Disconnect: 77% of Twitter's Customers Are Outside US, But Only 26% of Its Ad Revenue Is

There are those who view this as a problem and those who view this as an opportunity. But whatever their point of view, everyone thinks it needs to be addressed urgently. 

Lots of companies operate globally but are not really global: their employees, revenue model and even strategy are more ethnocentric than they might realize. Some are simply growing so fast that their priorities become skewed towards the more immediate rather than the long term. And the capital markets encourage that 'what's in it for me now' mindset.

The reality for Twitter and for every other ambitious media enterprise is that the future can not be confined to one continent, let alone one country. For the institution itself and for the advertisers who are willing to use it as a platform or channel, optimization comes from aligning the audience with the revenue model.

Twitters' challenge, as the following article explains, is that the misalignment between its users and its advertising base could detract from its growth, especially once it becomes a public company. Some of the problem, like the fact that so many users outside the US own feature rather than smartphones, can only be solved by lower smartphone prices, rising economic prospects or some of both. However, some of the issues have to do with overcoming skepticism about the efficacy of social media marketing. These, Twitter will have to try to overcome through its own efforts and, to a greater degree, through its own example.

There is a great deal riding on the outcome. The answer will depend on the degree to which the company is able to harness its economic resources in a way that more effectively reflects the global nature of its appeal. JL

Mark Scott reports in the New York Times:

From Manila to Madrid, international consumers now represent more than three-quarters of the 232 million people who regularly use Twitter. The problem is, Twitter is still figuring out how to make money from those users abroad.

The company received 26 percent of its total revenue from markets outside the United States in the third quarter, compared with around 17 percent at the end of last year, according to regulatory filings.

Turning that global popularity into international ad sales remains tricky for the company, which is based in San Francisco, as it nears an initial public offering of stock. Many overseas brands are more skeptical of the impact of social media advertising than their American counterparts, while Twitter faces stiff competition from local social media rivals like Line of Japan, which already has hundreds of millions of registered users across Asia.

Twitter also has yet to expand its foothold in many international markets. That includes the global debut of its self-service advertising system, begun in the United States in late 2011, which allows brands to buy ads without talking directly to a sales representative. The company plans to bring that system to a number of global markets, according to regulatory filings.

“Twitter is not quite there yet,” said Oliver Eriksson, head of strategy at the digital ad agency VML in London, whose clients include Microsoft and Gatorade. He said the company still had to prove to potential clients that its advertising platform could reach international consumers. “They need to do it quickly to give brands confidence that Twitter can add value,” Mr. Eriksson said.

That skepticism is reflected in Twitter’s ad sales outside the United States.

While Twitter’s highly publicized initial public offering is estimated to value the company at roughly $12 billion, it still remains a relatively small player in the world of digital advertising. Twitter is expected to grab just 0.5 percent, or $580 million, of the total spending on worldwide digital advertising this year, according to the research firm eMarketer. That compares to $6.4 billion that will probably be spent on its archrival Facebook in 2013.

For international brands, Twitter’s relatively small scale could prove a deterrent. Many companies, like Nestlé and Unilever, are looking to increase their advertising spending within social media as more consumers spend increasingly more time online. But analysts say that Twitter’s relatively small footprint makes it a harder sell.

Put another way, Twitter had $2.58 in revenue for every 1,000 timeline views in the United States in the third quarter, compared with just 36 cents in the rest of the world, according to regulatory filings. A timeline view is when users visit their own pages that show all the tweets from people they follow.

Still, the international figure has more than doubled since last year, while the United States number has increased 50 percent over the same period, offering a glimpse of Twitter’s global potential.

Twitter’s affinity for mobile will help it internationally as much as it has in the United States.

Unlike competitors like Facebook and Google that have had to adapt their desktop products for cellphones, Twitter has always been a natural fit for mobile. It earns more than 70 percent of its revenue from mobile customers. And as more advertising dollars shift into the mobile theater, analysts say Twitter will probably benefit from its track record of connecting American and international brands with consumers.

“Users’ move into mobile has been faster than anyone could have imagined,” said Ross Sleight, chief strategy officer at the mobile marketing company Somo in London, whose clients include Audi and Disney. “That gives Twitter a clear opportunity. It’s seen as a safe brand where advertisers want to do business.”

However, in many of Twitter’s fastest-growing markets, like Brazil and India, persuading local marketers to spend more on advertising could prove a challenge.

Many consumers in these developing markets still use so-called feature phones, or low-cost handsets that do not provide the same social media experiences as high-end smartphones offered by the likes of Apple and Samsung.

77%

The amount of Twitter's monthly active users that were outside the United States in the last quarter.

26%

The share of revenue Twitter generated in the last quarter from international advertisers.

Often, these users do not have the same access to high-speed cellphone networks as their counterparts in Western markets, so they have yet to respond to the same advertising techniques, like promoted messages from brands, that Twitter has introduced in the United States and Europe.

Facebook has confronted similar challenges in reaching developing market customers, redeveloping its mobile app so that it can be used by low-cost phones without their incurring large data charges.

“Twitter will have to work a lot harder to achieve traction on low-cost phones,” said Eden Zoller, an analyst at the technology consulting firm Ovum in London. “Emerging markets are dominated by these handsets, but that’s where the growth opportunity is.”

The company also faces obstacles to growth in several emerging markets like China, where access is either blocked or local rivals are already entrenched.

In response, Twitter has said that it plans to expand its sales and marketing teams in crucial international markets, including Australia and Japan, where the local ad markets are well established and may offer comparable revenue-per-user to those in the United States.

Twitter already has more than 15 offices around the world, and it has hired a number of former Google and Facebook senior executives like Stephen McIntyre, its head of European online sales, to lead its global advertising expansion.

Since August, Twitter has extended some of its American advertising offerings into international markets. That includes ad-sponsored video clips in countries like France and Australia, and other sponsorship deals in large emerging markets like Brazil.

During Brazil’s Rock in Rio music festival in September, for example, Garnier, the maker of Fructis shampoos and other beauty products, sponsored clips from the show that were placed on Twitter by Globosat, a cable and satellite television provider.

The company also has reached a deal with Kantar Media, a research company, to measure the impact of Twitter messages on British television programs, similar to an existing relationship with Nielsen Ratings in the United States. The agreement, which will take effect next year, could help marketers judge the value of advertising on Twitter compared with other companies.

“There’s no doubt that Twitter is a powerful tool for brands to reach consumers,” said Mr. Eriksson of the digital marketing agency VML. “The company is still very young. It hasn’t figured out exactly what to offer advertisers yet.”