When Twitter (NYSE:TWTR) CFO Anthony Noto spoke at the Deutsche Bank tech conference last month, he noted that one area where Twitter can improve its advertising revenue is by helping advertisers craft effective messages. To that end, Twitter has released several blog posts with best practices for direct-response advertisers. Most recently, the company posted a list of tips for app install advertisers on its advertising blog.
But there's a fundamental flaw with this part of Noto's strategy for ad revenue growth. It relies on advertisers to support Twitter's growth; it's out of the company's hands.
You can't get outsized growth from advertisers' efforts
Direct response advertisers are always testing different ad campaigns to find what works best. Twitter's telling them what it's found works best in general will certainly help them, but it won't improve the ultimate value of a Twitter ad. Advertisers are going to wind up there eventually anyway.
More importantly, Twitter doesn't offer any advanced tools to help accelerate the ad creative process. Facebook (NASDAQ:FB) recently updated its Conversion Lift tool to allow advertisers to compare the impact of different individual ad messages, as well as entire campaigns. This allows advertisers to test more, and test more quickly, compared with other ad platforms such as Twitter. It also saves resources for measuring the impact, since Facebook takes care of that from its side. As a result, Facebook has increased the value of advertising on its platform.
Twitter still lacks a comparable tool to Facebook's Conversion Lift. If Twitter and Noto are serious about improving ad creative for the company's advertisers, it needs to invest in the ad tech necessary to make such a tool instead of relying on advertisers to do the testing.
Those measurements are simple enough with things like app installs and page views, but when it comes to tracking actual sales, it becomes much more difficult. Facebook bought Atlas in 2013 and took a year and a half revamping it to enable more robust sales conversion tracking. Atlas now powers Conversion Lift among other features of Facebook's ad platform. Twitter hasn't shown any indication of working on a similar project.
But it's not like Twitter doesn't know that's what advertisers want
During his recent talk, Noto mentioned that direct-response advertisers want to measure return on investment. He believes third-party attribution through the upcoming DoubleClick partnership will help show advertisers the true value of advertising on Twitter.
While DoubleClick can provide extra depth to the actual impact Twitter advertisements have on sales, it won't do much to actually help advertisers improve their Twitter ads. The best way to do that is improving targeting, and while Twitter continues to work toward improving its ad targeting using its user data, but it still lags behind the competition.
Twitter finds itself in a bit of a Catch-22, however, because one of the best ways to improve ad targeting is to show more ads to users and while Twitter's active advertiser base continues to grow, reaching 100,000 advertisers recently, it still lags well behind Facebook's 2.5 million advertisers.
Currently, Twitter's advertisements often lack relevance. That's partially due to Twitter's underpowered targeting capabilities, but it also has to do with the nature of its content. Twitter specializes in real-time content, whereas ads are typically planned and purchased ahead of time. The best-performing ads on Twitter take advantage of real-time events -- such as Oreo's "You can still dunk in the dark" tweet during Super Bowl XLVII.
While Twitter's ad revenue growth is still growing rapidly, it has slowed down in the past couple of quarters. Improving targeting and opening up Twitter to be more than a "real-time information network" with features such as Project Lightning and working toward attracting the mass-market audience should help keep ad revenue growing. Trying to tell advertisers how to advertise, on the other hand, won't help much at all.
Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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.