Twitter: Simple Advertising Could Lead to a Successful IPO

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ADOTAS — In true microblogging fashion, Twitter recently announced its IPO with a 140-character tweet.

Over 200 million people use the communication tool globally, and while the IPO has been expected for years, Twitter is only now taking advantage of its positive revenue from advertising.

Bringing back the tech sector? Twitter’s IPO is poised to not only give added spark to the social media company, but also reinvigorate the technology sector itself. According to recent estimates, Twitter could be valued at more than $10 billion, and may very well raise hundreds of millions of dollars with an IPO. This would make it the biggest technology IPO since Facebook’s $16 billion stock sale in 2012…but Facebook’s quick decline after its IPO has left a shadow over the tech market.

Technology IPOs counted for about 17 percent of the overall IPO market during 2013. In contrast, technology offerings made up 35 percent of new stock sales in 2011 and 30 percent during 2012. Although the overall increase in number of offerings is higher, the tech market as a whole hasn’t experienced this increase.

A turning point? However, Twitter’s IPO could boost confidence and mark a turning point for the larger market. In order to overcome the “Facebook Effect,” Twitter is taking a different approach to valuation. The company doesn’t want to overprice its shares, and doesn’t want to offer too many, either.

The “less is more” attitude has paid off in its advertising program as well, so far. While Facebook has thrown multiple advertising programs (some successful, others less so) and frustrated both members and advertisers alike, Twitter is more focused. If it wants to leverage its IPO, however, it may need to expand its horizons.

What about revenues? All revenue for this year ($600 million) and next year ($950 million) comes from three advertising options. They are integrated entirely into the microblogging platform – no banner ads or flashing lights. The ads can be viewed on a web browser or on mobile devices.

The only downsides to the Twitter advertising programs are the lack of targeting. Although there are options for delivering to users of a certain gender, age or interest, this information is only voluntarily provided by Twitter users. In addition, the advertising program is focused mainly on the United States, and just 1/5 of ad sales come from overseas.

Promoted tweets are the most common form of advertising on Twitter. Advertisers create their own 140-character message, and then pay a fee to have it inserted into the message stream. Users will see ads based on their age, gender or keywords of interest.

Online media buyers can set parameters like target audience and bid price into a system that submits the bids automatically and delivers the ads. Ads are only billed when someone interacts with an ad – retweeting, commenting on it or favoriting it. According to Twitter’s data, only 1 to 3 percent of ads are interacted with.

Twitter has a unique ad delivery system that isn’t solely based on price. It also gives priority to ads that previous viewers have found engaging or relevant. Because virality is rewarded, many advertisers choose to use photos and videos to encourage sharing.

Trending topics is another ad channel for Twitter. They appear alongside the main Twitter feed, and represent the top 10 most popular topics of discussion. For a flat fee, advertisers can get a spot on the list and their “promoted trend” is clearly labeled as such. The fee for this program varies by country, but is $20,000 for 24 hours of exposure to Twitter users in the U.S.

Finally, the “suggested accounts” ad channel allows advertisers to pay to appear at the top of the list of new accounts that Twitter suggests to users. This can help a brand increase its list of followers.

In addition to existing ad programs, Twitter has prepped itself for the IPO by making some strategic acquisitions. Although simplicity has served the platform well so far, the company will need to diversify. To that end, it agreed to acquire MoPub several weeks ago. The startup places ads inside of mobile applications and acts like a middleman. MoPub auctions off two billion ad slots a day in popular apps, which is in stark contrast to how Twitter performs its advertising. It may be used to help Twitter streamline the self-serve advertising platform.

With a conservative estimate, reliable advertising channels and smart acquisitions, the Twitter IPO could mean good things for the company, for investors and for the tech industry overall.

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