Twitter’s Ad Simplicity May Be a Weakness, Despite Revenue

Twitter’s longtime hallmark has been its simplicity, and almost all of the company’s revenue, which is projected to be nearly $600 million this year and $950 million next year, has come from three basic advertising formats. While this simplicity has generated profit, it might put Twitter at a disadvantage, especially in relationship to other social sites such as Facebook that collect more information about individual users in order to sell advertising.

Twitter has also focused most of its marketing on large U.S. advertisers, with few sales to smaller business and only a small amount of revenue coming from overseas.

Twitter announced it has filed paperwork to start selling stock, but its financial details remain secretive (as we reported on Monday, the company has filed confidentially — a new feature in the stock market created by the JOBS Act, designed for companies making less than $1 billion in revenue).

According to eMarketer estimates, Twitter will bring in $583 million in revenue from advertising this year, and $950 million in 2014. The company is expected to earn more revenue from messages in its news feed.

“The most common type of Twitter ad, especially on mobile devices, is the promoted tweet. Essentially, advertisers create a Twitter message — limited to 140 characters like any other message on the service — and pay to insert it into the flow of messages that a user sees, based on certain traits like age, gender or keywords that a person is interested in,” explains The New York Times.

“As with Google, Twitter’s advertisers set key parameters like target audience and how much they want to spend, and then computer programs submit bids instantly to serve ads to available slots,” reports NYT.

Because advertisers only pay when someone interacts with an ad, Twitter chooses advertisers based on an ad’s previous viewership and relevance. Advertisers truly benefit when a Twitter user shares an ad with his/her followers.

Twitter also has simpler ad formats.

“The company’s list of trending topics, the most popular 10 or so subjects being discussed at any given moment on the service, is well known as a window into society’s transient obsessions,” notes the article. “Advertisers can pay a flat fee to buy their way onto the list. The price for such a promoted trend, which is clearly labeled, varies by country, but runs about $200,000 for 24 hours of exposure to every Twitter user in the United States.”

However, as Twitter plans to sell stock, they want to add complexity to their advertising and vary their sources of revenue.

“Last week, for example, it announced that it had agreed to acquire MoPub, a start-up that acts as a middleman in placing ads from marketers inside mobile applications,” notes NYT. “MoPub does something quite different from Twitter, auctioning off two billion ad slots a day in apps like Songza and OpenTable through dozens of ad networks and delivering the ads so quickly that a user firing up the app barely notices.”

Jim Payne, chief executive of MoPub, said Twitter and MoPub have a lot in common in that both were “designed to be mobile and designed to be real-time.”