In an effort to expand its user base, over the next few weeks, Twitter is rolling out a feature that enables the sharing of tweets. With just one click, users can email tweets to those not on the platform – a change from the current setup through which users can only share tweets with twitter account holders.

This feature should enable Twitter to expand beyond its predominant Gen X user base to an older demographic. According to a study done by the Reuters Institute for the Study of Journalism, Gen X is more likely to find news via social while those over 45 are more likely to find news via search. Those over 45 are also more likely to share news via email (only 15% share through Twitter). If current Twitter users start to email tweets to those not on the platform, it is likely that they are sharing with their peers along with Baby Boomers. As a result, Twitter can expand both its current user base and add an additional demographic of users. Attracting a new generation of users has positive implications for Twitter’s monetization strategy.

One of Twitter’s main sources of advertising revenue is promoted tweets. Promoted tweets are targeted to users based on multiple factors including keywords, interests and location. If Twitter is able to expand its user base, the number of searches and tweets conducted on the platform will increase. In addition, a more diverse array of topics will be discussed and more brands will be followed. Consequently, more advertisers will be interested in advertising on Twitter as there is a higher likelihood that they can target a relevant segment. A growing user base also attracts advertisers as they will have more reach. With additional advertisers in the funnel, there will be increased competition in the auction to bid on keywords. More competition in the marketplace leads to higher pricing and therefore better monetization for Twitter as it will be able to charge a higher cost per engagement.

While growing the user base and expanding into more demographics sounds promising, it is no easy feat.  Jonah Peretti said it well in a recently published New York Times Article: “Twitter is a simple service used by smart people, Facebook is a smart service used by simple people.” This is not to say that non-Twitter users are not smart. It does, however, indicate that Twitter is not an easy service to understand. First time users face a steep learning curve – they need to figure out how to create a tweet, what a hashtag is, and how to search for a topic. It may even take a “how-to” video or a current Twitter user to explain how to use the service. As a result, it is less likely that a non tech savvy individual will quickly adopt the service. Twitter can mitigate this challenge by making a concerted effort to educate potential users. One way to do this at scale is to educate agencies through webinars so that the agencies can pass along their learnings to their respective clients.

Despite Twitter’s challenge to grow its user base, the company is seemingly in a great position to monetize. Mobile has been become the most frequent access point to Twitter (60% of users access Twitter via mobile, according to CEO Dick Costolo), and while other social sites such as Facebook are struggling to monetize on the mobile platform, Twitter has already demonstrated success. The short structure of a tweet – maximum of 140 characters in length – allows users to easily read and interact with tweets on a small screen. Additionally, in-stream promoted tweets have the same layout as organic tweets which are more easily digested and far less intrusive than banner ads.  If Twitter can continue to grow its 500M user base and continue to have success monetizing mobile, it should be in a great position to either sell or IPO when the company is ready.

 

Sources:

[1]http://wireupdate.com/twitter-to-add-new-tweet-email-feature-in-the-coming-weeks.html 

[2]http://www.stateofsearch.com/facebook-e-mail-popular-news-sharing/ 

[3]http://www.nytimes.com/2012/08/19/magazine/a-critic-makes-the-case-for-critics.html?pagewanted=all 

[4]https://business.twitter.com/advertise/promoted-tweets/ 

[5]http://gigaom.com/2012/11/20/surprise-twitter-study-shows-that-promoted-tweets-result-in-sales/

[6]http://techcrunch.com/2012/07/31/twitter-may-have-500m-users-but-only-170m-are-active-75-on-twitter


 


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