Where Is the Real Value in Social Media Stocks Like Twitter?

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Twitter’s initial public offering last Thursday has generated much media attention and speculation.  How can a company with $422 million in revenue and $134 million in losses for the first nine months of 2013 have a market capitalization of $14.4 billion at the IPO price of $30 billion at the current price of $43.00 per share?   Is this, as Alan Greenspan once said, “Irrational Exuberance” for the technology stocks, or is there something else driving this optimism?

I believe Twitter’s success or failure will boil down to a very basic principle in marketing.  How well will Twitter be able to address the evolving needs of their customers with a product or service that can be proven to significantly improve that customer’s situation?  Or as it has been frequently written by most financial pundits, how will Twitter be able to monetize its 230+ million user base?

To better understand this question, let’s focus on Twitter’s customers as defined as their revenue source – companies wanting to promote their products, services, or ideas and are willing to pay for them.  They are more commonly referred to as advertisers.

One of the most significant trends happening in advertising today is the use of market segmentation for customizing messages to break through the clutter and reach a very specific target audience.  Sophisticated marketing departments are segmenting their potential customers by geography, demographics, psychographics, and behavioral patterns.  They are able to segment their buyers into well-defined groups that allow them to develop messages that address their very specific needs or reason(s) to purchase.

While advertisers have become masters at defining these sub-segments and even anticipating their needs, their ability to effectively reach these targets has remained elusive.  Advertisers are testing all forms of new media including social media to find a way to effectively identify people who fit in their market segment and then send a compelling message what will encourage that target to eventually purchase their product.   These marketing departments know their customers, can anticipate their needs and have developed the perfect message.  They just have to discover a vehicle that can effectively deliver this message to their target.

Is Twitter the answer?   Will Twitter be able to identify and segment its tweeters by geography, demographics, psychographics, and behavioral patterns?   Will they develop a system that will allow advertisers to pick from a menu of attributes and target their customized messages to very tightly defined groups?

If the developers at Twitter figure out how to make the answers “yes”, then marketing professionals will be salivating over this tool.  And investors in Twitter will be rewarded for their vision and understanding of the high-tech market.  And if they do not make that connection, some other high-tech company will eventually figure it out and become the media darling of the marketing world.

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