Musicconcertapp

You can now add video to your app install ad. Source: Twitter.

Just a few weeks after introducing autoplay video to users' timelines, Twitter (NYSE:TWTR) is expanding the use of video in advertising to make video an option for app install advertisers. During the company's first-quarter conference call, management singled out app install ads as a specific unit that underperformed expectations, leading the company to miss its own revenue guidance for the quarter. It's hoping that the new capabilities to start playing videos automatically will boost conversions for developers, resulting in more ad revenue for Twitter.

Facebook (NASDAQ:FB) rolled out video app install ads last December, and it extended those ads to the desktop version of its site earlier this year. That's a good indication that videos are helping convert these ads into installs on Facebook. Will they do the same for Twitter?

The problem with app install ads
App developers have a very good idea how much an app install is worth to them. For some, that may be more than others, but they're not going to bid more than a certain percentage of their average revenue per user on an app install ad.

So when Twitter's management said that app install ads underperformed its expectations, it's a sign that those ads simply aren't converting. Because there's a ceiling on the price that developers will pay for each conversion, the only way to boost revenue is to increase conversions.

To that end, Twitter started collecting data on the apps its users installed on their phones, and it started using this data to target ads last month. Additionally, Twitter acquired TellApart, which specializes in cross-device targeting, which could boost app-install conversions for users with multiple mobile devices (like a smartphone and a tablet).

Adding video may help boost conversions as well. Not only does autoplay video catch the eye better than a static image, it also allows developers to show off gameplay more successfully. Both factors could improve the number of users that actually click the button to learn more.

Those clicks might be worthless though
Along with rolling out video ads for app installs, Twitter is also allowing developers to pay only when a user actually installs the app. Previously, developers were charged whenever a user clicked to be taken to the apps page within the app store. The new payment option removes a level of uncertainty for developers, so that they only have to pay when the ad truly converts into a download.

On the flip side, it creates more uncertainty at Twitter. Management says one of the problems with direct response ads has been that Twitter delivers customers further down the sales funnel, but advertisers are hesitant to pay a premium. At the same time, it's more difficult to deliver conversions, the more specific the action. Of course, Twitter will theoretically be compensated at a higher rate per conversion, so cost per engagement should continue to increase.

With pricing available on a per install basis, more developers may participate. That would help improve targeting, and potentially increase the price per ad. Twitter will also extend these ads to its wider audience through MoPub, which claims to show ads on more than 1 billion unique devices. That addition may encourage more native Twitter ad purchases, as well.

Battling Facebook
When it comes to app install ads, Facebook is the leader. Its audience of 1.44 billion is hard to beat, which makes it an easy choice for the most profitable and popular mobile apps. What's more, Facebook already offers autoplay video-enabled app install ads and the option to pay per install.

With its most recent update, Twitter stands a better chance to attract more developers to advertise on its platform and through MoPub. It will need them if it wants to get back on track with its revenue outlook for 2015.

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.