Twitter’s New Ad System REVEALED

Or, How Twitter Can Make $Billions and $Billions/Year from Ads Alone

For years, people have been offering their opinions on how Twitter should make money. Despite the fact that the company allegedly made $45 million in 2010 and its targeting $150 million this year, those numbers fall far short of the kind of revenues Twitter will need to justify it’s soon to be $8 Billion valuation.

While most industry watchers and armchair quarterbacks point to advertising as the answer, what’s been leaked, rumored, experimented with, experimented with again and announced thus far falls far short of the bold and innovative thinking that spawned Twitter in the first place. If history is any guide, most of those solutions will be viewed as intrusive (remember the Dickbar?), will fail because no one’s considering how users may react and/or will simply not generate enough revenue to satisfy Twitter’s investors anyway.

Yes, Twitter needs to do something bold again. Despite the fact that the service is in desperate need of additional features (such as Channels), when uber-fanboys like Robert Scoble call Twitter “Boring” and “a mess,” you know there’s a problem. So, Twitter needs a redesign, if not to add those additional features then at least to maximize its advertising earnings potential. After all, those ads have got to go somewhere.

Is this Bold Enough for You?

If Twitter is going to incorporate advertising into the interface, placing them in the user’s tweet stream (as linked to above) is not the answer; they will simply get lost in the flood of tweets, assuming that people won’t tune them out anyway. No, Twitter needs another solution; one that will maximize advertising’s earning potential. But to do that, any ad system, like all ad systems, will need to accomplish three things:

  1. Increase the likelihood that an ad unit will be seen.
  2. Increase the likelihood that users will click on the ads by making them more relevant.
  3. Increase the total volume of ads to maximize advertising’s earnings potential.

For all three, there is only one solution…

Introducing the Ad Column TM

The Twitter Ad Column

(Click for Larger Image)

The Ad Column is a new column in the Twitter interface strategically positioned close to the center of the page between the Tweet Stream and the right panel (see above image). The central placement of the Ad Column dramatically increases the likelihood that the ads will be seen, addressing Bullet 1.

Ad units in the Ad Column would be paired with a user’s tweets based on the subject of those tweets or some other factor as determined by the advertiser. This clearly would increase each ad’s relevance and also increase the likelihood that users will read them, addressing Bullet 2 (this assumes that Twitter will utilize some sort of keyword matching technology).

Finally, the Ad Column massively increases the size of Twitter’s potential ad inventory by pairing one ad unit with each tweet. With Twitter claiming 200 million tweets/day, that’s both a lot of ads and also addressing Bullet 3.

Granted, the Ad Column layout is going to be controversial for some users. However, as Larry Magid pointed out, Google has already proven that placing ads in its products (such as search results and Gmail) can be successful without interrupting the user’s experience. Granted, the Ad Column only affects Twitter.com. How the interface would be implemented on various third-party apps and on mobile devices would surely be different, but that’s beyond the scope of this post (although, I could think of something).

Types of Ad Units

Large Ad Unit

An additional benefit of the Ad Column is that it not only allows ads to be placed on multiple pages, such as my Profile page above, but that it also allows for several different types of ad units.

Large Unit

The Large Ad Unit would appear at the top of the column. This unit could be in a fixed position so that when a user scrolls, the ad remains visible, or it could scroll with the rest of the page.

Additionally, it could expand into the right column in much the same way that Twitter’s iPad app does today. This would offer advertisers considerably more space, perhaps enough for a micro site, with which to engage users.

Finally, the ad unit itself could include features such as a video player or launch a popup that could offer similar features as the micro-site (see below).

Small Unit

Small Ad Unit

This would be the most common ad unit and could include an image and link to launch a popup (see below). Small units would be available in two basic formats:

  • Text Only
  • Text with Images

Popups

As mentioned above, an additional option for all ad units would be to offer supplementary information and functionality via a popup. These popups would activate when a user clicks on or rolls over the “Learn More” link at the bottom of relevant ads.

The following is an example for how a popup ad unit for a film could be executed. The popup could include basic information about the film and even a video player offering previews or other content. Links included on the popup could include tools to find a nearby theater, offers to buy tickets or even to retweet the ad itself.

Another style of popup could focus on local businesses. In the following example, a local business could setup and run their own campaigns (Disclosure: UltrasonicMachines.com is a client and their equipment is amazing).

Show Me the Money!

Of course, all ad systems are useless if they don’t make money. While Twitter is working hard to develop other revenue streams, such as the Promoted Trend which they’re charging advertisers $120,000 per day, its cousin, the Promoted Tweet, rumored Twitter Brand Pages and various marketing tools for marketers, the revenues from all of them combined would pale in comparison to the Ad Column system.

To illustrate potential Ad Column revenues, I did some very basic calculations which you can see in the chart below. This matrix is merely for entertainment value. I did not breakdown every factor such as revenue limitations based on ad budgets, calculating impressions/tweet (although Large Ad Unit impressions are included) or other potential revenue streams such as from a Twitter Shopping Cart where Twitter would receive a percentage of every transaction. If you want to see an example of a very detailed revenue model, I highly recommend reading this post by Nova Spivack, and don’t miss his own spreadsheet. Additionally, please note that the values are based on the following assumptions:

  • All tweets would have ads.
  • The entire ad inventory would be sold out.
  • Ad inventory is based on Twitter’s claims of 200 million tweets/day (the split between ad types is fairly arbitrary; I just picked numbers that seemed reasonable).
  • A minimum of one Large Ad would be served for every user visit (an additional Large Ad unit would be served for each page refresh which are not calculated here). Large Ad unit inventory is based on data from compete.com for June, 2011 where Compete reported 169,992,743 Visits which I rounded up to 170 Million to derive 5,666,666 visits/day in the chart below.
  • Visits include traffic from all sources (Twitter.com and all apps that access Twitter).

Finally, because I know that these revenue numbers will be controversial, especially due to the simplicity of the calculations, you can download a copy of the original spreadsheet to calculate your own revenue projections for Twitter (Note that the file is an Excel 2007 .xlsx). Enjoy!

What do you think? Please leave your comments or questions below.

Neal Wiser is the owner of Neal Wiser Consulting, a Digital Marketing consulting firm. You can follow Neal on Twitter (his handle is @NealWiser). Neal is also the Cofounder and Co-host of the Addicted to Social Media Podcast. You can also read more of Neal’s Twitip posts here or on his blog at NealWiser.com.

Comments

  • July 29, 2011

    “placing them in the user’s tweet stream (as linked to above) is not the answer; they will simply get lost in the flood of tweets”

    Did you read about their new ad system? Ads will be served in-stream, however a single Promoted Tweet will appear at (or near) the top of your main timeline when you log in to twitter.com for the first time in any given day.

    The whole point of this new system is so they do NOT get lost in the flood of your tweets.

  • August 2, 2011

    It will hard to maximize their Ad revenue with out jeopardizing the social aspect of Twitter.

  • August 2, 2011

    Honestly, I’m OK with it. Every business needs a sustainable model and if this is going to keep Twitter strong, I’m all for it. In most clients you won’t even notice the difference anyway.

  • August 2, 2011

    I am OK with ads, too. I hope twitter will have some affiliate programes then I can make money, too.

  • August 3, 2011
    Radhika
    @RadhMo

    Is this official?
    When will it come?

  • August 5, 2011

    There’s only one problem with your calculations. Businesses don’t plan on spending $17.6 billion a year online yet, so to assume that Twitter, alone, would get that much in advertising is preposterous. And how quickly before we become blind to those ads as well?

  • August 8, 2011

    Hi Jacob, As I mentioned in my post, the chart was “merely for entertainment value.” I also included several assumptions for events that would have to happen to generate that kind of revenue. Clearly, Twitter is not going to generate $17 Billion. Thanks for reading and commenting though. I appreciate it.

  • August 10, 2011

    If and when the market grows that large however it would make twitter a powerhouse greater than they already are. They already have the corner on the market of instant information, now they just have to wait for the rest of the world to catch up.

  • August 11, 2011

    Be very interesting to see if direct marketers can make this pay. I trust a ton of these ads will be part of “Media buying packages” sold by ad agencies but I don’t qualify them as direct marketers. They sell the dream to corporations of “brand awareness” and have elaborate explanations for why a company shouldn’t care if their ads don’t bring in any direct business.

    The little guy however can afford to waste his budget. He needs marketing and media that get him a customer at minimum, break even – cool, and make money on the first transaction for him at best.

    We’ll see how this media delivers.

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