Luxury Brands Heart Twitter Paid Trends Ad Types

To make good on its ballooning multibillion-dollar valuation, online-messaging service Twitter Inc. must pass the Sephora test.

Initially, Sephora, the makeup retailer that is part of luxury-brand-giant LVMH, didn’t allocate any funds for Twitter’s young advertising system for this year. But in February, it bought more than 15 Twitter ads to promote a contest for customers in which it gave away products to fans of the Fox show “Glee.” According to its analysis, the response rate from the Twitter ads beat its projections by 700%.

So Cathy Choi, Sephora’s social media director, sought additional money—she declines to disclose how much—to try out Twitter’s newest ad offering, which rolled out Thursday. Called “promoted tweets to followers,” it lets brands and charities pay to make sure that their followers see messages they send out on Twitter even if the followers don’t log on to the service until hours after the messages are sent.

It’s the latest move by the San Francisco-based company, which lets people broadcast messages of up to 140 characters known as “tweets,” to build up its fledgling online advertising business. Despite the relatively nascent nature of that business, investors have pumped up the valuation of the closely held company amid a new Silicon Valley boom. Twitter is currently raising a new round of financing that would value the company at around $8 billion, according to a person familiar with the matter.

Twitter, which launched its ad system in April 2010, is on pace to generate $150 million in ad revenue this year, research firm eMarketer has estimated. The microblogging service is home to thousands of brands, from Coca-Cola Co. to local bakeries, that work to gain “followers,” or people who track the brands’ tweets about new products and promotions. About 20% of Twitter users “follow” a brand, according to a survey by marketing firm ExactTarget.

Twitter, which has more than 200 million registered accounts, said its new ad offering is being rolled out slowly and only for a couple of dozen advertisers, including Microsoft Corp. and Starbucks Corp. Twitter advertisers pay a fee, determined by an automated auction, only if a user selects their ad, including clicking on a link or “retweeting” the message to the user’s followers.

Overall, Twitter sales chief Adam Bain said the company has opened its ad system to more than 1,000 advertisers, including many small businesses, and about 80% have made more than one purchase. He added that many tweets by such brands as Walt Disney Co. have become viral hits on Twitter after users retweeted the ad.

Twitter began rolling out ad offerings last year using a format called “promoted tweets” that lets marketers place bids to show ads to Twitter users who perform searches on the Twitter.com home page. It later added “promoted trends,” which are ads that cost $120,000 a day and appear alongside each user’s account and on Twitter.com’s home page, among other ad offerings.

Not all of Twitter’s ad features have succeeded. An experiment called the “quick bar,” which Twitter introduced in March to users of its iPhone application, showed ads and hot topics on the service, but it was removed after an uproar from some users who felt it was too intrusive.

“We’re still testing it to figure out what works, but Twitter is one of the more promising channels for us going forward,” said Abby Lunardini, vice president of corporate communications for the airline Virgin America, which has paid for 65 different Twitter ads since last year. She declined to disclose how much the company spent.