Time: 1 1/2 hours
By AMIR EFRATI
Twitter Inc. is a hot property among investors, who are pumping up the company's valuation. But whether the start-up can live up to its multibillion-dollar appraisal depends on the likes of David Szetela, who holds the purse strings of numerous small and medium-sized advertisers.
Mr. Szetela, owner of online-ad agency Clix Marketing in Louisville, Ky., has had
his clients pay for ads on Google Inc.'s Web-search engine and on social-networking site Facebook Inc. But in January, a Twitter representative approached him to try advertising on the service, which lets users broadcast messages with 140 characters or less called tweets.
Twitter CEO Dick Costolo has hired ad sales directors and staff.
So Mr. Szetela bought ads on Twitter for five companies, including a health-supplement retailer. He also used Twitter ads to promote a book by venture capitalist Guy Kawasaki called "Enchantment," targeting users who expressed interest in the book's topic, persuasion tactics, by tweeting about it or searching for related information using Twitter's search feature.
The upshot: While Mr. Szetela spent more money advertising the book on Google and Facebook than on Twitter over the past few weeks, he said the Twitter ads—which cost more than $4,000 in total—led to more preorders of the book. The orders were in the "high hundreds," he said, adding that Twitter's "ability to target so efficiently and interject advertisements into a social conversation is unique."
Whether Twitter can woo more advertisers like those in Mr. Szetela's roster is crucial. Small and mid-sized advertisers are the ones that propelled Google's search-ad growth during the last decade and they are also boosting Facebook's growth.
While Twitter has had some success in selling ads costing as high as $120,000 for a 24-hour period to brand names such as Coca-Cola Co., small businesses spend roughly the same amount as big brands in the $26 billion U.S. online-ad market, according to David Hallerman, an analyst at research firm eMarketer.
"Twitter has built an audience, but in order to achieve the scale and revenue that Google and Facebook are seeing it needs to show that marketing dollars spent on the site can perform well for mom and pops, not just big companies," said Jonathan Strauss, chief executive of Snowball Factory Inc., which tracks marketing campaigns on Facebook and Twitter.
Twitter's effort to woo small advertisers, begun in December, comes amid investment froth around the start-up. In low-level talks with potential buyers, representatives of Twitter have said it is worth several billion dollars more than the $4 billion valuation set during a financing round in December, people familiar with the matter have said. More recently, JP Morgan Chase & Co. has been interested in buying a stake in Twitter, people familiar with the matter said.
The attempt to harness small advertisers is also the latest move by Twitter to tap its base of more than 200 million registered users. The company last fall elevated then-operating chief Dick Costolo to CEO, replacing co-founder Evan Williams.
[TWITTER]
Mr. Costolo, a former Google executive, had been charged with turning Twitter's popularity into a full-fledged business and had started hiring ad sales directors and staff—including Adam Bain, who previously ran revenue efforts for websites owned by News Corp., to be president of global revenue at Twitter.
Overall, Twitter, which was created in 2006 and began working with advertisers less than a year ago, is expected to generate $150 million in ad revenue this year, up from $45 million in 2010, according to eMarketer.
The growth is expected to come in part from a self-service system later this year that will let more small businesses buy ads on Twitter, much like Google's AdWords program. Twitter expects prices for some ads to rise as advertisers look to target the same users.
In January, Mr. Bain began a campaign to enlist more smaller advertisers by letting the direct sales team, which now numbers around 35 people, contact businesses that had previously expressed interest in advertising in Twitter.
Mr. Bain said Twitter ads "can deliver value for any business, large or small, by giving them new ways to amplify their existing Twitter presence and accelerate awareness and conversations about their products."
Digits
* Twitter's Ads: Here's What Works
Twitter has more than 125 big brands and more than 100 small- and medium-sized advertisers on the site, a person familiar with the matter said. Several small advertisers said in interviews that their early experience with Twitter was promising and they expected to allocate part of their future ad budgets to the site.
Because many Twitter users access the site from mobile devices, the company eventually will let advertisers target users based on their location, at first based on their country or city, a spokesman said. The company, which has about 350 employees, has begun hiring ad sales staff in Japan and London.
Twitter charges advertisers for each time a user selects an ad. Twitter's ad formats include Promoted Tweets—advertisements that look like regular tweets—as well as Promoted Trends, currently utilized by big-name advertisers, which allows a big brand to show an ad on a list of hot topics on Twitter's home page. It also offers Promoted Accounts, where a marketer pays to have Twitter recommend that users "follow" the tweets of a particular account.
Not every early tester is convinced Twitter's ad program will be as effective as Google's AdWords. Stewart Langille, vice president of marketing at Mint.com, a unit of Intuit Inc. that helps people track their finances, said ads on Twitter in recent months helped the site find new potential customers but didn't cause many of them to sign up for a Mint.com account. He added that "it's very early" and the system could improve.
A Twitter spokesman said ads are "a work in progress."
This is a new approach for social networking sites. I feel like Twitter is something completely different and there are no direct competitors so it doesn't surprise me that their advertising structure is completely different as well. As with Myspace and Facebook, time with tell how long they will stay around.
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