It is always going to be a struggle for Twitter to justify its stock price by getting good, solid ad revenue from its website alone.
Unlike Google users, Twitter users are not using Twitter to find another website. Twitter is what they are looking for.
This is a problem for the Twitter stock price unless they adopt Google’s strategy.
If you are not familiar with Adsense I will give you a very brief history.
Google’s original revenue came from allowing people to advertise alongside its search results.
A brilliant idea and an idea that definitely enriches and improves the user experience.
Google’s next obvious and genius move was to expand these adverts onto other websites.
Google now gets 32% of its revenue from advertising on other peoples websites http://www.investopedia.com/articles/investing/020515/business-google.asp
Twitter, by the nature of its business, will be getting a vastly greater percentage of its revenues from ads it hosts on other peoples websites.
Being the conduit to allow advertisers to get their ads on hundreds of thousands of websites it what is going to take the lid of Twitter’s stock price and at the very least, justify Twitter’s stock price today.
So to repeat, Twitters next move is obvious.
It has to aggressively expand its advertiser base. This is the key to Google Adwords.
For ads to be relevant, there has to be a massive base of advertisers.
This is where Yahoo! went wrong.
Yahoo! were policing the ads their advertisers were making. Instead of letting the advertiser decide what is relevant, Yahoo! was deciding.
Not only was this massively ignorant but it also upset advertisers and in the process cost Yahoo! a fortune in staffing costs because each ad was checked for relevance.
As if an advertiser would be wasting money advertising to an audience the advertiser did not think was relevant.
Adwords by its nature is self policing.
But I digress
Twitter must aggressively build up a pool of advertisers so it is in a position to offer relevant display ads on other peoples websites.
This may be easier than Twitter imagines.
Google has an effective monopoly in the display advertising arena.
The webmaster community is begging for competition.
Twitter simply announcing its plan to create its own Adsense network will lead to tens of thousands of websites signing up.
And this will in turn feed the desire for people to sign up to advertise on Twitter. Getting an outlet for their advertisers is not going to be Twitters problem, they will have more than they can deal with, their problem will be getting relevant ads on these websites and this can only come with a big advertiser base.
In summary – Twitter’s stock price could be conservative
The vast bulk of Twitters future advertising revenue will not come from adverts on Twitter, it will come from advertisers signing up to Twitter so they can advertise on other websites.
Again, the reason Google is so dominant in this space at the moment is its exposure.
The Adsense model and the Adwords display advertising model is built on scale, without scale the business model simply does not work.
Twitter is one of the very few sites in the world with enough users to be able to roll out a competitor to Google Adwords and Google Adsense.
The only real competitors will come from a website that has millions of users and the finances to put the system into place. Twitters stock price will see to the financing, it is up to Twitter to be technically competent enough to get things moving.
Twitter has time on its side. This will not be a “it must work in a year or we will abandon the idea”. As long as Google has an effective monopoly in this area, Twitter will have all the time in the world.
Only when Twitter announces their plan to create an Adwords Display type advertising model will the company become truly profitable. And only then will Twitters stock price be taken more seriously by the skeptics.