Twitter would also like brands to buy directly on the exchange
and has reached out to at least one, a multichannel retailer, per
an executive familiar with the matter. That Twitter would offer a
seat on the exchange to a brand marketer (as opposed to only
allowing advertisers to buy inventory only through an intermediary,
as on FBX) isn't unprecedented. Brands such as Procter &
Gamble and Kellogg's have held
seats on Yahoo's Right Media, and Right Media even implemented a
requirement in early 2012 that brands hold a seat on the exchange
to access its inventory. In the cases of P&G and
Kellogg's, the brands' seats served as a proxy for the bidding
platforms they used to do the actual buying.
With an exchange, Twitter would benefit from advertiser's
growing adoption of display retargeting and, more broadly, the
practice of buying online advertising through exchanges via
automated real-time auctions. "More advertisers today are ready to
make bigger bets with retargeting and exchange-based buying because
they're up to speed with Facebook or Google or Yahoo or AOL. The fact that some of the
major advertising publishers have been doing that for a little
while means that new players to the market can court advertisers
with some experience doing this," said eMarketer's
VP-communications Clark Fredricksen.
Facebook paves way
The success of FBX, in particular, would help Twitter's pitch to
buyers. Facebook's platform has helped reconcile two of online
advertising's biggest trends -- automated buying and non-standard
ad units. Last fall FBX partners
said they were seeing higher conversion rates at lower
acquisition costs than other exchanges, and earlier this month
social-ad firm Nanigans
FBX ads running in users' desktop News Feeds (likely most
comparable to Twitter's potential product) return a 48.4% lower
cost-per-click and 17 times higher clickthrough rate than the FBX
ads running in the more easily overlooked right rail.
However Twitter could suffer from comparisons with Facebook. For
example, FBX reaches more than a billion people, making it more
likely to find someone who recently visited a brand's site, which
helps explain its rapid adoption. Facebook Chief Operating Officer
said during the company's earnings call in January that 1,300
advertisers are cumulatively purchasing a billion impressions a day
using FBX, and one FBX partner said earlier this month that the
exchange accounts for one out of every three real-time bidding
impressions it buys.
million-plus active user base is significant, but relatively
less of a catch-all. Karsten Weide, VP of digital media and
entertainment at IDC, said advertisers might need to dial down
their expectations because of Twitter's size relative to
Facebook's. But, he said, "Twitter is big enough to enjoy some of
[the RTB interest FBX has opened up]. I think it will work well for
Twitter's typical strategy when rolling out a new ad-targeting
feature is to claim it's not increasing the number of ads in users'
feeds. If that's the plan with the exchange, the law of supply and
demand could mean higher pricing for direct-response advertisers
accustomed to FBX's bargain rates. However the contrast might not
be that stark, assuming Twitter's retargeting ads fetch bid prices
similar to FBX's higher-priced in-feed placements.
An ad exchange wouldn't be the first time Twitter borrowed from
Facebook's ad-product playbook. Although Twitter was the first of
the two social networks to show ads in users' feeds and to offer
keyword targeting, it has also introduced a number of ad
products over the last year that Facebook had previously launched,
such as interest-based targeting, an ad API and the opening up of
its self-serve platform. And last week Bloomberg
reported that Twitter may launch its own take on Facebook's
Custom Audience targeting option that allows marketers to aim ads
at users in their customer databases.
Whenever Twitter decides to introduce that customer-targeting
option and an exchange, the company's ad revenue ought to see a
significant boost beyond the $582.8 million eMarketer has estimated it to reap this
year and the $950.0 million it's projected to receive next year.
That could help the company avoid any pre-IPO pushback or at least
stanch any potential post-IPO sell-off.
"This is great news. Twitter has been kind of slow to roll out
advertising. They've been around for a while, and their advertising
revenue is still kind of small. If there's going to be a TWX or TX
[to borrow Facebook's nomenclature], then it's going to be right on
the money," said Mr. Weide.