Twitter Inc. Uses Its Biggest Strength to Target Ads

Source: Twitter.

After a power outage caused some of the lights to go out during the third quarter of Super Bowl XLVII in 2013, the folks behind Oreo cookies were quick to post to Twitter with a tweet that read, "Power out? No problem."It was accompanied by a dimly lit Oreo and the caption "You can still dunk in the dark."

It was immensely popular among Super Bowl watchers, garnering more than 15,000 retweets, and 6,600 favorites. Most of all, it exemplified Twitter's engagement with live-event audiences.

Twitter recently introduced a new feature that will allow advertisers to take advantage of its strength in live events by targeting users based on the events they follow on the social network.

Join the conversationTwitter sets itself apart from other social networks by facilitating conversations about current events. Its trending hashtags, which were co-opted by Facebook and just about every other social network, and the ability to search for topics, allow users to find what others are talking about and join the conversation.

Advertisers were capable of doing the same thing, but it wasn't always an easy process. They had to select the right keywords to target (and not target), and guess at the kind of users who would see their ad. In this way, it wasn't much better than buying a spot during the television broadcast of a live event. Sometimes that's valuable, like during the Super Bowl, but other times, it might not be.

Twitter aims to solve these problems by automating the targeting around certain events, providing a calendar of upcoming events for advertisers to peruse, and offering demographic information about the people who engaged with the event the previous year. It's hoping those features will encourage more ad buying, and ads that are more relevant to Twitter users.

In the first quarter of the year, Twitter reported lower-than-expected revenue from its direct-response ad units. While the company put the blame on advertisers balking at higher prices, Twitter could make up for that factor by improving conversions, because it now gets paid per conversion.

Twitter's ad-targeting capabilities aren't nearly as advanced as Facebook's. But ads that are naturally part of the conversation, like the Oreo Super Bowl ad, have a much better chance of converting better, and putting revenue back on track.

A focus on curationTwitter's upcoming Project Lightning feature may also benefit from the event-based advertising. Project Lightning will curate top tweets, images, and videos from the biggest events every day, providing an entirely new experience for users.

Simply inserting branded advertising into the middle of the stream, similar to how Snapchat monetizes Our Stories, is one way to monetize the new feature. However, more native content based around the event will likely perform better, and allow Twitter to bring advertising to the feature more quickly, because it's less likely to deter viewers.

Twitter is positioning Project Lightning to increase engagement on its social network among active users, as well as logged-out visitors, which it says total more than 500 million per month. While Twitter doesn't have any targeting data on visitors, the curated feeds they select to view in Project Lightning can provide it a reasonable guess as to the kind of content those visitors are interested in. That data can be used on future visits by use of cookies, or other data stored within the app.

Beating Facebook where it canTwitter will never be as ubiquitous as Facebook, and while its interest graph may prove more valuable for some of its users than Facebook's social graph, there's a big hurdle for Twitter users to get over before their targeting data accurately reflects their interests. But where it excels is in live events, which provide an excellent opportunity to boost ad conversions. After the first quarter's disappointing results, perhaps the new feature will turn things around 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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