Twitter Inc. Now Knows Exactly Where You Are. And That's a Good Thing.

Twitter partnered with Foursquare to offer better geotagging features. Source: @Twitter

At its analyst day in November, Twitter's Consumer Products team outlined several initiatives to increase its user retention after someone visits its website or app. Among its efforts was to boost the number of location-specific tweets users saw when they signed up. The company found that users who saw location-specific tweets were more likely to revisit the app or website within 30 days than those who didn't.

Twitter recently made a move to improve its location services by partnering with Foursquare. Foursquare's location data power several social-media sites, including Pinterest and Flickr, as well as the mapping app Waze. It previously powered Instagram's location services before it was replaced by Facebook's homegrown data.

The choice by Twitter can help it better understand its existing users and improve its onboarding process for new users -- that is, if people use it.

Solving a problem, but not the big problemTapping Foursquare's data is certainly a step up from Twitter's previous implementation of location awareness. Previously, Twitter users could tag a tweet for relatively general locations such as Ferguson, Mo., or Brooklyn, N.Y., but granular information such as venues was out of reach for Twitter. The ability to add specific information of a user's whereabouts is a welcome feature in competing services such as Facebook.

But the bigger problem for Twitter is that nobody seems to be using the service's location-based features. Only about 2% of tweets use geotags to identify a user's location at the time he or she sends out a message. That leaves Twitter reliant on the location people used to sign up for their accounts, as well as the place they claim to live -- both of which are unreliable -- for collecting local-specific tweets.

Perhaps the ability to add more granular details will spark an increase in use of the geotagging feature. A Pew study from 2013 found that approximately 5% of Facebook users enable the geotagging feature. Users who turn on geotagging typically send out more messages, which means the percentage of posts is higher.

Foursquare's data alone may give a slight boost to those who use the location-based features in Twitter, but Twitter may need to find a way to give all of its users an incentive to use its geotagging feature and provide more accurate location data.

And it's working on itTwitter recently filled several positions for geo-engineering jobs and brought on Foursquare geo lead David Blackman in December. The company is spending heavily on research and development, and location seems to be an area of significant investment.

Twitter may be able to develop ways to use location data to provide more interesting tweets to its users. It could give users incentive to turn on geotagging as a way to provide a better user experience to users who want to read about local events and discover more accounts from people and businesses near them.

Such a feature would rely heavily on the network effect and the 2% of tweets that already use geotagging. If Twitter fails to build a network of users who tag their location, the incentive falls flat.

Why location is important to TwitterAs I mentioned, more location data can help Twitter provide a better user experience by surfacing more relevant tweets. That applies to both new users who just signed up and existing users who don't sign in very often -- or as often as Twitter would like. In effect, more location data should help Twitter increase the amount of engagement on its platform, which means more advertising opportunities.

On top of that, more -- and more accurate -- location data will lead to better ad targeting. Twitter will know the locations users care about and visit, leading to better targeting capabilities for small businesses. Currently, Twitter has just a few thousand small businesses advertising on its platform, compared with the hundreds of thousands advertising on Facebook. Most of Twitter's advertisers are big brands, where targeting is less essential. But more location data could provide a better way for small-business advertisers to find users to target, leading to higher ad prices for Twitter.

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Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Facebook and Twitter. The Motley Fool owns shares of 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.

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