How Twitter Plans to Win the Advertising Market

Despite having only 230 million monthly active users, social media darling, Twitter (NYSE: TWTR  ) , could challenge giants Facebook (NASDAQ: FB  ) and even Google (NASDAQ: GOOGL  ) on the advertising front, according to a recent research note from RBC Capital Markets.

The company, up more than 100% since its public offering, is on its way to become a major global advertising platform as it continues delivering robust growth in key user metrics, while improving execution.

Why marketers love Twitter
Together with advertising company Ad Age, RBC surveyed over 900 advertisers to understand more about Twitter's potential as a marketing tool.

The study found out that of all advertisers polled, 71% of them were already using Twitter as a marketing tool, and 80% of them plan to use it within the next twelve months for advertising purposes. Moreover, as much as 60% of polled advertisers plan to increase their Twitter spending next year. This should help Twitter increase its ad revenue per user, which, according to Quartz, came to $0.55 in the quarter that ended in June.

Twitter offers marketers a fast way to build an audience of relevant followers, because unlike Facebook or LinkedIn, you can interact with the right people for your business, even if they don't follow you back. Second, Twitter is one of the fastest broad content distribution platform. Its retweeting feature can make interesting tweets go viral in minutes, quickly spreading information all over the Internet. And finally, users are --by definition-- highly engaged, as most people join Twitter due to a strong desire to share and react to information in real time.

Source: AdAge

Comparing Twitter against Facebook and Google
Twitter is already well-positioned to compete with the likes of Facebook and Google. Moreover, Twitter's key competitive advantages will contribute to capture increased market share in the next quarters.

As RBC analyst Mark Mahaney notes, one of such advantages is Twitter's potential synergies with TV advertising, a gigantic industry likely to reach $200 billion in size this year according to Magna Global. Forbes contributor Jeff Bercovici points out that Twitter could become a TV companion by allowing users to discuss and even influence the outcomes of shows and live events, like political debates and soccer matches.

The company recently closed a deal with the National Football League to distribute exclusive content to Twitter users. This is the first deal the NFL has signed with a social platform, and shows the importance of Twitter to partner companies.

Note that with 232 million active users posting 500 million tweets per day, Twitter's reach is decent, yet small in comparison with Facebook, which has 1.15 billion active users that share more than four billion items daily. However, in terms of ad performance, Twitter may be the winner. According to AdWeek, Twitter ads' engagement rates range between 1%-3%, way above Facebook's average click-through rate figure of 0.119%. 

On the mobile front, Facebook has bigger market share, with more than 15% of the market under control. However, because 75% of its users access the service from mobile devices, much of Twitter's revenue growth is expected to come from mobile ads. eMarketer predicts that by 2015, Twitter will pull in $1.33 billion in worldwide ad revenue, with more than 60% of total revenue coming from mobile advertising.

Competing against Google will be harder. The search engine giant owns Google Adsense, a huge platform that allows publishers in its network to serve ads that are targeted according to the site content and audience. However, perhaps the most intelligent way to deal with Google is through a partnership, that allows Twitter to display Google ads, creating a win-win situation.

Final Foolish takeaway
Due to its highly social nature, not everybody is on Twitter. But those who do, are highly engaged. This feature will ultimately allow Twitter to become a major advertising platform in the next quarters. Synergies with TV companies, partnerships with content providers, mobile ads, and strong user metrics should help Twitter to continue improving its revenue base. 

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