For all their popularity, social networks have turned out to be barren soil for advertisers. Facebook famously has 901 million users, but it only saw $4.12 in revenue from each of them last year. Twitter has taken even longer to implement a business plan for monetizing its 140 million users. But as it reveals its strategy, it's starting to look like it may have an edge over Facebook in selling ads online.
The problem with social network ads is longstanding and simple: People don't click on them. MySpace users clicked on 4 in every 10,000 ads, hardly enough to make the site a profit machine. Facebook took a shrewder approach: mining user data to target ads, enticing users to like brand pages so that brands showed up in their friends' news feed and, more recently, putting as many as seven ads per Web page.
But Facebook's revenue growth hasn't come without irking both users and advertisers. The membership cries out every time the company makes a new effort to collect ad-targeting data on users or slip corporate brands into news feeds. And advertisers are growing disenchanted. Some are frustrated with Facebook's push to raise ad rates. Others, like GM, feel the ads aren't worth the investment.
Twitter, too, has sparked its share of criticism. It has drawn ridicule from some writers because of its apparent lack of a coherent business plan. But the site has vowed to prove itself an ad “juggernaut” this year. It expects revenue to reach $260 million in 2012, reaching $1 billion in 2014.
During the past year, as Peter Kafka noted, the company has made it easier to embed graphics and videos, giving advertisers opportunities beyond the original 140-character limit; offering brands their own dedicated pages; and building campaigns for brands such as Pepsi and ESPN.
And this weekend saw the introduction of the sponsored hashtag, when Twitter commercials that ran during a televised NASCAR race included the phrase “#NASCAR,” which redirected to a sponsored Twitter page. Most press coverage of the campaign focused on the commercials themselves, but the potential is in how Twitter is experimenting with its platform to get brands to engage with consumers.
Twitter's path to advertising success doesn't look radically different from the trail blazed by Facebook: Offer a rich-media experience on a branded page that invites user interaction. But there is a key difference in Twitter's approach that in time could give it the edge over Facebook.
That difference lies in the structure of Twitter itself: Most Twitter accounts are as publicly accessible as anything published on the Web. Facebook, by contrast, is designed to allow users to share updates only with select friends – an environment structured to allow for private conversations (albeit conversations that will be data-mined by Facebook).
The difference is subtle but significant. On Twitter, we are broadcasting to anyone with ears to hear. On Facebook, it's more like a conversation at a private party. We're comfortable with advertisements and brands in a broadcast context, but few of us would welcome them into our private conversations.
So while users have rebelled against too many sponsored tweets in their Twitter streams, they may be more willing to welcome sponsored hashtags. Twitter's new approach invites analogies to such Internet dinosaurs as the early Web domain names and the old AOL keywords. Again, a more contemporary analogy is branded pages on Facebook, but at a time when people are tiring of hearing “Like us on Facebook,” a branded hashtag carries a lot more cachet.
Twitter made a shrewd choice in selecting NASCAR as its first sponsored hashtag. NASCAR is a well-known brand with broad-based appeal, but it's also a brand synonymous with a sporting event itself. Anyone tweeting about a NASCAR race will be directing followers to a branded page. But it's unclear whether that approach will work as successfully for other brands.
Which is to say, Twitter still has its work cut out before it can make money from big brands on its social network. But perhaps the most encouraging sign that its business plan is working is the lack of outcry from users. The company is successfully experimenting with ways to incorporate ads and branded campaigns into its users' feeds without alienating them. As long as it can pull off that trick, Twitter will have a clear edge over Facebook in monetizing its social network.