Twitter 2013: Future Looks Bright, But Will It IPO? by Chris Taylor

My personal relationship with Twitter hit a milestone on Christmas Eve. For the first time, a Promoted Tweet – an ad, essentially — made me want to laugh and share rather than grimace and push on through my news feed. Even better, from Twitter’s perspective, is the fact that I was on the mobile app when it happened.

The promoted tweet, perfectly timed for holiday joke-telling, was so witty, subtle and brief, I don’t even mind giving the company some free publicity by repeating it in a story. It was from Dos Equis, and simply read: “He speaks reindeer.” No further words, nor even a link, were necessary. (I don’t often remember promoted tweets, but when I do …)

Ads that work this well are extremely hard to blend into social media, even harder to accomplish in a mobile context. As we discovered in 2012, the formula is almost impossible to get right, and getting it wrong means pissing off millions of users.

But Twitter seems to be closer to cracking the code than most. Its ad sales are rising precipitously, to the point that 2013 is going to be a very good year indeed — one where the company may start to glimpse the giddy heights of $1 billion in annual revenue, and where it might make sense for the company to go public.

To see how tough it is to make social media ads work, look at Facebook. You have your intensely personal stream of life-changing news, baby photos, marriages, and so on. Next to that, the targeted ads down the side of the site — and the “sponsored stories” within your stream — look like intruders: wedding crashers, if you will. The more personalized they get (calling your name, using your photos, sending you spam emails), the creepier they appear.

Small wonder that Facebook hasn’t included that many ads in its mobile app yet. And when Instagram simply hinted in its new terms of service that it might one day explore the possibility of using your pictures in targeted ads, a user revolt prompted the Facebook subsidiary to change course within days.

But complaints about promoted tweets and their cousins, promoted trends, are few and far between. Why? First of all, Twitter has been careful to limit your exposure to them. Secondly, it’s doing its best to show you promoted tweets from brands you’ll be receptive to – either because you follow them, or because the people and brands you do follow match the demographics of someone who’d be interested in this other brand.

More importantly, the setting just seems to allow for it.

Twitter, after all, is nothing but short bursts of information, just like ads.

Twitter, after all, is nothing but short bursts of information, just like ads. The company’s 140 million active users have become adept at filtering out (and if necessary, unfollowing) that which isn’t useful or interesting to them. We scroll and thumb through our feeds at speed; sometimes we spot the ads, sometimes we don’t. But if they don’t work, they’re just part of the noise around the edges of the signal.

I’ll admit I was one of those users who was very skeptical about promoted tweets when they were introduced. And I still fear what might happen if the company were to get greedy and increase the number of promotions in your feed. But with a steady hand on the tiller — CEO Dick Costolo, a leader who understands his platform better than most — that doesn’t seem likely in 2013. Not least because even this low level of promoted tweets is growing profitability enough.

At the end of 2011, research firm eMarketer made a bullish prediction that Twitter’s revenue would grow to $259 million in 2012, an 86% jump on the prior year, and $400 million in 2013. In fact, by some accounts, the revenue number was on course to hit $350 million by the end of 2012.

And beyond that? Sources vary — this is, after all, still a private company. But here are the goals we hear get tossed around internally: $650 million for 2013, and a very healthy $1 billion in 2014. Much of that will be driven by expanding international sales; Twitter still relies on the U.S. for 90% of its revenue.

Much of it will also be driven by the company’s strong position on the world’s fastest growing hardware platform: the smartphone. Back in September, eMarketer estimated that Twitter’s mobile revenue would outpace Facebook’s in 2012 by nearly two to one. (It also said the positions would be reversed in 2013; after the beating Facebook has taken this year, however, we’re not so sure.)

To IPO or Not to IPO?

One billion dollars in revenue would still makes Twitter a smaller fish than Facebook, and one that’s growing slower overall. But it is solid, organic growth, less likely to recede. According to the company’s president of global revenue Adam Bain, promoted trends and tweets yield engagement rates between 3% and 10% — many multiples higher than the average banner ad, and certainly far above Facebook’s click-through rates.

There’s a reason why that Dos Equis tweet worked. There’s also a reason that the service’s most retweeted tweet prior to this record-breaker by President Obama was also from a marketer, Wendy’s, which beat its top celebrity, Justin Bieber.

Brevity is the soul of wit, and the soul of Twitter.

So with growth numbers solid and marketers everywhere starting to fall in love with the platform, will the company seize the moment and introduce itself to the public market? It certainly has the management team to do so. Ali Rowghani, the CFO, is Costolo’s closest confidant; Rowghani has slowly expanded his remit to include business development, and was so important to his previous employer, Pixar, that Steve Jobs called him in 2010 and begged him not to take the Twitter offer.

It also has little competition, given that the only major tech IPOs currently expected for 2013 are relatively minor: Airbnb and Box. For Costolo, Rowghani and the investors who recently valued the company in the $8 billion to $10 billion range, filling that vacuum may seem irresistible. Facebook may recover its footing sooner rather than later; there are a lot of smart minds down in Menlo Park working on its ad strategy. Google+ may pick up steam in a few more years.

Twitter may never look this attractive again.

Then again, Costolo has many reasons to be cautious — and not just because Facebook’s IPO was a disaster for its valuation. No, the more important cautionary tale from 2012 was what happened with Instagram. Twitter was ready to buy the company near the beginning of the year for roughly $500 million, according to multiple accounts. Instagram turned around and sold itself to Facebook for nearly double the price. Twiter had been played.

By the end of the year, the two companies had lost all respect for each other. Twitter developed its own photo filters to compete with Instagram. Instagram removed support for Twitter cards, making tweets sent via Instagram look sad and empty. This seems like less of a standoff, sadly, and more like the new normal: a kind of social media Cold War where Instagram is Eastern Europe and Facebook is the USSR.

In that kind of environment, it might make more sense for Twitter to sell itself to a larger protector — such as Apple, the NATO and the World Bank of any Cold War scenario. With more than $50 billion cash on hand, it could snap up Twitter and not break a sweat. The two companies have been chummy ever since Twitter became integrated into iOS6 months ahead of Facebook.

An Apple sale is an oft-mentioned scenario, the kind that makes Twitter-happy tech journalists salivate. Still, as attractive as the idea is, I’m going to say it and the IPO scenario are both unlikely in 2013. What seems to suit Costolo best is the slow-but-sure path: more growth, more celebrity ambassadors, more impressive stats, more promoted tweets and more effective, word-of-mouth retweeting of ads that just work.

Image courtesy of Mashable composite, Flickr’s Bill Boulton