16 Apr 10

Twitter launches Ad Platform

by Jonathan Sepulchre, Digital Planner/Buyer

Finally! After months of speculation, Twitter has launched its ad platform.  The hottest start-up of 2009 was already making money thanks to a partnership with Google and Bing to integrate tweets in search results. However, this ad platform is the real multi-billion dollar question: Will Twitter seduce the advertisers?

The Twitter ad platform is a copy of the very successful Google AdWords platform. Promoted tweets will be displayed in search results when users search for a keyword on Twitter.com (and later on third party applications). At the moment, keywords are bought on a cost per thousand basis (CPM) rather than a cost per click basis (CPC) like on Google. Virgin America, Starbucks and Bravo are among the first advertisers to test the platform.

The business model that Twitter has chosen to adopt is classic in the search industry, however I think Twitter faces two major challenges:

1. Keeping its users on side. According to ComScore, Twitter had 4.5 million unique users in the UK during March 2010. This represents a strong market penetration of 10.6% of the Online British population. However, this is still quite low compared to Google.co.uk (used by 90% of the British online population), Facebook (74.2%) or Bing (28.7%). Despite the buzz in the media, the identity of Twitter is still unclear in the consumer’s mind. Is it a search engine? A social community? A news aggregator/RSS feed? In reality, Twitter is probably a mix of all three. This makes it all the more difficult for Twitter to stand up in the consumer’s mind with a clear brand proposition. That might explain the flat growth of its audience in the United States since June 2009. In that respect, it makes me think that Twitter’s growth perspectives are limited and therefore that the user’s size constraint could remain.

2. The Algorithm. According to the ad platform, tweets will be sponsored on the basis of a “resonance score" calculated from favourites, re-tweets and views. To me, it sound like Twitter wants to appear as a branding channel rather than a lead generation channel. For advertisers, the use of sponsored tweets will clearly extend the reach of their tweets. But, is it the best way to stand up and engage with their consumers compared to the possibilities offered by Facebook for example (7 times bigger than Twitter in the UK)? Previously the return on investment (ROI) on Twitter was positive because it was free. Now, advertisers are going to evaluate the ROI of their Twitter activity according to clear key performance indicators such as cost per click, cost per action or reach. But, will users even click on the sponsored tweets? It remains to be seen.

For advertisers, it will be more difficult to break even and Twitter will have to work hard in order to avoid becoming the next Second Life.

Source ComScore March 2010