Twitter's (NYSE:TWTR) stock jumped 2.6% yesterday on news of the social network's new buy button. While the button is currently limited to "a small percentage of U.S. users," this pilot project is enough to get the market excited about a new potential revenue stream for Twitter. But while a buy button should help the company grow its revenue, is it a game changer?
How the button works
Brands will be able to embed a product for sale in a tweet, along with a buy button. Users who see the tweet can complete an entire purchase within the Android and iOS Twitter apps "in just a few taps," according to a Twitter press release.
For now, the ability to sell items on Twitter will be limited to a select group of artists, brands, and nonprofit organizations, as the feature is still in testing stages.
Twitter built the checkout experience with the help of four partners: Fancy, Gumroad, Musictoday, and Stripe. But the press release states there will be "more partners to follow soon."
Based on the users selected to test the buy button in their tweets, as well as the partners helping to build the payment platform on Twitter, the trial period is likely to involve sales of both physical and digital goods, along with tickets and donations.
Importantly, the company said security and privacy (two matters that are seeing increasing scrutiny on the Internet) are emphasized in the checkout process.
We built this test experience with your trust and security at the forefront. Your payment and shipping information is encrypted and safely stored after your first transaction, so you can easily buy on Twitter in the future without having to reenter all of your information. Of course, you can always remove this information from your account. Your credit card is processed securely and won't be shared with the seller without your permission.
Twitter commerce chief Nathan Hubbard explained to The Verge that a buy button in tweets that streamlines real-time e-commerce is simply an evolution of a transactional relationship that already existed on the platform.
There are already transactional conversations happening every day on our platform between brands and their customers or artists and their fans. What we're trying to do is build the shortest path between an offer and a completed sale, to eliminate the friction of clicking a link that takes you to another website where you might have to type in a whole bunch of information each time.
Enough to move the stock?
Eventually, this buy button will almost certainly provide incremental revenue for Twitter. To cash in on the new feature, the company can either take an affiliate fee on sales or charge partners the same way it currently charges for promoted tweets. But it's going to take time for the company to turn this into a meaningful source of revenue.
"[F]or the time being Twitter is adamant that this is an experimental product from which it won't be making any money, looking instead to perfect the user experience and see what happens," according to The Verge's Ben Popper.
Facebook (NASDAQ:FB), too, is trying to boost revenue with a buy button. While the company emphasized during its last earnings call that it isn't aiming to get into the payments business, management acknowledged that it wants to streamline the process of buying goods from marketers on Facebook. In other words, like Twitter, a buy button is about a better user experience and a more effective marketing product -- not a payments service in and of itself.
While buy buttons for both Facebook and Twitter beef up the two their value propositions for marketers, this evolution in targeted marketing is mostly already priced into these hot growth companies' stocks. These still-unproven efforts to streamline purchases are not sufficient catalysts to make the stocks look more enticing. That said, small changes like these provide further evidence to owners of these stocks that there are still ways to further monetize these social network platforms.
Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple, Facebook, and Twitter. The Motley Fool owns shares of Apple, Facebook, and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.