Sunday, October 6, 2013

What Can Be Sold in 140 Characters? That’s Now the Challenge for Twitter

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.

David Jolly and Mark Scott contributed reporting from London and Peter Eavis and Jenna Wortham from New York.

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