Twitter slowly toward IPO

Thursday, March 1st 2012. | Internet News

Twitter statsIn just six years Twitter Inc. has become the world’s digital soapbox, amassing more than 100 million monthly users—from everyday people to Lady Gaga to Middle East protesters—who use the service to spread pithy updates and breaking news.

Yet despite the service’s growing influence on society and culture, the business behind it still has a ways to go until it’s ready for an initial public offering.

To understand why, travel to Cincinnati, where last June Twitter planted a staffer blocks from Procter & Gamble Co.’s headquarters and assigned him a critical task: Teach the country’s biggest advertiser to use Twitter and buy its ads.

But when P&G spent $150 million to promote the launch last month of a Tide laundry detergent, the company bought magazine pages, billboard spots and television commercials during the Academy Awards—and no Twitter ads.

“All [P&G] brands are asking questions about what to do with Twitter and how to leverage it; nobody really had a clear, lean answer,” said the staffer, J.B. Kropp.

A P&G spokeswoman for Tide didn’t specify why the company didn’t buy any Twitter ads last month. Alex Tosolini, P&G’s vice president of global e-business, noted separately that other brands such as Pantene, CoverGirl and Pampers have bought Twitter ads in the past.

Still, the consumer-goods company has no “formal” online-ad partnership with Twitter, as it does with companies such as Facebook Inc. and others, Mr. Tosolini said.

P&G’s experience is emblematic of Twitter’s challenges to win over advertisers—its predominant source of revenue—as it tries to refashion itself into a sustainable business worthy of its $8.4 billion valuation, based on a funding round in the company last year.

The company, whose members broadcast 140-character messages called tweets, spent most of its early life as a service that generated buzz but little revenue.

Now Twitter is striving to mature its business to be fit for an IPO—and finding it has a long way to go. Twitter’s ad revenue reached $139.5 million last year, eMarketer Inc. estimates, while ad revenue at Facebook—which is two years older than Twitter—was 22 times larger at $3.15 billion.

Twitter Chief Executive Dick Costolo has said the company won’t be ready to hold an IPO until it can show predictable earnings growth, which he and others close to the company said may not happen for a year or longer. Mr. Costolo said in a recent interview that he often explains to outsiders Twitter’s deliberation in building the company.

“When they begin to understand our approach, they think we’re doing the right thing going at our own pace,” said Mr. Costolo.

Some technology investors said Twitter is right to be wary of tapping the stock market until its ad business jells.

“I wouldn’t knock the company for the fact that it’s taking the time to put the finishing touches on the interior design,” said Ethan Kurzweil, a venture capitalist at Bessemer Venture Partners. “It’s a high risk, longer term playbook.”

The coming months will be a major test as Twitter makes its first sustained push on a growth strategy spearheaded by Mr. Costolo, a former Google Inc. executive promoted to CEO about 17 months ago.

So far, Twitter has moved slowly in selling its ad formats—such as “promoted trends,” for which advertisers pay about $120,000 a day to be included among Twitter’s most popular topics—to avoid annoying marketers and Twitter fans.

Now the company is ramping up its push to attract small-business advertisers, grow internationally, and to try different types of ads, like political ads for the presidential election.

Last month, Twitter said it would start selling ads to small businesses for the first time. And this week, Twitter said it will start showing its full range of ads to users who access the service on Apple Inc.’s iPhone and other mobile devices.

Twitter is scattering salespeople across the country. Besides Mr. Kropp in Cincinnati, the company has a team in Detroit focusing on auto and Los Angeles for entertainment studios, among other cities.

These groups typically have one to four people, bulking up Twitter’s sales team to about 120 people.

Still, marketers and investors said Twitter’s success as a big business won’t be cemented until its ads graduate from an experiment to a standard part of marketing campaigns.

Companies that have bought Twitter ads generally say they are happy with the percentage of people who click on their ads or circulate them to other Twitter users. But marketers also say these ads haven’t proven they can convert people into paying customers, and that the audience for the ads remains small compared with television or other mass media.

Some marketers also are circumventing buying ads on Twitter by setting up bases on the service to talk directly to customers—without paying anything to Twitter.

Twitter still “doesn’t have the same mass appeal of something like a TV commercial on the Super Bowl,” said Joel Ewanick, General Motors Co.’s global chief marketing officer, which has used “promoted trends” for its Chevy Silverado pickup truck, among other cars.

Mr. Costolo acknowledged companies have “gotten tremendous value on Twitter for free,” but said they can “amplify the value they get from Twitter” by purchasing ads. He has said when people and companies are active on Twitter, it enhances Twitter’s value even if the company doesn’t make money from every action.

Meanwhile, Mr. Costolo has also had to nurse Twitter’s growing pains, including a board shakeup and employees uneasy about turnover.

The CEO has overseen the hiring of an ad-sales team from scratch, navigated the departures of Twitter co-founders Evan Williams and Biz Stone, and the return of another co-founder, Jack Dorsey.

A person close to Twitter said the upheavals were planned because Twitter’s employee ranks, business model and discipline weren’t up to snuff when Mr. Costolo took the reins.

Since the return of Mr. Dorsey—who is also CEO of mobile payments start-up Square Inc.—a year ago, he has pushed out some senior staffers, people familiar with the matter have said.

Mr. Costolo has said he and Mr. Dorsey work well together, and meet at the beginning and end of each week to hash out ideas.

Mr. Costolo is also shepherding plans for a new corporate headquarters in San Francisco, and has expanded Twitter’s employee ranks by more than three-fold to more than 800 staffers.

Back at P&G, Twitter may get some good news soon. A P&G spokeswoman representing Tide said it plans to promote its new Tide Pods laundry capsules “in a paid fashion” on Twitter in the near future, but didn’t disclose specifics.

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