Since advertisers provide 87 percent of Twitter's revenue, investors would be wise to seek their opinion before forming their own. At this stage, it's best described as cautious optimism.
Twitter's reach, real-time nature, and mobile activity among its 215 million active users make it an attractive platform for brands. What marketer wouldn't want to be on the same platform President Obama turned to first to announce his victory in 2012?
But Twitter's S-1 prospectus and the subsequent online chatter reveal five key needs that must be addressed before the year's most anticipated IPO gets the ad industry's vote.
Advertising today is data-driven. Brands pay more to reach the right people. With Facebook, LinkedIn and Google promising interest-based ad targeting, Twitter must follow suit.
Unfortunately Twitter's Interest Graph for each user isn't as robust as its competitors. Ads can be targeted based on what users tweet and engage with, but profile and demographic data is thin in comparison.
What are Twitter's plans to get more data from each user beyond who they follow and what they say?
More Ad Formats
Twitter's simplicity is its greatest strength and toughest weakness. The same clean interface that makes it easy for users to create and distribute short tweets anywhere presents a challenge for advertisers. How can they inject themselves into the flow without being too intrusive?
Facebook and LinkedIn share a similar challenge -- they too are each a social medium, not an advertising medium -- but they have more real estate and ad products to work with. On Twitter, advertisers can choose between interrupting the stream with promoted tweets or paying their way into promoted trends and accounts.
Vine and #music are exciting new products. Innovative ad programs like Twitter Amplify are promising. What additional products and ad formats does Twitter have on the roadmap?
Facebook clearly presented itself as a pay-to-play platform for brands long before it went public. To support this stance and attract more advertising dollars it created the Preferred Marketing Developer program, hired top talent to lead agency relations, and poured money into its free insights tool. It also built Facebook Studio, a repository of case studies and inspiring campaigns.
Twitter spent 27 percent on marketing and sales as a percentage of revenue in 2012. This is high compared to Facebook's 12 percent allocation leading up to its own IPO but the results are less obvious to marketers. And the self-serve ad platform is only available in the U.S., meaning small businesses in all other countries still can't advertise.
What new programs will Twitter bring to marketers and ad agencies?
Twitter charges on a pay-for-performance basis. Advertisers only pay when a user follows a promoted account or engages with a promoted tweet. That could mean a clicked link, an expanded tweet, a reply, a retweet, etc.
This is a smart model but advertisers are increasingly looking for proof of effectiveness. Do retweets result in more than just increased brand awareness? Facebook's sales pitch has evolved away from its early presentations about Likes, shares and comments into ROI-focused discussions.
How will Twitter make it easier for marketers to justify their ad spend?
Facebook built APIs for ad management and insights in 2007, allowing developers to make money off its platform at no charge. Many responded by building products Facebook didn't offer and the Facebook ecosystem was born. Along with it came countless more reasons for users to engage with friends and brands. More advertising dollars followed.
The Twitter ecosystem is significantly less robust with just three million apps, 28 certified products, and four data resellers. How does Twitter plan to attract more developers?