Twitter Advertisers Say Service Needs More Users - Wall Street Journal ~ Techno Hub

SAN FRANCISCO—For some advertisers, 218 million people isn't a big enough audience. That's their message to Twitter Inc., which Thursday detailed plans for an initial public offering.

Ad buyers say that the short-message service will need significantly more users, and a bigger sales force, to win more spending from their mass-market clients.

"Scale still matters," says Adam Shlachter, senior vice president of media at DigitasLBi, a digital-ad firm owned by Publicis Groupe SA. "How consumers embrace [Twitter] and tap into it or tune in or out is going to be critical."

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Since the first 140-character message was dispatched in March 2006, Twitter has exploded into a game-changing communication tool where news is made and broken by public figures and ordinary citizens.

Here's the problem: It seems there are more people talking about Twitter than using it.

Twitter boasts 218 million monthly active users, according to its Thursday filing with the Securities and Exchange Commission. That's less than one-fifth as many as rival Facebook Inc.'s 1.15 billion.

Some 22% of U.S. Internet users are on Twitter, according to Forrester Research Inc. By comparison, 72% check Facebook at least once a month.

It is a troublesome issue for Twitter, which relies heavily on advertisers to make money, as it looks to raise $1 billion in a public offering. Advertising accounted for about 85% of Twitter's $317 million in revenue in 2012, according to the filing. Facebook reported $4.3 billion in advertising revenue last year.

What is more, the rate of user growth is slowing. In the second quarter, Twitter's growth in monthly active users slowed to 7% from three months earlier, compared with 10% to 11% growth in the prior three quarters.

Progressive Corp. buys ads featuring tweets from "Flo," the zany always-cheerful star of its television ads, who has more than 20,000 Twitter followers. But the Mayfield Heights, Ohio, insurer favors Facebook for social-media advertising.

"The 200 million-plus Twitter nation is a powerful and influential force that you have to pay attention to," says Jeff Charney, Progressive's chief marketing officer. He says the insurer will consider spending more as Twitter grows. But Facebook has "more heft," he says. "You just can't ignore Facebook."

Alison Yin for the Wall Street J

In the second quarter, Twitter's growth in monthly active users slowed to 7% from three months earlier, compared with 10% to 11% growth in the prior three quarters.

Twitter itself recognized the risk if it fails to increase its user base and engagement level in its Thursday filing, saying it "could result in the loss of advertisers and revenue." A Twitter spokesman declined to comment.

Brian Wieser, an analyst at the Pivotal Research Group, says advertisers today are spending far more on Facebook than Twitter. But he is optimistic about Twitter's future, because he thinks the company is "clued in" to advertisers' concerns.

Some advertisers say Twitter makes up in quality what it lacks in quantity. The many celebrities and media pundits who use the service can be very influential, they say.

"It is an important audience and I want our brand to be part of the conversation that is happening there," says Lisa Cochrane, senior vice president of marketing at Allstate Corp.

Ms. Cochrane says she isn't worried about Twitter's slowing user growth. "People are learning how to use it and it will find its place," she says.

Part of Twitter's problem, analysts say, is that the service is hard to use. It can be difficult to identify relevant information amid the torrent of tweets. New users must devote time and energy to acquire "followers" and curate a list of accounts they want to "follow."

The "focus needs to be on making the service useful and relevant to the masses," said Vik Kathuria, managing partner at MediaCom, a media-buying firm owned by WPP PLC. "They need to find ways to connect with the masses to increase engagement so it's not a small minority who remain the power users," he added.

Another weakness, advertisers say, is that Twitter has yet to become a daily habit for many people. Usage tends to spike during big events, such as the Super Bowl, or natural disasters.

Advertisers want to know it has a "consistent audience to tap into and it's not an audience that is just churning in and out," says Mr. Shlachter of DigitasLBi.

Write to Yoree Koh at yoree.koh@wsj.com and Suzanne Vranica at suzanne.vranica@wsj.com

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