Twitter (NYSE:TWTR) is getting serious about video. Earlier this year the company introduced native video capture capabilities to its mobile app. This month, it enabled websites to embed Twitter-hosted videos in their Web pages. The move follows a shift in strategy over the last few quarters that's seen Twitter focus more on total audience versus active users.
Facebook (NASDAQ:FB), meanwhile, is making progress with its own video products, but embedded video is an area where options are lacking. Facebook hasn't updated its options to playback video on other websites in the last 18 months, and still lacks the ability to simply embed just videos. Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) YouTube has demonstrated the value of embedding video, with the feature instrumental to growing its audience to 1 billion viewers per month.
Twitter is undergoing a shift in strategy from a Web destination to a content source. Twitter's active user base is at its core -- composing tweets, and racking up timeline views -- but Twitter also syndicates its content to other websites. The company started monetizing those syndicated tweets earlier this year by creating revenue sharing agreements with select content syndicators like Flipboard.
With the focus on native video among social networks this year, the next logical progression was for Twitter to extend syndication to video-specific content. The new embedded video widget allows websites to get rid of the distractions and get straight to video. Viewers can elect to read the text of a tweet or go directly to Twitter.com by pushing a button in the corner of the video -- similar to YouTube's embedded videos.
The new widget opens the door for additional content syndication from partners as well as a wider audience attracted to Twitter.com. Twitter has also made progress in its plans to monetize logged-out visitors to its website. In January, the company introduced its logged-out homepage, which displays select tweets from top content producers. CEO Dick Costolo says the company plans to eventually show an ad or two on its new homepage.
Monetizing an audience, not users
Twitter and YouTube are in similar positions when it comes to monetization. Both have breadth, but lack depth. Facebook, on the other hand, hit the sweet spot achieving both breadth and depth with its 1.4 billion active users spending an average of 20% of their time on its platform on mobile, and one of every nine minutes spent on a desktop computer.
With less engaged audiences Twitter and YouTube are forced to make the most of their wide exposure. YouTube is able to run preroll video ads on its embedded videos, and with Twitter's core group of big brand advertisers, it could do the same.
Considering Twitter knows what the tweet is about and typically what the website that's embedding videos is about, targeting ads for big brands shouldn't be difficult. Combine that with the increased likelihood for viewers to click on videos due to the context of the website around it (compared to a stand-alone tweet in a timeline), and preroll ads are a viable strategy.
A long-term game
Investors shouldn't hold their breath waiting for Twitter to monetize its video content. Management indicate they plan to focus on expanding their audience before they concentrate on monetizing logged-out visitors. Embedded videos certainly increase the likelihood of new websites and Web users consuming more Twitter content. Similarly, the deal Twitter made with Google earlier this year to provide its data for search engine results will increase exposure as well, but it won't immediately monetize the influx of traffic from the search engine.
Twitter is playing a long game, but when it comes time to concentrate on monetization, CFO Anthony Noto believes it can monetize logged-out visitors at about half the rate of those logged in. For reference, Twitter generated $1.26 billion in ad revenue in 2014, and the company claimed to have nearly twice as many logged-out visitors per month as monthly active users. In other words, Twitter could double its already relatively robust ad revenue as it ramps up its logged-out ad experience.
Adam Levy owns shares of Apple. The Motley Fool recommends Apple, Facebook, Google (A shares), Google (C shares), and Twitter. The Motley Fool owns shares of Apple, Facebook, Google (A shares), Google (C shares), 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.