Twitter – Cautious Motions Towards Profitability
Fellows and Associates’ independent correspondent Oliver Cox explores the implications of Twitter’s new self-service advertising system.
Twitter has announced a new self-service advertising system
for small businesses. Users’ tweets about advertising on twitter suggest that
they are not particularly attracted to it. It is this factor, alongside the
potential misuse of the scheme, which means that as the social network drives
towards profit the risks are comprehensive. But this is business – notably
online business.
Will Twitter be able to summon the tact required to achieve
profitability with such a critical – and vocal – user base watching its every
move? Apparently, their investors believe so, as Twitter is not having any
trouble raising capital.
Promoted by Twitter
The new scheme allows companies to get their advertisements to the users by dealing with Twitter directly, resulting
in increased speed and flexibility. The scheme, which
is in its secondary trial stage, will accept the first 10,000 firms which come
forward, as long as they are American Express card holders or merchants.
American Express will then buy the first $100 worth of Twitter advertising for
each business, provided that they do a few favours for AmEx. These
advertisements will appear as a classic 140 character message and will be
designated as a ‘promoted tweet’.
Like other internet and social networking companies, Twitter can
use its users’ data to tailor marketing efforts to members with a specific
characteristic, such as location. The scheme is based on the ‘pay-per-click’ principle,
so if a company’s marketing fails to attract user interaction there will be no
charge. This principle gives firms a large amount of control over both their
target audience and their advertising budget.
The Straight and Narrow
While a self-service system will increase engagement from
advertisers, granting so much autonomy to independent companies will involve
risk. Twitter relies on its massive user base for its money-making potential,
and the fact that firms will be organising their own ads directly through the
Twitter interface opens the door for the senders of irritating spam.
It is this risk which explains Twitter’s patience in rolling
out an ad-system that could see the firm into profitability. Until March only
100 advertisers will have access to the system, at which point Twitter will
bring in the 10,000 additional businesses. This will enable the firm to watch
for any ripples this move may create and decide if any action needs to be
taken, at which point they can plan the next self-service expansion – probably
culminating in a system where advertisers in their 100,000s use promoted
tweets.
Social media companies make money
because advertisers have access to millions of users who use a free system. It’s
a delicate balance; Twitter will have to accept enough advertisers to create
revenue, but must avoid annoying users with too many promoted tweets or doing
scary things with their data so that they leave the service. Nevertheless,
Twitter’s slow and steady hand in this venture suggests that when the system
goes live, they will have action plans in place to deal with possible misuse.
Twitter possesses the aura of a
company with a plan. This advertising scheme is an important contributor on the
road to profitability, which Twitter, by their 2009 estimates, predicted they
would reach in 2013. So
2013 will tell whether a new billion-dollar-revenue Olympian will rise to rival
the reigning internet-Titans.
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