Opportunity Knocks

Twitter Can't Wait to Win Back Advertisers

The company needs to convince companies why its service matters to them.
At Closing, April 20st
31.91 USD

Good news! Twitter’s business is not doing terribly by the low, low standards of Twitter. Well done.

In the first quarter, Twitter Inc.'s revenue fell from the year-ago quarter for the first time. Twitter doesn't turn a profit, and now its sales are shrinking, too. That is ... not good. But Twitter executives had told investors to brace for a decline of as much as 26 percent. Revenue fell "only" 8 percent. The number of people who use Twitter at least once a month is also growing slowly but consistently, and the company says its existing users are hanging out on Twitter more.

Uh Oh

Twitter's quarterly revenue declined for the first time in the company's history

Source: Bloomberg

Those are good starting blocks for Twitter to exit the land of technology sad sacks populated by Yahoo and a few other losers. Not this year, but eventually. Twitter's 2017 will still be peppered with ugly financial results. Twitter on Wednesday repeated that revenue growth this year will "meaningfully lag audience growth." Translation: It will be bad in 2017.

But Twitter's lost year is an opportunity. This is the time for the company to make the case again and again to Twitter's most important constituency: advertisers. The company needs to throw its resources behind convincing companies why Twitter matters to them. Right now, advertisers have lost interest, and that is a terrible condition for a company that generates about 90 percent of its revenue from selling ads. 

Filling the Nest

There is slow but consistent growth again in the number of people who use Twitter at least once a month

Source: Bloomberg

Google and Facebook are wildly successful internet companies because their ads work for many companies (or at least they believe the ads work) and therefore are a must-buy. For advertisers, Snapchat is the cool but still-unproven place to pitch to young people. And Twitter is what exactly? The place where people make fun of United Airlines? Twitter says it's the place to talk about what's happening right now, which is more of a message about why it exists for users rather than the advertisers who pay Twitter's bills. 

Executives have said they're focused on courting more people to try Twitter and holding onto its existing fan base -- and after that advertisers will start spending again. But Twitter needs to court users and advertisers at the same time rather than keep one constituency in limbo. Advertisers need convincing and better ways to pay Twitter to pitch people on why they should feel good about McDonald's or shop at Walmart. 

They need a lot of convincing. In a February survey of advertisers by Advertising Age and RBC Capital Markets, about one-third of respondents said they didn't spend any money on Twitter. That was the highest percentage since the semiannual survey started in 2013. Worse, about one-quarter of respondents said they expected to spend less of their ad budgets on Twitter in the future. That was a decline from responses in a similar survey in September 2016, but still higher than percentages from the prior seven advertiser surveys.

Losing the Base

About one-third of advertisers in a recent survey said they didn't buy ads on Twitter, an increase from similar responses in prior years

Source: Advertising Age and RBC survey of 853 advertisers.

It's not that Twitter has been ignoring advertisers. In the last few months, it has been doing more to expand the ability for companies to automatically purchase ads that pop up in videos on Twitter from Sports Illustrated, MTV awards shows or other high-quality programming. It is giving companies better ways to prove their Twitter ads are resulting in higher sales. It is doubling down on showing live videos on Twitter, which gives the company spots to sell more TV-like commercials within those videos. 

This all makes sense, but everyone under the sun is trying to deliver online video ads like TV commercials but with the precise targeting on the internet. Facebook announces new video advertising products every five minutes.

Meanwhile, Twitter has to spend a lot of its attention trimming back what isn't working for advertisers rather than bulking up what it is. For example, Twitter's original way for advertisers to pay to promote their Twitter posts to people who love sports or follow country music on Twitter is declining. 

Twitter also needs to cull another declining type of advertising that used to be important for Twitter -- so-called direct response ads that try to persuade people to take some specific action, such as clicking on a link to install a mobile app. And the company is still recovering from job cuts among employees who worked with advertisers. 

Twitter can grow again if it proves that ads work. But a lot of competitors are fighting over the same pot of advertising money. Twitter needs to win back advertisers now, or they may be lost forever. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Shira Ovide in New York at sovide@bloomberg.net

    To contact the editor responsible for this story:
    Daniel Niemi at dniemi1@bloomberg.net

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