Advertising gap clips Twitter's wings

Despite global popularity the micro-blogging site has yet to turn promotional tweets into hard cash. But this could be the year it takes off, says Oscar Williams-Grut

When the power failed during the Super Bowl XLVII earlier this month – leaving fans and players alike in darkness for 34 minutes – Manhattan digital marketing agency 360i had an idea.

They took to Twitter and sent a message from their client Oreo's account that read: "Power out? No problem". Alongside, there was a picture of the biscuit captioned "You can still dunk in the dark".

The message was re-tweeted 12,000 times and talked about for days after. In theory, that should be good news for Twitter's chief executive Dick Costolo, but, despite the publicity generated for the biscuit, the micro-blogging site didn't earn a penny.

As speculation mounts that Twitter will follow rival Facebook to a stock market listing next year, the company faces increasing pressure to show it can make money. American Express last week launched a partnership with Twitter allowing users to pay by tweet, but it is understood that Twitter doesn't earn any revenue from the deal.

"They invented, almost by accident this new media format and working out the right ways to optimise that has been challenging," says Benedict Evans, a technology analyst at Enders Analysis.

Twitter currently makes money through companies paying to promote trends, tweets and accounts that, for example, appear next to a user's feed. Trends, which the likes of Visa might use to promote a campaign, have been moderately successful. Advertisers see them as analogous to internet banner ads, and Twitter last week upped the price to $200,000 (£130,000) a day.

But the site's transformation into a serious advertising platform has been underwhelming. Twitter is careful to avoid clogging up users' feeds with unwanted ads. In turn, advertisers have not taken to the site in the way they did to Facebook as they don't have such a prominent space available on the screen.

As a result, while a private-share sale to Blackrock last month valued Twitter at $9bn, analysts think it is yet to turn a profit. Twitter UK last month reported a profit of just £16,500 in its much-delayed first filing.

What's holding the company back is its lack of an advertising API – an "application protocol interface" that allows advertisers to manage campaigns by scheduling and targeting tweets. Facebook earns over $1.5bn from its ad API.

Rumour has it Twitter will launch its version sometime this quarter and that could add rocket fuel to the balance sheet. An API would be "the biggest thing to happen in the industry this year", according to one advertiser who works with Twitter.

The site is also working hard to convince advertisers like Oreo to pay up. Twitter announced in December it is working with Nielsen, a media measurement firm, to develop a "Twitter TV Rating" that shows how many people are talking about a particular programme on the social network.

And last week it bought analytics firm Bluefin Lab, which analyses how people use Twitter while watching television, a phenomenon labelled the "second screen" trend by Simon Mansell, the chief executive of digital advertising firm TBG Digital.

"Twitter as the second screen is going to be huge", says Mansell. "Advertisers know the benefits of TV advertising and second screen can help to amplify that. If you're advertising on TV during a sports game, you should be on Twitter too."

TBG helps advertisers like Heineken and Dell to use social media and Mansell says companies are just starting to realise the value of tweeting: "2013 will be a big year for Twitter," he says.

It has to be. If it wants to go public, Twitter has to get into the black.