Twitter's Big Deal With Amazon Is A Step Toward What Could Be A Huge New Revenue Stream

Kevork Djansezian/GettyTwitter CEO Dick Costolo.Last week, Twitter's Q1 earnings report sent its stock tumbling to an all-time low, even though the company beat analysts' revenue expectations and reported a nice increase in how frequently Twitter users engage with the platform.

The fly in the ointment was that Twitter's monthly active users increased just 14 million in Q1 to 255 million total - not the sort of big growth investors were looking for to prove that Twitter is becoming a truly mainstream platform.

Still, fretting over the company's user growth obscures the fact that Twitter has been extremely savvy about squeezing revenues out of the users it does have. Twitter has quietly built a $100 million-a-year data licensing business from its user information, and Twitter CEO Dick Costolo says its recently acquired mobile ad network, MoPub, now reaches 1 billion users.

On Monday, Twitter announced a new partnership with Amazon that inches it towards what could one day be a huge stream of revenue for the company: e-commerce.

Through the partnership, users will be able to link their Amazon accounts to their Twitter handles. They will then be able to respond to links to Amazon products with the hashtag #AmazonCart to automatically place the items in their Amazon cart.

The announcement follows a 2013 deal that allowed people to tweet to purchase a limited selection of products using their American Express cards, and another that allowed people to exchange Starbucks gift cards on the platform.

For some time, advertisers have been waiting for U.S. social media companies to catch up to their Chinese counterparts, who are well ahead when it comes to integrating the product buying experience with social media. There, the social giant Sina Weibo allows its users to make purchases through its "Weibo Wallet," and conversely, the Yahoo-owned e-commerce giant Alibaba has its own messaging app.

Already, Twitter is home to a healthy $900 million-a-year advertising business. Just think of the possibilities available if it allowed customers to purchase products directly through Twitter without leaving the site.

Pete Stein, CEO of the digital marketing agency Razorfish, noted that the Amazon partnership was not completely seamless since users still needed to visit Amazon to complete their purchases. He said he was surprised the deal didn't come with a revenue sharing agreement, since Amazon is essentially using Twitter as a means of helping customers discover its products.

"As a result of its somewhat limited functionality, we don't expect widespread adoption of this in its current incarnation, but it's a step in the right direction," Stein said. "We're most eager to see Twitter publish APIs that allow any merchant to enable the types of commerce experiences that make the most sense for their users. It's easy to imagine a cause on Twitter being able to raise donations via a donate tweet, or a musician being able to sell their downloads and concert tickets to fans by engaging them on Twitter."

Bob Buch, CEO of the Facebook advertising company SocialWire, pointed out another issue with Twitter's #AmazonCart integration: it requires people with public accounts to allow anyone to see the products they intend to buy.

Buch's company was working on a feature to help marketers boost the reach of people posting on Facebook about products they'd bought, but SocialWire ultimately decided to kill it because people just didn't want to tell everyone about the vast majority of their purchases.

This is not necessarily the case in China, where 78% of social media users say they have shared what they bought with their friends.

Nonetheless, Buch said the Amazon partnership was an important step forward for Twitter, especially since Amazon tends to be wary of social media networks because it views them as competitors.

"This is indicative of a movement I expect we will see from Twitter to move aggressively into e-commerce advertising this year," Buch said. "While the details of this deal are not terribly exciting, I can tell you that any deal between Amazon and a social network is a big first step."