Sept. 16 (Bloomberg) -- Twitter Inc., the microblogging service that plans an initial public offering, is outpacing its bigger competitors Facebook Inc. and Google Inc. in a crucial growth area: mobile advertising.
Ads on smartphones and tablets will make up more than half of Twitter’s ad revenue this year, according to EMarketer Inc. That puts it ahead of Facebook, which generated 41 percent of its ad revenue from mobile promotions in the latest quarter. Google, the largest search engine, is estimated to get slightly less than one quarter of its revenue this year from mobile ads, EMarketer said.
While Twitter makes up just a tiny slice of the $16.7 billion projected mobile-ad market this year, it has the advantage of concentrating on mobile from an earlier stage and from a smaller base. That may help assuage investor concerns going into the company’s IPO, as mobile has been an area that has bedeviled other Internet companies. Facebook and Google, which initially focused on online ads for personal computers, have more recently had to reshape their massive ad businesses as users spend more time on the Web via smartphones and tablets.
“Mobile is clearly for Twitter the critical piece,” said Justin Merickel, senior director of advertising solutions at Adobe Systems Inc., which has a business that helps clients advertise online. “You’ve seen them really take, I think, a forward view into how to work with advertisers in that arena. We’re excited about both the growth and the potential that we’ve seen in that business.”
Twitter announced last week that it had submitted paperwork to go public, without giving details of the time frame or financials of the offering. The company filed confidentially with the U.S. Securities and Exchange Commission through a process that will keep its S-1 prospectus under wraps until shortly before a road show to market to investors.
The San Francisco-based company, which was founded in 2006 and boasts more than 200 million users, began building its mobile-ad business last year. It accelerated the push just last week, with its planned purchase of mobile-ad startup MoPub for about $350 million in stock, its biggest-ever acquisition. MoPub specializes in helping companies quickly match publishers with ads on mobile devices.
That Twitter has already built up a mobile-ad business may put it on firmer investor footing than when Facebook went public in May 2012 in the biggest technology IPO. While the world’s biggest social-networking service initially drew investor demand, its stock slipped below its $38 IPO price on the second day of trading and didn’t reach that level again until this July.
Investors were concerned Facebook would struggle to profit from its growing base of mobile users. The Menlo Park, California-based company hadn’t begun a drive into mobile ads until just a few months before its market debut.
Now mobile ads, which made up 30 percent of Facebook’s revenue in the first quarter, will soon account for more than half of advertising dollars, Chief Executive Officer Mark Zuckerberg said on a July conference call.
Brandon McCormick, a spokesman for Facebook, declined to comment.
Google, meanwhile, has risen to become the second-most valuable U.S. technology company, thanks largely to its leading position in search-based advertising on PCs. Yet the Mountain View, California-based company is still adjusting to mobile ads because promotions on the devices are seen by some as less effective, and therefore don’t command as high a price as ads on desktops and laptops.
During the second quarter, Google’s average cost per click, a measure of advertising rates, fell 6 percent. The average smartphone-based search ad costs 40 percent less than a comparable promotion on a desktop computer, according to digital-marketing agency Covario Inc.
Aaron Stein, a spokesman for Google, declined to comment.
In contrast, Twitter’s roots are in mobile. Its 140-character limit for posts is based on the restrictions of wireless text messages. When preparing its advertising system, which was started in 2010, Twitter has said it wanted to create something that would benefit from its origins.
“This service was built from day one to be useful on mobile devices,” said Nate Elliott, an analyst at Forrester Research Inc. “Is mobile a problem? No.”
Jim Prosser, a spokesman for Twitter, declined to comment.
Twitter rolled out a full mobile-ad service in March 2012, about the same time as Facebook’s. By mid-2012, mobile advertising on most days outpaced revenue from desktop-based marketing spots, Adam Bain, president of global revenue at Twitter, has said.
With its mobile ads, Twitter doesn’t slap banners on a gadget’s screen to promote a product or service. Instead, the ads exist within the stream of messages known as tweets, with marketers paying to highlight their promotions. The ads are paid for when a user engages with them, such as clicking the message.
Among those spending on Twitter’s mobile ads are LG Mobile USA and Johnson Controls.
Twitter should more than double global ad revenue this year to $582.8 million, according to EMarketer. Twitter should get $308.9 million from mobile advertising this year, up 123 percent from 2012, EMarketer estimated.
The company has continued to roll out new services for advertisers, including helping them better target potential customers. With MoPub, the company adds a tool that will help customers buy ads quickly, in real-time, on mobile devices.
“The possession of a leading exchange allows Twitter to absorb demand for mobile ad inventory through its own properties, while concurrently applying its first party data and experience in device recognition to better monetize ad inventory for other mobile publishers,” Brian Wieser, an analyst at Pivotal Research, wrote in a note last week.
The acquisition will make buying promotions on the service simpler and quicker, according to Vik Kathuria, managing partner at MediaCom, part of global-ad company WPP Plc.
“It is a great technology,” Kathuria said. “Twitter’s mobile platform has continued to experience incredible growth.”
Industrywide, mobile-advertising revenue is projected to rise to $16.7 billion this year from $8.8 billion last year, according to EMarketer.
Twitter remains tiny compared to Google and Facebook. Twitter is projected to be No. 5 in the global mobile-ad market this year with 1.85 percent of the industry, according to EMarketer. Google is seen at No. 1 with 53 percent, followed by Facebook at No. 2 with 16 percent.
Twitter could do a better job of tracking results for marketers, showing how a promotion can lead directly to a sale, according to Merickel.
In response to some of the concerns, Twitter recently touted a report that showed that a U.K. mobile-network company saw a lift in brand awareness from ads on the microblogging service. Last month, Twitter, in partnership with measurement-company Datalogix Inc., rolled out a service for consumer-packaged goods companies.
“People like to talk about what they’ve read on Twitter,” the company said in a blog post earlier this year. “That conversation directly influences what they end up buying when they are ready to purchase.”
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