The following post was originally written as a guest post for Rob Go from NextView Ventures.
As LinkedIn, Zynga, Groupon and other Web 2.0 darlings file to go public, we begin to get a glimpse into the financials behind these companies. This naturally leads people to speculate on the still private financials of other Web 2.0 leaders such as Facebook and Twitter. Twitter in particular is an interesting one given that they raised another $800 million at an $8.4 billion valuation. This valuation is for a company with 200 million users and estimated revenues of around $200 million, equating to a steep multiple of 40 times sales for the microblogging service.
If Twitter is going to prove deserving of this valuation, their success will be directly tied to brand marketers continuing to embrace the service, especially with their ads platform. In other words, Twitter needs marketers to spend money with them, and in order to do so, it must prove that it is an “effective” tool in the marketing mix. It is that word “effective” that often proves the stumbling block in these digital discussions, largely due to how the word is misunderstood and in turn, misused.
Generally speaking, when a brand marketer talks about a tool being effective, they are referring to the ROI it generates. For the most sophisticated marketers, this is accomplished through Marketing Mix Modeling where they can directionally attribute a dollar spent to the short-term return in sales. To further explain this, Forrester has a great overview on the subject. Direct marketers and retailers take a more direct path in ROI, directly attributing sales to a particular channel. A prime reflection of this is how Dell can claim to have sold $6.5 million through Twitter in 2009 (though it is surprising that Dell has not shared any additional information since 2009, especially given the growth of Twitter’s audience).
Effective can also refer to how well a tool works in the Marketing Funnel. The traditional funnel includes Awareness, Consideration, Preference, Action and Loyalty, though some marketers have reclassified that funnel to instead include Acquire, Engage and Convert. If a tool is effective in the Marketing Funnel, it means that it allows a brand to succeed in driving one of these strategies. For instance, TV – or any mass media for that matter – has proven to be an effective tool for driving awareness for years, thus the reason that Super Bowl ads that are known to effectively do this with a very large audience.
So with this definition in mind, the question that naturally arises is if Twitter can be an effective tool for marketers. For me, I am bullish overall on the potential for Twitter to be effective across each area step in the “Marketing Funnel”.
Twitter’s Role in Acquire
Twitter is a very effective tool for awareness, offering brands a quick and affordable channel to distribute content around a brand launch or campaign. But one of the other biggest opportunities for Twitter comes from the data that the platform can provide marketers. As Mark Suster recently wrote, “Twitter is really the place where the public conversation is happening. It is the town hall.” In this town hall, marketers can uncover significant market research, not only about their brands but also about their competitors and consumers overall. The Market Research industry is a multi-billion dollar industry and companies like Nielsen and dunnhumby have become massive businesses by providing data and research to brand marketers. This research and data serves as the first step in almost every marketing strategy as brands determine how to acquire new customers. One could argue that Twitter is not a representative sample of the population and that is probably true. However, the heaviest users of Twitter also tend to be influencers and early adopters. As such, this vocal majority is a solid indicator from a data standpoint of what an influential core of customers might believe. The data might not be completely scientifically validated but it should be enough to be a basis to guide brand decisions.
Twitter’s Role in Engage
Engagement is one of the areas that Twitter talks about most for their platform. In fact, they even define engagement with a promoted tweet as being “clicks, retweets, favorites and replies.” There are two major areas where Twitter can drive engagement for brand marketers: customer service and engagement. In regard to customer service, the digitally connected generation turns online before they turn to a 1-800 number. When a customer today has a bad experience with a brand or product, they often turn online to vent their frustrations. In the past, an upset customer may vent by just yelling at the person on the customer service hot line and maybe tell two of their friends. Now a simple tweet or post can reach thousands, and maybe even millions. In turn, brands can use Twitter to engage with their customers and solve customer service problems before they become big customer service problems. The second area of engagement is capitalizing on the trend of brands as publishers, which might be the biggest trend in marketing over the next decade. Twitter is a great channel to leverage to have your consumers engage with your content. This is at the heart of what Old Spice did with the “Responses” campaign last year. It is also one channel that American Express uses for distributing their OPEN Forum content to drive engagement. This type of positive engagement drives conversion and ultimately advocacy. Twitter’s business challenge will be how to monetize their role in Brands as Publishers, but they are starting off in a very strong position.
Twitter’s Role in Convert
When it comes to convert, it is really about driving purchase. Surprisingly, Twitter is emerging as an effective example of social commerce in this regard. For years, Dell Outlet has famously used the platform to drive several million dollars’ worth of sales. Meanwhile, fans of LivingSocial have extensively used Twitter to promote the “Share for a free deal” feature, frequently becoming a trending topic on Twitter when they do a national deal, like the Amazon gift certificate deal. Deals have become a form of “social currency”, often leading people down the path to purchase when they discover a great offer that their friend promoted though social media. One of the reasons that Twitter has emerged as an effective tool for convert is the “factor”. When I hear about a deal on Living Social through Twitter, it is coming from a person that I follow and I follow them because I either know them or respect what they have to say, further indicating that this filter is a powerful tool in driving people to convert to purchase. On the flip side, Twitter’s role as a massive driver of purchases will depend on it further attracting mainstream users, while also recognizing the uniqueness of commerce. F-Commerce (Facebook commerce) has emerged as a real trend because of the massive share of mainstream users on the platform and high frequency of usage among those users.
What does it all mean?
In many ways, Twitter is at a tipping point when it comes to adaption by brands as a core marketing tool. As outlined above, Twitter has the potential to be an effective tool for Acquire, Engage and Convert. However, many brands today are still in experimentation mode with the platform, realizing they need to be there but not knowing best practices for leveraging it fully. How Twitter engages, educates and ultimately monetizes these brands will make all the difference.