Apps & Software

The Twitter IPO: Twitter in 2013 Is Not Like Facebook in 2012


The Twitter IPO: Twitter in 2013 Is Not Like Facebook in 2012

Photograph by Soeren Stache/AP Photo

In its early days, Twitter’s reluctance to figure out how to make money maddened many people who pay attention to Silicon Valley. In 2009, with Twitter bringing in practically no revenue, Business Insider even held a contest in which readers came up with ways for the company to become profitable. (The winner got a hat.)

Things have changed. As Twitter prepares to go public, it is pulling in increasing sums through advertising, and it is gaining traction in both the mobile and television markets. The public won’t get to peek into the company’s books for several months, since it has filed confidentially under the Jumpstart Our Business Startups (JOBS) Act. But the basic path of the company, so far, is clear: Collect data, sell ads. It’s also clear that it is not as far along this path as other Silicon Valley giants.

Like Facebook (FB) and Google (GOOG), Twitter pitches advertisers on being able to target users with ads based on data generated by users. For Facebook, those data are about people’s social lives; Google built its empire on data from search (and has since expanded into e-mail and other services). Twitter’s specialty is information about what people are doing at any given moment. The company’s main advertising product is promoted tweets, which entails companies paying to insert messages directly into feeds of users with various attributes. So far, this has seemed to be an acceptable way of putting ads in front of people without alienating them.

Crunching the data from hundreds of millions of tweets takes some work. So over the past several years, Twitter has been building a serious operation to gather information about online activity and ad performance, in part by acquiring a handful of companies that do that kind of thing. Nate Elliott, an analyst at Forrester Research (FORR), says that the company now offers better measurement tools for advertisers than most other places in the industry, Facebook included.

Twitter is also humming along on mobile, a shortcoming that bedeviled Facebook for much of its first year in the public markets. The company already makes more money on mobile ads than it does from desktop ads, and its mobile operations are growing faster, too. Earlier this week, Twitter announced the $350 million acquisition of MoPub, an ad exchange that will make it easier for advertisers to place ads on Twitter and to use Twitter’s data about its users to target ads elsewhere.

The company has also been circling the $60 billion annual television advertising market. Given that many people tend to watch television with one eye while trolling through their Twitter feeds, the company thinks it can persuade advertisers to buy promoted tweets timed to the shows people are watching. It has been working hard to woo broadcasters. Meanwhile, advertisers are definitely making the connection. The company was mentioned in 50 percent of all Super Bowl ads, more than five times as many as Facebook.

Twitter’s apparent ubiquity may be a bit misleading. The company has about 200 million active users, or fewer than one-quarter of the 845 million monthly active users that Facebook had when it began the process to go public. Twitter’s revenue is also reportedly well south of $1 billion, while Facebook claimed $3.71 billion in revenue in 2011, its last full year as a private company. Twitter also has much less control over its product than Facebook or Google, since many people experience Twitter completely through third-party apps such as Hootsuite (something that has been a continuing point of contention for the company.) This could complicate the way it builds out its advertising business.

“They’re at a much earlier stage than people perceive them to be. This company this year is not where Facebook was last year,” said Elliott. “They have a lot left to prove.”

For Twitter, that probably means coming up with new things for people to do with the service. It already has Vine, the video-sharing app, and Twitter Music, the music discovery service. In addition to building new products, the company will likely need to establish nonadvertising ways to make money, says Brian Blau, an analyst at Forrester. Facebook has already begun to do this. About 84 percent of the company’s revenue in 2012 came from ads, down from more than 98 percent in 2009, according to regulatory filings.

Investors will likely be looking for similar potential from Twitter, Blau says. “Advertising may be a pillar, but if they’re going to do well on Wall Street, they’re going to have to show they’re more than just advertising,” he says.

Brustein is a writer for Businessweek.com in New York.

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