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Video content is remarkably important for companies in social media, and Twitter (NYSE: TWTR) is making a big move in this segment. The short-message social network is upgrading its Twitter Amplify video-ad platform, and it's now allowing select users to make money from their video creations. What does this mean for investors in Twitter stock?
What Twitter is doing
With the recent upgrade, advertisers can buy video ads against all kinds of content based on a particular category. This means that an existing deal between publishers and advertisers is no longer necessary in order to monetize a specific video. The offering is only available in beta version to select publishers and advertisers at this stage, but Twitter is planning to expand it globally over time.
The new offering is quite simple and easy to use. Approved creators just need to check a monetization box prior to tweeting. After this is done pre-roll ads, meaning the short video ads that typically play before the selected video, will run against the content. Publishers will then receive a generous share of revenue from those ads.
Advertisers can select the categories of video content where they want to run pre-roll video ads, and they can also include additional audience-targeting metrics. Twitter's technology inserts the pre-roll ads into the most relevant videos being watched by the selected audience.
Twitter is clearly imitating Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) YouTube platform with this move. Interestingly, Twitter is being more generous than YouTube in terms of revenue sharing with publishers. While YouTube gives 55% of the money to creators, Twitter allows creators to retain a larger 70% of revenue. This is reportedly the same revenue-sharing agreement that Twitter has with big video partners such as the NFL.
Why Twitter is doing it
Twitter is facing a major slowdown in growth. The company reported 313 million monthly active users during the second quarter of 2016 -- an increase of only 3% versus the same quarter in 2015, and a minuscule 1% expansion from the first quarter of 2016.
By comparison, Facebook (NASDAQ: FB) ended the quarter with 1.71 billion monthly active users, growing by 15% year over year. Even if we focus only on daily active users, Facebook has 1.13 billion daily active accounts, jumping by 17% year over year last quarter. Twitter pales in comparison to Facebook, which shows that Twitter is delivering user-growth metrics well below the company's potential.
Social-media companies have been aggressively betting on video lately. According to Facebook CEO Mark Zuckerberg, video is one of the most important trends in the industry. In his own words, during the Barcelona Mobile World Congress: "I just think that we're going to be in a world a few years from now where the vast majority of the content that people consume online will be video."
Twitter is creating more monetization opportunities with this move, but perhaps more importantly, the company is also increasing incentives for video creators to deliver more and better content. Since video is a big part of the puzzle in social media, this could help the company in terms of attracting more users over time, a key area where Twitter needs to improve performance.
Will it be enough?
Even if Twitter is sharing a larger share of revenue with producers than YouTube is, the social network is in a disadvantaged position to compete. YouTube has over one billion users, nearly a third of the online population. In mobile alone, YouTubereaches more 18 to 34-year-olds and 18 to 49-year-olds than any cable network in the U.S. More than half of YouTube views come from mobile, and according to data from the company,the average viewing session on mobile is an impressive 40 minutes.
Viewers and content creators attract each other to the biggest platforms, so size is a major advantage in the business, and Twitter is fighting an uphill battle against an industry juggernaut like YouTube. When it comes to online advertising, Alphabet's Google is the industry king by a wide margin, and YouTube comes second to none in online video. Because of scale advantages, chances are that this is not going to change anytime soon.
Twitter is taking steps in the right direction by expanding its video monetization platform. Nevertheless, the company still has a long way to go before this can be a real game-changer for investors.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Andres Cardenal owns shares of Alphabet (A and C shares). The Motley Fool owns shares of and recommends Alphabet (A and C shares), 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.