Coming to Your Twitter Feed: 15 New Types of Ads

 

April 4, 2014 2:31 p.m. ET

New ads—lots of new ads—are on their way to Twitter Inc. TWTR -2.07%

Hoping to win over e-commerce companies and mobile-game developers, the communications platform will debut 15 types of new ad products and improved ways to target users over the next six months, according to people familiar with the company's plans.

The first batch will be released in a few weeks and will include a product that will coax users to download apps through Twitter, these people said.

Over the past year, some consumer brands have thrown more advertising dollars toward Twitter, especially during live events such as the Super Bowl or Academy Awards. Twitter's simple suite of promoted advertising products—a trio of ads that target select users and receive preferential placements as tweets, trends and recommended accounts—haven't resonated with mobile game and e-commerce companies whose advertising decisions are driven by app downloads, subscriber sign-ups and purchases.

Twitter's advertising revenue, which makes up the bulk of its earnings, more than doubled in the fourth quarter to $219.6 million from the same period a year earlier. Twitter, which has yet to turn a profit, is under pressure to show its young advertising business is deserving of its current market cap of $26.9 billion. The company's stock has fallen about 33% so far this year to $42.96, approaching its post-IPO low of $39.06.

A Twitter spokesman declined to comment.

To address advertisers' needs, Twitter is taking a page from Facebook Inc. FB -4.61% 's playbook. Twitter has been beta-testing a mobile-app install ad unit. It is similar to the popular product Facebook launched in late 2012 and that has fueled its mobile advertising revenue, which last quarter accounted for more than half of overall revenue for the first time.

Facebook users downloaded 245 million mobile apps after seeing ads for those apps in their news feeds last year. It essentially recommends apps for Facebook users to download. Replete with an "install now" or "shop now" button, the format has been used by mobile game companies such as London-based Supersolid, the developer behind "Super Penguins" and "Adventure Town."

"Not having the direct-app install link is an issue," said Edward Chin, a Supersolid co-founder about why the company has yet to advertise on Twitter. Instead, "a lot" of Supersolid's advertising budget is spent on Facebook.

The app-install ad unit will be delivered using Twitter's "card" technology, an expandable tweet allowing advertisers to include a button that lets users perform the desired action. When users click a "download" button, they are taken to Apple Inc. AAPL -1.29% 's app store where they can download the app. Once it starts downloading, the user is automatically taken back to the Twitter app. This format brings Twitter more in line with app-install ads on Facebook.

Twitter has been experimenting with other ways to use the card to boost users' engagement with advertisers. For example, it tested a "call-to-click" button that would put users on the phone with businesses. The company has also been in talks with payments processor Stripe Inc. to help allow users to purchase goods directly through Twitter.

Twitter's top executives, including CEO Dick Costolo, showed off a sampling of these new ad offerings to a troop of visiting ad industry executives last week, according to a person who attended the meeting. Whereas Twitter Cards is currently limited to seven predetermined formats, executives suggested the product will become a more open platform that would give marketers more creative freedom to come up with their own uses of Cards. Twitter, for example, showed how Cards can be used to encourage users to sign up for sweepstakes and contests with one-click sharing of their email addresses.

As Twitter ushers out more ad products, the company will need to be careful not to inundate users with too many ads. Twitter has long maintained that the user experience comes first—one where the main timeline isn't overwhelmed by a rush of ads. The amount of ads served in users' timelines haven't increased much since 2010 when Twitter debuted its first advertising product.

Twitter will also need to find a way to bring down the customer acquisition costs through its ads. AdParlor, a social-media advertising manager, estimates the cost of acquiring a new user through Facebook is below $4 in the U.S. That compares with a current cost of about $20 through ads on Twitter, according to a person familiar with the matter. Recent beta-test results of the app-install unit show that the cost has become more competitive with Facebook, this person said.

Japanese mobile gaming company Gree Inc. 3632.TO -1.41% said Facebook's mobile app install ad unit is one of the top three drivers of its game downloads. Sho Masuda, Gree's vice president of marketing, said the combination of factors such as scale, having a clear call-to-action button, visually-driven ad format and refined targeting capabilities make the Facebook ads effective.

"We have made attempts trying to make it work but have not seen the scale we want," said Mr. Masuda of the company's experience advertising on Twitter. "We're providing feedback [to Twitter] on how else we can shape their product in a way that works for us," Mr. Masuda said. He declined to comment on whether Gree was testing any ads, though an ad urging users to download its "Knights and Dragons" game has been seen on Twitter.

Other app-install ads that have recently shown up in users' streams include those from mobile-payments company Square Inc. Digital-music streaming service Spotify AB is one of Twitter's beta testers, according to a person familiar with the matter. Stockholm-based Spotify declined to comment.

Beyond advertising, Twitter has also begun improving methods of targeting users by offering a wealthier trove of data in recent months, a move that follows Facebook's footsteps. In December, Twitter signed or expanded partnerships with large third-party data marketers such as Datalogix Inc. and Acxiom Corp. ACXM -6.05% that allow advertisers to target users based on their consumer behavior when they are not on Twitter. While the two databases can't make out personal identifiable information such as email addresses and phone numbers, combining the databases can inform advertisers what Twitter users are doing when they are away from the service.

More detailed knowledge of Twitter's user segments could convince game developers like Mr. Chin of Supersolid to give advertising on the real-time service a chance.

Mr. Chin said Facebook's wealth of user data also allows for more "quality downloads" where the sophisticated targeting capabilities make it more likely that users continue to play the game after downloading the app.

—Hannah Karp contributed to this article.