What Twitter sees in small businessApril 2, 2012: 12:21 PM ET
The company is targeting its new ad products to small business owners with the help of American Express.
By Anthonia Akitunde, contributor
FORTUNE -- Twitter has its sights trained on a group many have looked to to spur growth: small business. Last week, the company announced a limited launch of its "promoted" advertising services, already used by major firms such as Audi and McDonald's, to small businesses.
Users and advertisers are already familiar with the concept of tweets as ads: promoted posts, accounts and trends are placed near the top of a user's Twitter feed as well as suggested accounts to follow and what's trending lists. Now, 10,000 eligible American Express card holders and merchants will be able to "amplify" their businesses' tweets and profiles the same way. Twitter is staying mum on the details, but says it will continue rolling out the service to more businesses in the coming weeks.
The launch can be read as a validation of the company's monetization strategy. Twitter is on its way to earning about $260 million in ad revenues this year, according to eMarketer. That figure pales in comparison to the hauls Google and Facebook are taking in, but analysts say the expansion of promoted tweets proves there is interest in the type of advertising possibilities Twitter offers. (The company says its ads are much more effective than typical banners ads.) "It demonstrates that Twitter users aren't upset by the presence of sponsored content," says Malcolm Faulds, senior vice president of marketing at BzzAgent, Inc.
But will it work for small business? For now, that remains to be seen.
Major companies have looked on Twitter as a direct referendum with customers. "[But] small businesses need to be focused on ROI and not so much on brand image," says David Lifson, CEO of Postling, a social media tool for small businesses. "Jet Blue can spend a lot of time building up their personality on Twitter. For a small business, if they have the time, that's great. But if they don't, they probably need to be specific about what Twitter is worth to [them] and how can [they] just focus on that part."
Smaller firms are likely to be much more aware of the bottom line. "The ultimate success of this platform will depend on the ability for small business to see strong benefit from it," Faulds adds. "It's probably not worth much to get a few more followers. But it's another thing if they can see a measurable sales lift or increases in store traffic around specific promotions."
The heightened visibility that larger businesses enjoy through sponsored posts may benefit small businesses as well. "I spend a solid 3 to 5 hours a day dealing with Twitter and the promoted tweets and hashtags are in my face," says Dave Danhi, CEO of L.A.'s The Grilled Cheese Truck, the second most followed food truck on Twitter with more than 51,000 followers. "I can't see how it wouldn't help."
Small businesses are already familiar with using Twitter to engage with their customers. Mari Luangrath, owner of Chicago-based Foiled Cupcakes, a cupcake delivery company, says 90% of leads and word-of-mouth referrals come to her through Twitter. But Luangrath says she wonders if Twitter's new ad service is overstating its ability to draw new customers. "What's kind of misleading about the whole thing is that [Twitter claims] you're going to get automatic followers, automatic revenue, and automatic sales," Luangrath says. "Which is not the way social media works."
While no one has figured out the ROI math of how many tweets translate into an actual sale, the new service does provide business owners with a tool to help get the most out of their Twitter strategy. Users only have to pay per engagement (the Twitter trinity of click, retweet or follow) and can set how much they want to spend per day and per engagement. That's a nice feature considering that most small businesses' marketing budgets are miniscule in comparison to a company like Target (TGT). According to a recent survey conducted by Staples (SPLS), 66% of businesses surveyed said they had a marketing budget of a little over $2,000.
Lifson says he thinks the new initiative is more about lining Twitter's pockets than helping small businesses. "Google made a lot of money for a lot of years taking advantage of small businesses that didn't know better with Google (GOOG) Adwords," he says. "I kind of think Twitter is kind of hoping for the same thing. 'Let's throw this out there. People aren't going to really be able to calculate their ROIs, but they're going to think they need to do it and we're going to me a ton of money in the process.'"
Danhi of The Grilled Cheese Truck, who is privy to information still under wraps as one of the business owners Twitter has contacted, disagrees, saying the service provides invaluable information. "You get access to analytics about the best time to tweet, and when your followers are tweeting, reading and retweeting," he shares. "You can't get that anywhere else because it's their information. It just helps you be a smarter social media person."
Danhi is already a believer in the power of Twitter to influence sales from personally tracking how and when his tweets from @grlldcheesetruk have brought in more traffic. He says he's likely to give the promoted products suite a try. "It's not about the bragging rights of how many followers we have," Danhi says. "It's translating that into sales at the truck."