At the Citi Global Technology Conference in September, Twitter (NYSE:TWTR) CFO Anthony Noto made a compelling analogy between television advertising and advertising on its social network. He noted that advertising on Twitter's curated timelines is like advertising on a cable network, whereas the main timeline is more like broadcast television.
Keep in mind that Noto is new to Twitter, so he might not have fully understood how people use its product. In fact, the whole Twitter experience is a self-curated interest feed full of information about specific topics. Comparatively, Facebook (NASDAQ:FB) is full of your friends posting general-interest pieces.
Twitter is the cable to Facebook's broadcast television, which means ad rates could eventually climb higher than Facebook's. The biggest challenge in getting there, however, is for Twitter to help its users understand the value of its product.
"Connecting everyone to their world"
At Twitter's recent analyst day, Noto unveiled the company's new strategy, which he admitted is a mouthful of words. Among that mouthful is the statement "connecting everyone to their world."
In other words, Twitter wants to help its users find content that interests them and connect them to other users who share the same interests. A few users have figured out how to do this on their own, and those are the people who love Twitter. Others use Twitter similarly to how they use Facebook, which doesn't take advantage of the platform, and they don't see the point of Twitter.
Twitter's power users are extremely valuable to Twitter, not only because they spend so much time on the site and app, but also because they've spent the time to create a list of people to follow based on their specific interests; they've connected to their world.
At the analyst day Twitter started to show investors that it finally understands this. Its revamped onboarding process provides users the opportunity to generate a list of people to follow based on their interests, not their email contacts. Its follow recommendation engine is becoming more finely tuned. Additionally, the company expects curated timelines to become a bigger part of the platform, covering thousands of events, from sports to awards to Apple keynotes.
These are all things that help users connect to their world better, telegraph their interests to Twitter, and help the company target its advertising better.
Twitter's ad prices are going down, though
Twitter and Facebook started in two different places with their advertising, which put their ad prices on two different trajectories. Facebook started with right-hand column display advertising -- it was unobtrusive and cheap. Twitter started with promoted hashtags -- it was unobtrusive and expensive. From there, Facebook moved up the chain to native advertisements in the news feed, while Twitter moved down to reach the same spot as Facebook.
The result is that Facebook continues to improve its average ad price, while Twitter's average ad price continues to decline. At some point, however, Twitter's ad prices will reach a bottom when it saturates the market. That's when targeting capabilities will start to increase its ability to raise ad rates, as Facebook has done in recent years.
Where Facebook knows who its users know and, to a lower degree, what they like, Twitter knows exactly what its users are interested in and like based on whom they follow and what they tweet about, because Twitter -- if used properly -- is all about connecting to specific interests.
All Twitter needs to do is teach its users how to use its product and lend them a guiding hand, and its targeting abilities will surpass Facebook's. As a bonus, users will become more engaged because they're finding content they're interested in, not just what their contacts are interested in.
Easier said than done
There's a lot of work to be done at Twitter. Its new streamlined onboarding process and curated timelines are a good start, but the whole process can be overwhelming for new users still.
To maximize its potential, Twitter needs to educate its users on how to get the most out of the platform, one step at a time. Unfortunately, we live in a world of instant gratification, so Twitter is working to automate the process for them first. Once it makes users more sticky, it can educate them and get them to tell the company more about themselves.
Adam Levy owns shares of Apple. The Motley Fool recommends and owns shares of Apple, Facebook, and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.