Twitter (NYSE:TWTR) is always trying to get to know you better. Whom do you follow? What links did you click? What do you post? And now, it's asking "What apps do you use?" Well, not so much asking as it is just doing all of these things, including the latter, in order to build what it's calling an "app graph."
Before you get worried about privacy issues, you should know you can easily turn this feature off, and Twitter provides the simple instructions right in its help center. You should also know that companies that make their own software development kit, like Facebook (NASDAQ:FB), are able to track users across any app that uses it, and disabling that is practically impossible.
Now that we've gotten all the privacy worries out of the way, let's talk about why Twitter wants this info, and what it means for investors.
A more tailored experience
According to Twitter, the data from your app graph will be used "to help build a more tailored experience for you on Twitter." It moves toward the company's strategic vision of connecting users to their world by improving suggested users, tweets, and content to follow.
At Twitter's analyst day last month, the company noted plans to make content more personalized to address the issues it has in keeping users active and getting them on board in the first place. While the app graph provides very superficial data -- it only says what apps you have installed, not how much you use them or any other data involved with the apps -- Twitter can create profiles based on users with similar app graphs and combine them with other data it collects from new users to create a better "instant timeline" for new and "at-risk" users.
One example might be that users with Instagram, Snapchat, and other photo sharing apps installed, might be more interested in highly visual tweets from people in their email contacts or the interests they indicated at sign up. Comparatively people with the New York Time app and other news apps, might be more interested in following reporters from those news outlets.
This is all part of a larger effort to move the needle on its stagnating user growth. Last quarter, Twitter added just 13 million net new monthly active users. That's a sequential increase of less than 5%, and a decrease from the 16 million the company added in the previous quarter. A big part of the problem is that users are visiting the site and not logging in, and the other part of the problem is people are churning out of the site altogether.
Improving ad targeting
The real benefits from collecting users' app graphs -- particularly for veteran users -- is improved ad targeting. Twitter followed Facebook into app-install ads and app-engagement ads this year, and could still benefit from improved targeting on those apps, especially compared to Facebook.
Facebook has been able to grow mobile ad revenue rapidly since introducing app-install ads and following them up with app-engagement ads. In the third quarter of 2012 -- the quarter the company introduced app-install ads -- Facebook generated $153 million from mobile ads. One year later, the company generated $880 from mobile advertising, and last quarter the company took in $1.95 billion. That's a 257% annual growth rates and represents almost all of Facebook's total advertising revenue growth over the last two years.
Twitter generates an even larger percentage of its ad revenue from mobile than Facebook. Last quarter, mobile ad revenue accounted for 85% of total revenue compared to 66% for Facebook. Improving mobile ad units like app-install and app-engagement ads is key to driving revenue growth. Creating app graphs will directly benefit targeting those ad units.
Opt-out instead of opt-in
While Twitter says its collecting these data on its users to improve their experience on Twitter, the fact that its newest data collection option is opt-out instead of opt-in shows that it likely benefits Twitter just as much if not more than it benefits its users. Of course, Twitter isn't the only one that changes its data collection policies with the option to opt-out instead of opting in. Facebook has done the same thing several times in the past.
While many might complain about the changes in privacy policies and what data it collects, the average user doesn't care and often doesn't even know about the changes. Thus, Twitter and Facebook can collect these data under the guise of helping its users, when really its helping itself.
Not that I'm complaining. I'd rather see a well-targeted ad or recommendation than a poorly targeted one, but some people get a major creep-factor out of it.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.