Twitter will start using your apps to target ads. Source: Flickr/Jason Howie.

In November, Twitter (NYSE:TWTR) started collecting data on the apps users have installed on their smartphones. Not just apps they installed from app-install ads on Twitter, but any app a user downloaded. It recently started letting advertisers use that data to target ads.

A user's app graph could be particularly valuable to direct-response advertisers, who pay for the advertising units that Twitter blamed for its poor revenue results last quarter. Twitter singled out app-install ads as one of the direct-response units that underperformed, and knowing the apps a user already installed is of great benefit to those advertisers.

Catching up to Facebook
Facebook (NASDAQ:FB) also collects data on app installs for developers who use Facebook's SDK, Parse. It also knows which apps its users use when they log in with Facebook Login. It can then use that data to improve the conversions of its app-install ads, delivering value to developers.

Facebook's app-install ads have provided a huge boost to Facebook's mobile ad revenue. In the third quarter of 2012 -- when the company introduced app-install ads -- Facebook generated $153 million in mobile ad revenue. In the same period last year, mobile ads accounted for $1.95 billion in revenue. App-install ads were a huge driver behind that growth.

Twitter followed Facebook into the app-install ad market, but its success in the area isn't as clear. The majority of Twitter's ad revenue still comes from direct sales to brand advertisers. Twitter's claim that direct-response ads (including app-install ads) were the reason the company fell short of expectations last quarter indicates that it's ability to convert ad impressions into sales or app downloads is lower than initially thought.

Consider that an app developer has a very good idea of how much an install is worth. It's not going to pay more than that per conversion from Twitter. The only way for Twitter to continue growing revenue from direct-response units like app-install ads is to improve conversions. Adding users' app graphs to the targeting capabilities for developers will certainly help.

What else can Twitter use app data for?
As noted earlier, Twitter started collecting app data back in November. Around the same time, Twitter started working on product features that would improve its ability to onboard and retain new users.

It started things like Instant Timelines, which automatically populates a timeline for users based on a user's contacts and who they follow. Including app data could help Twitter produce better Instant Timelines.

For example, a user with the New York Times recipes app, Epicurious, and other food-related apps may be interested in following other foodies. A user with the regular New York Times app and other news apps may be interested in following reporters from those news outlets.

Twitter CFO Anthony Noto has mentioned that the company is just getting started with content curation, and collecting as much data as possible on users is going to help provide a better content consumption experience. Providing interesting information for each user will keep them engaged, will enable Twitter to show more ads, and ultimately enable those ads to perform better.

The app data Twitter's collecting certainly isn't a miracle cure for all of its troubles. But using it in combination with other new features -- like ad insights, which provides demographic data on businesses followers, and cross-platform ad targeting powered by its recent TellApart acquisition -- could prove beneficial to its ability to convert direct-response ad impressions into sales and downloads.