My Thoughts on the Twitter IPO

The Twitter IPO is coming. Today, Twitter decided to Tweet the news which was a very interesting way of releasing it to the public. The fact that we just found out today means there are going to be hundreds of articles explaining why it is a good or a bad idea. Rather than doing that and repeating everyone else, I cam going to tell you how Twitter makes money. After I explain how Twitter makes money you can decide it it would be a wise investment. It is interesting to note that most people that have an opinion about social media and the Internet related companies have no clue as to how money is made. I have been in the trenches of Internet cash flow so I completely understand how Facebook, Twitter, Google and Apple make money. Here is a hint, hardware is much more valuable than software as it is a tangible good that can be sold. Software in the form of social media is very hard to monetize because it is not necessary to life. While an iPhone or an Android phone is not 100% necessary today, it is much more necessary than having a Twitter or Facebook account. Let's take this trip together.

How Twitter Makes MoneyTwitter IPO News

Internet advertising in a huge part of social media. The majority of money made through Facebook, Twitter and other social networks is through advertising. There are small percentages of money made through sales but this is nothing compared to the "promoted tweets". Most people have seen a promoted tweet in their feed from time to time. Companies are willing to pay money for this real estate as they know eyeballs will see their product. When it comes to marketing, most companies are willing to put their brand or product in front of an audience at least seven times. Anyone that has a business degree knows that it takes time for people to recognize and trust a brand. This is why Facebook and Twitter advertising can be very lucrative. Some brands may end up spending over $100,000 just to see if something works. There have been plenty of studies showing where certain brands have increased sales because of their social media presence. Rather than trying to build through grass roots and not paying it is often worth it to name brands to just pay for the promoted tweets. This will allow that brand to get out there more and they will end up adding followers. If they are hoping to build naturally, through grass roots type growth it could take two or three years to gain any type of following. We have all seen some Twitter accounts from big businesses that should have a larger following. Unfortunately, for that brand, they do not have the time or energy to sink into building a Twitter following or Facebook fans. When brands get to this point they create a budget for Internet advertising and some of that budget can go towards social media which is Facebook and Twitter at this point of the business cycle.

I am an admitted fan of Google+ but most businesses are not sinking a ton of money into Google+ promotions. Part of the reason is the fact that Google+ does not offer ads. These companies will spend quite a bit in Google advertising through Google search and Google AdWords but there are no advertising options available on Google+ at the present time. This means the social media advertising budget is going towards Facebook and Twitter ads. Something that will be interesting to track is the return on investment when it comes to Facebook and Twitter ads. From personal experience, I have seen tweets get impressions in the hundreds of thousands yet a website will only get a handful of clicks. That said, I am not a name brand like Apple or Ford. The name brand will get more clicks just because the name is known and they have built brand loyalty over the last several decades. Brand loyalty is a very large part of social media. Even if brands are not getting a single customer or a single sale through Twitter or Facebook they are still getting their name out there a little more. This can be value in and of itself. By answering the questions from some angry customers or offering free coupons people will see that a brand is making the effort. I have seen this through promoted tweets as certain brands will offer assistance with a brand new product or service.

Something else that Twitter offers is the ability to reach eyeballs that want to see a certain product. When I see promoted tweets they are related to sports, social media, Google and finance. Guess what my areas of interest are. I don't even have to list them. Over the course of the last year I have tweeted 7,443 times and Twitter knows me almost as well as I know myself. In fact, they may know me better. Rather than just throwing any ad at me they are going to push ads that make sense. I have never seen an ad that does not relate to my life in some way. This is much better than Facebook that just throws out ads based on a demographic. The fact that Twitter does not have your age and relationship status ends up making it a better tool for reaching an audience through advertising. Whether or not Twitter will be a good investment is for you to decide. Even though Facebook is hitting an all time high as I type this article I still do not think it is a good investment. Y

ou heard it hear first, Facebook is going to have big problems as we head into 2014. I won't go into details in this article but I will be more than willing to say I told you so early next year.




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