Wait, Self Serve Ads Are a $400 Million Business for Twitter?

By Erin Griffith , written on April 21, 2012

From The News Desk

Ad agency GroupM released a white paper this week about Twitter's self-serve ads, now in their second month of existence. The paper warns of "market anarchy" caused by the influx of dumb money, i.e. small businesses trying to buy Promoted Products on Twitter's platform.

Fair point. Any influx of money, dumb or otherwise, into a market is probably going to drive prices up.

But a more interesting gem in the white paper is GroupM's predictions on Twitter's ad revenue: Self-serve could bring Twitter between $300 million and $400 million in ad revenue this year. Considering most had predicted Twitter would earn around $260 million in total ad revenue this year -- self-serve and premium -- that's pretty huge.

The company earned something like $140 million last year selling ads through a direct sales force, meaning a human had to knock on a door and negotiate to close the deal. With self-serve, small guys who couldn't afford the $10,000 entry point can pay as little as $20 to target the Tweeters in their town. There are a lot of small guys out there. And yes, they're not particularly savvy about the way ad networks and bidding work, so maybe prices will be stupidly high for a while.

GroupM predicts a 137% spike in advertising costs for brands on Twitter.

It takes a little time for a market to wisen up. Bidding on Google search terms wasn't always rational in the beginning, either. It's become more stable over the years (but not before Google managed to make buckets of money on it). Google's cost per clicks continues to fall each quarter.

When Facebook goes public next month, it'll be a huge marketing event, not just for the social network, but for all social media. Many in the industry -- Twitter included, I'm sure -- believe the attention Facebook will get, not for its product, but for its business model, will attract ad dollars to all forms of social media marketing.

It's funny to me that stories like this one continue come out hating all over Twitter as a business, because they weren't making much money in Q1 of last year. At that time, Adam Bain, the company's Chief Revenue Officer and the guy behind Twitter's Promoted Products, had been at the company all of six months. Up until they hired him, everything Twitter had tried with regards to monetization had been just that: tries, and weak ones at that.

I will admit I have been skeptical of Twitter's Promoted Products scheme as a way to sustain the entire business. With Twitter's $8 billion valuation, the company is too big to bow out on an acquisition, Instagram-style, without any decent revenue plan, so a lot rides on Bain's plan.

But I'm willing to take GroupM's word on it. They're the ones actually bidding on these Promoted Products and they have "skin in the social media game," so to speak. If self-serve ads become a $400 million business for Twitter this year, then good. Six years in, it's about time they found something that sticks.