At a recent investors conference, Twitter (NYSE:TWTR) CFO Anthony Noto said there are three big areas in which Twitter needs to improve its advertising business: targeting, creative, and return on investment. It's that last bucket where Twitter has largely failed in the past to provide advertisers with tools to measure how much return they're getting from their campaigns. Advertisers were mostly left to find or develop their own tools to measure ad efficacy.

Twitter has finally put together a system that allows advertisers to receive a "conversion lift report" following an ad campaign. Twitter will segment an advertiser's target audience into two groups -- a control group and a group that sees the ads -- and measures the impact an ad has on conversions. This is the same as the Conversion Lift tool Facebook (NASDAQ:FB) introduced in January.


How conversion lift reports work. Source: Twitter.

Making it easy to find what works
A big part of a marketer's job is to find out which advertisements work and which ones don't. In the days of television, billboard, and print advertising, that was a fairly difficult task. John Wanamaker, a pioneer in brand advertising, is often quoted as saying, "Half the money I spend on advertising is wasted; the trouble is, I don't know which half."

But in the days of digital advertising with very clear conversion metrics, figuring out what works and what doesn't shouldn't be too difficult. The problem is finding similar audiences that have and have not seen the ads in a campaign. Twitter's new conversion lift report makes it easy to test ads and find a measurable impact of an ad campaign.

The new tool will enable Twitter advertisers to find what works faster and more easily, which will enable them to pour more money into Twitter advertising because they won't be continually testing new things or waiting through a control period of no advertising.

More measurement coming later this year
At some point this year or early next year, Twitter's partnership with Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) DoubleClick for third-party attribution will go into effect. The Google property is able to provide a look at the real impact of Twitter ads in the context of extended digital advertising campaigns.

Noto gave the example of an ad that doesn't immediately convert, but increases product awareness and converts on a different site three days later. Currently, Twitter receives no credit for that sale, but if an advertiser buys that ad through DoubleClick in the future, it sees that the ad was served on Twitter first before it converted. That increases the value advertisers see from Twitter ads, which should increase advertisers' bid prices.

The partnership with DoubleClick will also open up Twitter ads to a slew of advertisers that refuse to advertise on platforms without third-party analytics. An increased number of bidders is usually good for ad prices. Twitter has seen average advertisers increase from 60,000 to 100,000 in the last year, and average cost per engagement increased 6% year over year in the second quarter and 30% in the first quarter. At the same time, total engagements increased 53% and 32%, respectively, year over year.

Still not as good as Facebook
Facebook recently expanded its Conversion Lift tool to include multiple campaigns at once. Facebook will segment a marketer's target audience into multiple groups -- one for each campaign -- and compare each to a control group. This allows advertisers to test multiple ideas all at once and very quickly. Facebook benefits from providing the most value to advertisers because its bidding system encourages advertisers to bid the true value of their ad.

Twitter, meanwhile, only allows marketers to test one ad against a control group. This might be because its user base is significantly smaller than Facebook's. Facebook has 1.49 billion monthly active users, while Twitter has just 304 million users on its app and website. A Facebook advertiser could test roughly nine different ad campaigns at once and see a similar audience size to running a single conversion lift campaign on Twitter.

Theoretically, enabling users to test more should lead to more ad spend as marketers find exactly what works on the platform and pay up for that value. Twitter's conversion lift reports is an excellent start, and one that's been a long time coming. But for Twitter to compete with Facebook's ad spend, it still needs to grow its audience.

Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A and C shares), 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.