The crazy kids at Twitter have been busy turning a revolution into a business. Led by ex-Googler (and ex-improv comedian) Dick Costolo, the five-year-old company bagged $260 million in revenues last year on the way towards justifying their $8 billion secondary market valuation. Costolo has deftly nudged the Twitter team towards subtle forms of monetization centered on sponsored tweets and sponsored trends that allow corporate marketers to place their message front and center. This is part of the now nearly decade-old shift towards what Web guru John Battelle has long called conversational marketing.
In the next few months, Twitter plans on rolling out tools to help local merchants also buy tweets. To date, Twitter has primarily targeted larger businesses with bigger marketing budgets ranging from several thousand a month well up into the hundreds of thousands. McDonalds and GM have played the game, albeit with serious investments in monitoring social media and responding to comments in the stream relating to their sponsored tweets and trends. For their part, many local merchants that are already Twitter savvy are doing it for free, tweeting deals and messages to their followers and responding to comments. So the obvious question is, will they pay for what they are getting for free? And how can Twitter add additional value for local merchants bombarded by marketing tools claiming to solve their problems?
I know a number of local merchants who are aggressive users of Twitter. Their answer to me has been, thus far, it depends. And what they recognize is this: For Twitter to prove real value and garner the additional revenue for sponsored deals from Mom-and-Pop shops, it needs to move from becoming a vehicle for communication to a vehicle for discovery. At present, savvy merchants use Twitter to communicate with existing followers. These are usually people who have had physical contact or actually used the good or service on offer. (They also can use Twitter as a customer service channel, but that largely relates to bigger companies with more complex services – phone companies and the like). And it works beautifully for local merchants who man the channel and regularly Tweet useful things.
But what happens when these merchants try to use Twitter to spark interest from people they never met before and have no real connection with? Twitter apparently plans to address this by directing the sponsored Tweets at people who are more likely to be interested in this local trend or Tweet. How granular they can go is of critical importance. I am a fan of brick-oven pizza. But I won’t travel more than a few miles out of my way to get it. How likely am I to find a brick-oven pizza deal or a Tweet related to this topic within my geofence will determine the value of this advertising medium to me.
Temporal aspects of the sponsored Tweets will also be essential. Just as display ads served incessantly condition Web surfers not to look, ever present Tweets that are not temporally relevant (a pizza Tweet served at 10 pm on a Sunday night) will encourage the development of “Twitter blinders”. On the subject of time, one thing that the local merchants do not have is time. So Twitter’s core value proposition that merchants pay only for actions — retweets, follows and clicks — will seem less alluring to small shops pressed for time and less willing to experiment.
That said, if Twitter makes it easy or clear enough to buy, then they can tap easily into the fast growing cadre of small businesses that are already buying ads online via self-service — a group that can only grow. Costolo, too, has shown deference to the medium, weaving ad offerings artfully into the Twitter ecosystem in ways that seem natural.
With a ton of money in the bank, too, Twitter is in the game for the long-haul. Nearly a decade after Google went self-service with ads, only now are we starting to see serious penetration at the local level of the self-service business model. And, like Twitter, Google could easily have poisoned the search engine well by pouring on too many ads and turning off searchers. So Costolo is entirely justified in his go-slow approach. In the local biz, expect a slow-burn from the Twitter kids as they learn more about Mom-and-Pop and make sure not to offend the faithful. And, frankly, that’s just fine.
Alex Salkever is an executive at a cloud computing company and a former technology editor of BusinessWeek.com. The views expressed in his column are his own and not those of his employer. His Personal Fight column appears every Wednesday on Street Fight.