In the seven months since Twitter (NYSE:TWTR) launched its buy button, it's only been used in a handful of tweets. In the span of two days, however, a big-name music act (Slayer) and an NBA team (Atlanta Hawks) used it to sell extra tickets on the platform.Ticketing is an area where Twitter has a strong potential to thrive, which explains some of the reasoning behind hiring former Ticketmaster CEO Nathan Hubbard as the head of its commerce division. Meanwhile, Facebook (NASDAQ:FB) has yet to find significant traction with its own buy button.
While Twitter reportedly isn't taking a commission on the early sales of products through its platform, there are lots of ways the company can benefit.
People with things to sell, like concert or sports tickets, are usually willing to spend money to advertise them. Twitter can use its location data in combination with previous tweet data to target advertisements at local fans who may be interested in purchasing tickets, but don't necessarily follow the team or band selling tickets.
These advertisements will likely convert better than an ad that links out to another website. The buy button keeps users on the same page with a simple popup to enter credit card information and confirm the purchase. If a person has bought something on Twitter before, they just have to confirm the purchase. The process couldn't be more seamless.
Additionally, Twitter is likely to convert sports ticket sales better than a competing platform like Facebook. Sports fans typically turn to Twitter to discuss their favorite teams, and that's valuable data when it comes to targeting advertisements. Geolocation data can even let Twitter and advertisers know who's been to the stadium before (and is therefore more likely to go again).
While Facebook also has geolocation data from check-ins and sports fans clamoring about the current game, the sports crowd typically goes to Twitter. That trend gave rise to the World Cup and NFL curated timelines on Twitter, which reinforced the behavior as well.
If Twitter users see that bands and sports teams are offering some tickets exclusively through Twitter, they're more likely to follow those accounts and check into Twitter more often when there's a potential for ticket sales.
Twitter saw declining user engagement last year. Timeline views per user declined in each of the first three quarters, but rebounded in the fourth quarter. (The rebound could be partially attributed to a change in iOS, which removed 4 million active accounts that were largely inactive.) The company said it will stop reporting its standard engagement metric as it no longer provides an accurate picture of engagement on its platform.
Giving users a reason to log in to Twitter more often gives Twitter an opportunity to engage users with its new "While You Were Away" feature as well as plans for more curated content in the future. Twitter can engage users in different ways than it has in the past with its strict reverse-chronological timeline, but it needs to get those users to open the app first. The promise of exclusive offers is one way to do that.
Combining these two benefits leads to the ultimate goal for Twitter -- increasing revenue. As mentioned, I expect ads selling tickets to be extremely effective. Effective ads attract more advertisers, and more advertisers increase average ad prices. Increased engagement provides Twitter an opportunity to display more advertisements to users, and more ad impressions lead to more ad revenue.
All said, Twitter doesn't have to charge a commission on its buy button if the accounts using it lead to more advertisements and user engagement. However, Twitter reportedly planned to take $0.85 per sale on its platform. That's just one-fourth of what Facebook is charging for sales on its network, so there's room to increase it should management see a significant opportunity. For now, Twitter's advertising business stands to gain from more sports teams and bands selling tickets on its platform.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Facebook and Twitter. The Motley Fool owns shares of 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.