iTextUSA/August 2012
Twitter is winning over marketers that target users of wireless devices, stepping up pressure in mobile advertising against larger competitors Google (GOOG), Apple (AAPL), and Facebook (FB).

Mobile advertising on most days outpaces revenue from desktop-based marketing spots, says Adam Bain, president in charge of global revenue at San Francisco-based Twitter. Prices for mobile ads, based on an auction system, can be higher than those for desktop counterparts, he said.

Twitter, which a majority of users access through mobile devices, is counting on wireless ads to boost revenue and woo marketing dollars away from Facebook and Google. Rejecting the common banner ad or large graphical elements on Apple’s iAds, Twitter has tailored marketing messages to work within regular posts on its service, making them less-distracting and easier to fit on mobile devices’ small screens. “We think we’ve cracked the code on a new form of advertising,” Bain says in an interview. “They’re completely integrated within the experience, not just bolted onto the top or the bottom or the side of the viewing experience, like a traditional display ad is in digital.”

Aaron Stein, a spokesman for Google, and Trudy Muller, a spokeswoman for Apple, each declined to comment. “Mobile is important to us and we’ve seen powerful indicators that when people see sponsored stories on mobile they engage,” Brandon McCormick, a Facebook spokesman, said in an emailed statement. “In fact, people generally engage with sponsored stories on mobile as much as they do on the Web.”

Twitter, while still smaller than Google and Facebook, expects to generate at least $1 billion in sales in 2014, two people with knowledge of the matter have said. Researchers at EMarketer have said that in 2014, Twitter ad sales, which account for almost all its revenue, will rise to $540 million from $139.5 million last year. The closely held company doesn’t release sales figures. Mobile is a key part of its growth effort. U.S. spending on mobile advertising is expected to rise 80 percent this year, to $2.61 billion, and then more than triple, to $10.8 billion in 2016, according to EMarketer.

Twitter’s strategy centers on mobile, with an early version of the service enabling messages to be shared over texts. When preparing its advertising system, which was started in 2010, Twitter “knew it wanted something that took advantage” of its mobile roots, Bain said. Twitter’s most popular ads, Promoted Tweets, let companies essentially buy a post on the site and highlight the message to reach a wider group of users. The spots are labeled, so users know they are ads.

Roll-out of a full mobile-ad service, after some tests last year, began in March. The ads are paid for when a user engages with them, such as clicking on the message. Sephora USA plans to use mobile advertising on Twitter after having previously used desktop-based ads on the service, says Bridget Dolan, vice president of digital marketing at the cosmetics retailer, part of LVMH Moet Hennessy Louis Vuitton (MC:FP). Customers are already using Twitter to show pictures of purchases, or posting shots after a Sephora makeover, she says. “Clients are including Sephora in their Twitter conversations,” she says, adding that the retailer has used other formats, including Google and Facebook. “We realized that this is an opportunity for us to do mobile advertising.”

Andrew Solmssen, a managing director at Possible Worldwide, a digital-ad agency of Dublin-based WPP (WPP:LN), says that “a lot of the industry experts were really concerned that just given the smaller amount of real estate, that having Promoted Tweets show up in your stream was going to be a problem. And by and large, that actually hasn’t been the case.” A few clients of the agency have signed up for Twitter’s mobile ads, and there have been some “pleasant surprises” on how well people are engaging with the ads, he says. Twitter’s ads give users enough to be noticed while not asking for a lot of time for engagement, Solmssen says.

That’s in contrast with Apple’s iAd, which offers advertising on its own mobile devices and often features graphically based messages. “The value proposition for iAd has always been it’s an immersive experience,” Solmssen says. “That can be great. That also means a bigger consumer commitment. And that’s harder to get.”

Research firm IDC predicted that Apple’s share of the U.S. mobile-ad market would drop to 15 percent last year, from 19 percent a year earlier. Google was predicted to rise to 24 percent, from 19 percent. In October, Google Chief Executive Officer Larry Page said Google’s revenue from mobile advertising was on pace to reach $2.5 billion on an annual basis. That was an increase from $1 billion a year earlier. The Mountain View (Calif.)-based company had total revenue of $37.9 billion in 2011. Still, those mobile spots are part of a drag on average prices for ads on the service. During the first quarter, the average cost per click—a measure of what Google can charge advertisers—declined 12 percent. The mobile ads include banners, which sit on mobile applications, and search-based ads.

In May, Facebook also said mobile ads were proving to be a challenge. Revenue growth is failing to keep pace with the increase in users, partly because of rising mobile usage, the Menlo Park (Calif.)-based company said in a filing. Facebook didn’t roll out its mobile-ad service until March, giving it little time to help increase total revenue growth. And a recent report by Facebook ad service AdParlor said click-through rates on the mobile ads are 25 times better than on regular ads.

The mobile ads are similar to Twitter’s Promoted Tweets. Companies pay for the so-called sponsored stories, which are featured after a user has engaged with the ad. That doesn’t mean Facebook will find as much success as Twitter on mobile, says John Noe, chief executive officer at Rokkan, a digital agency in New York. Unlike Facebook, Twitter is a service whose users are accustomed to public messages from companies and politicians. “Facebook is so much more an intimate place,” he says. “Facebook still has a notion of privacy. So I think they’re a little bit of a tougher challenge.”

Still, while Twitter’s mobile ads may be an improvement over pure banners, it’s not clear they will cut through the clutter and attract users who are increasingly savvy about marketing, says Brian Yamada, executive director of channel activation at VML, a WPP digital marketing agency based in Kansas City, Mo. Promoted Tweets have parallels to “advertorials” in print media that were explored long ago, he says. “It’s not necessarily a majorly unique, original idea,” Yamada says. “It’s helpful, but users still are aware” when they’re being marketed to.

Twitter has been trying to improve targeting to make the ads more effective. Those efforts include letting companies specify what kind of mobile device they want to target, such as handsets using Google’s Android operating system or Apple’s iPhone.
“Ads are tweets first and ads second, which makes all the difference in the world,” Bain says.