Amazon Partners with Twitter to Create #AmazonCart

Amazon (AMZN -1.65%) just unveiled a new partnership with Twitter (TWTR), allowing Amazon product links to be shared via hashtags in the U.S. and the U.K.

Users first connect their Twitter and Amazon accounts from Amazon's social settings page, then reply to any Amazon product tweet with the hashtag #AmazonCart (#AmazonBasket in the U.K.) to place the product in their shopping carts. After users claim the product on Twitter, they receive a confirmation email and tweet from Amazon, then complete the purchase from their Amazon accounts.

How #AmazonCart works. Source: Twitter.

Although it's not quite a seamless experience, it's a huge step forward for Amazon's efforts in social media. 65% of shoppers currently use some form of social media -- whether it be Facebook (META -10.56%), Twitter, or Pinterest -- to find the "perfect gift," according to a study from Crowdtap last August. Considering that Amazon's Twitter account has over a million followers -- nearly three times that of eBay (NASDAQ: EBAY), #AmazonCart tweets could catch on very quickly.

A lopsided partnership
This partnership represents a big shift for Twitter, which depends on Promoted Tweets, Promoted Accounts, and Promoted Trends for the majority of its revenue. Twitter's advertising business, much like Facebook's, is built on the idea of quietly promoting company accounts and advertisements to the top of their timelines.

However, Amazon will not share any of its #AmazonCart revenue with Twitter, according to an Amazon statement on GeekWire. Moreover, Amazon stated that it was "open to working with other social networks," hinting that Facebook or Pinterest could be next. The partnership also opens the door for other companies to promote sales of their products on Amazon via the #AmazonCart hashtag.

Twitter CEO Dick Costolo doesn't seem to mind that #AmazonCart won't generate any revenue for his company. In an interview on CBS This Morning, Costolo called #AmazonCart a demonstration of "in-the-moment commerce," in which users can instantly claim products they see others discussing on social media.

Does Twitter benefit at all?
Nonetheless, Twitter needs to show investors that it can help itself before it helps others. Last quarter, Twitter more than doubled its quarterly revenue to $250 million, but its active user base only climbed 25% to 255 million, compared to 30% growth in the previous quarter. It also continued its streak of unprofitability with a loss of $132 million, or $0.23 per share.

Unfortunately, the Amazon deal is a lopsided one that clearly lacks the benefits of the company's previous partnerships with TV networks like Comcast (NASDAQ: CMCSA). In its TV deals, viewers sharing their thoughts via live Twitter hashtags on the "second screen" of a smartphone or tablet were perfect targets for promoted tweets from advertisers. For TV networks, it meant twice the number of screens to advertise on, and for Twitter, it meant more ad revenue.

Under the Amazon deal, Twitter is giving Amazon the freedom to spread its ads virally through its users -- similar to how companies upload buzzworthy clips to Google's YouTube for free advertising. If other companies follow Amazon's example, there could be a sharp decline in Promoted Tweets, Accounts, and Trends, and a rise in viral hashtags. That could turn Twitter's current business model (seen below) upside down.

Source: Company and industry websites.

After all, if a company already has millions of followers like Amazon, wouldn't it be better off simply using Twitter as a platform for free advertising rather than its paid "Promoted" services?

Twitter could be targeting smaller online businesses
On the other hand, Twitter's partnership with Amazon could be a demonstration of how efficient it can make online shopping for smaller businesses.

#AmazonCart in action. Source: Twitter.

Amazon can effortlessly promote products via hashtags because it has over a million followers. The average Twitter user only has around 200 followers, according to DMR's April statistics. As I discussed in a previous article, this disparity has caused Twitter users -- many of them entrepreneurs and small businesses -- to buy fake followers to boost their credibility.

There's no real benefit for small businesses to replicate Amazon's model of adding hashtag shortcuts to their own online stores. They can tweet a linked product repeatedly to a limited number of followers, but it might never catch on outside their limited corner of the social media universe. As a result, small businesses could turn to Twitter's "Promoted" services to boost traffic and  make Amazon-style "hashtag shopping" a possibility.

Considering that small businesses account for 54% of all U.S. sales, that's a huge market that could be swayed to advertise on Twitter.

The drawbacks of hashtag shopping
One of the biggest problems with purchasing goods on Twitter, however, is privacy. Since all Tweets are public (with hashtags enhancing visibility), users are sharing their purchasing decisions with all their followers.

Even if you don't mind publicizing your Amazon purchases, the idea of Twitter hashtag shopping could turn a user's Twitter timeline into a river of items bought on Amazon. That might be appealing to some users -- after all, Pinterest accounts are often just rivers of things people want to buy -- but it could also degrade Twitter's reputation as a source of real-time news and information.

The bottom line
In conclusion, Amazon's partnership with Twitter is a clever move that allows it to blast advertisements for free to its large follower base, who in turn might retweet those ads to even more users.

In the short term, Amazon clearly benefits more from the deal. Yet in the long term, small businesses looking to replicate Amazon's hashtag shopping experience could pay Twitter more to elevated their profiles with Promoted Tweets and Accounts, resulting in stronger revenue growth.