter ads.
“There is a huge opportunity for them to get more of the dollars,” Ms. Baer said. “What they have to do is make it easier for a media buyer to click a button and buy Twitter.”
Right now, the company’s ad-buying process is less automated than for competitors like Facebook and Google.
Twitter declined to comment, citing regulations limiting what a company selling stock to investors could say beyond its official filings.
But analysts say that Twitter faces several growth challenges.
More than three-quarters of the company’s users are outside the United States, and it must find a way to make money from those global users. Right now, only 25 percent of its revenue comes from overseas. In the second quarter of the year, each American user represented about $2.17 in ad revenue to Twitter. Each one outside the United States brought in about 30 cents during the quarter.
Twitter’s big challenge is to convince a company outside of the United States why it should spend advertising money with Twitter, and not with other outlets, said Daniel Knapp, director of advertising research at the consultant IHS Screen Digest in London.
Twitter also has limitations as a medium, compared with more visually robust services like Facebook or Google, which can also count on revenue from video and display ads. And the competition isn’t standing still — Instagram, a fast-growing photo sharing service owned by Facebook, announced on Thursday that it would begin putting ads in the photo feeds of its users, something that advertisers have been eagerly awaiting.
Although Twitter has struck deals with television networks in the United States and some other countries to run video clips that are sponsored by advertisers, those are still a small proportion of revenue compared with its sponsored tweets.
The company’s robust presence on mobile devices — 75 percent of its users access the service that way, and two-thirds of revenue is from mobile ads — can also be a limitation where smartphones are not common.
In India, for example, Twitter is widely used by Bollywood stars like Amitabh Bachchan, who has 6.5 million followers on the service.
The service has also become one of the most important platforms for political debate there.
But Twitter said in its filing that many users in India and other developing countries get access to the service through basic cellphones, rather than through smartphones or the Web, limiting its ability to deliver compelling ads to users there.
One area that Twitter did not discuss in its filing was electronic commerce, but the company clearly has grand plans there.
In August, it hired Nathan Hubbard, a former chief executive of Ticketmaster, to be its head of commerce. His job is to help Twitter find ways to make it easy for users to buy products directly on the services.
Brian Blau, a research director at Gartner who studies consumer technologies, said, “I firmly believe that Twitter could do well with an e-commerce product.”
From the beginning, companies have used the service to reach out to their customers and engage in conversations with them, he said, and many companies already offer promotions on Twitter. “It seems to be a small leap from ‘click here for a deal’ to ‘click to buy now,’ ” he said.
American Express has been leading the way in experimenting with direct sales on Twitter for its credit and charge card holders. After customers synchronize their cards to their Twitter accounts, they can buy products by sending a Twitter message, or tweet, with a special hashtag in it.
During
Fashion Week in New York last month, for example, American Express users could send a tweet with the hashtag #BuyRMinkoffBag to buy a Rebecca Minkoff designer handbag for $95.
The card company offered 150 bags, which sold out in a couple of days. “It deepens what the tweet can bring,” said Leslie Berland, senior vice president of digital partnerships at American Express. “We have a fantastic relationship with Twitter.”
Although Twitter gets no direct revenue from such deals, American Express and other companies making similar offers typically buy sponsored tweets to promote them.
Susan Etlinger, an analyst at the Altimeter Group, said that Twitter users were already accustomed to links and might be receptive to more direct product pitches. But compared to other services, the potential is limited.
“There’s not a lot of context in Twitter because of the newsfeed format and the 140-character limit, so you can’t use e-commerce on it in the same way that you could on a Facebook or a Pinterest,” she said.
Credits: nytimes
