In time for the holiday shopping rush, Twitter Inc (TWTR) has launched a new ecommerce program called Twitter Offers, which allows users to get digital coupons that can be redeemed at brick-and-mortar stores.
Twitter Offers is an interesting idea and shows that the company is taking actions to expand its valuable social media platform. Yet the program probably won’t do much to get TWTR stock out of its rut.
First, let’s take a look at how Twitter Offers works: Retailers tweet out promotions, which require the entering of credit or debit card information. After this, the user can make a purchase at the store and get an automatic discount, which will quickly appear on the user’s billing statement.
According to a TWTR blog post:
“With Twitter Offers, advertisers will be able to attribute redemptions directly to their campaigns on Twitter, so that they can effectively measure the ROI from their promotions, even when redemption happens offline. Additionally, we make it easy for merchants to get up and running because they can use their existing payment network, there’s no change to the consumer purchase process, no employee training and no new hardware or software to install.”
The Problems With Twitter Offers
While all this sounds good, there are some nagging issues. Perhaps the biggest is getting users to actually take the time to input their card information. And even if they do so, a person still needs to head off to a store and make the purchase! A nice discount may be enticing for some users — but it still seems more of a hassle.
Besides, as seen with the travails at Groupon (GRPN), there appears to be lots of fatigue with digital coupons. Keep in mind that GRPN stock is off by about 38% so far in 2014. And, by the way, TWTR stock is down roughly the same amount.
But another issue with Twitter Offers is that there could be a disconnect with users. Let’s face it, they go to the site or mobile app to send and receive communication. Mixing in ecommerce is a serious distraction from that goal.
Just look at Facebook’s (FB) own moves into ecommerce. Back in August, the company shut down its Gifts ecommerce app because it was getting little traction. And Facebook has a significantly larger user base than Twitter, which means TWTR should have a much harder time getting its ecommerce efforts off the ground.
Speaking of that smaller user base, TWTR may simply not have enough demographic information to make effective targeted ecommerce offers. When it comes to online selling, it seems that a powerful driver is knowing a person’s buying history. After all, that’s what makes Amazon.com (AMZN) so powerful and dominant.
With TWTR stock in the doldrums, it makes sense that the company is trying to spin up new revenue streams. But ecommerce is unlikely to be much of a driver. Even worse, it could mean a distraction from focusing on the key areas where TWTR is strong, such as advertising and generating fees from app installs.
Given that Twitter is operating in highly competitive areas — with rivals like Facebook and Google (GOOG) — it seems better to be laser-focused on its goals, rather than dabbling in other pursuits.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
