Today the Official Merchant Services Blog would like to focus on social media advertising, and the recent steps Twitter has taken in order to expand their marketing prowess and outreach.

The social media giant with its 140 million monthly active users is second only to Facebook.  As we have previously reported here, Facebook had taken steps to create a realm of e-commerce unseen before in the social media world.  By transitioning from the ‘Like’ button for certain pages and products, to the ‘Want’ button, in an attempt to allow users to create personalized wish lists, the move will eventually lead to more purchases through Facebook itself.

The move spurred social media innovation, and Twitter has since come up with its own targeted marketing approach.  The new capabilities will allow marketers to identify, advertise and even send direct messages to consumers based on interests and likes.  For example, a consumer who has indicated an interest in digital photography would see ads for cameras and other photography related products.

There are two main ways Twitter will attempt to narrow down its user base.

First, Twitter has divided its users into 350 different interest categories.  They range from “education” to “investing” to “sports,” and are further divided into subcategories.

The second way involves targeting a more specific set of users, by creating a custom list of usernames that are relevant to what they want to promote.  The custom segments would allow marketers to reach users who share similar interests with that username’s followers, however they cannot target that users’ entire following.

Twitter has given the example of an indie band promoter that creates a custom audience by adding the ‘@usernames’ of similar bands, ensuring an audience with a similar taste in music.

Questions still remain about the overall effectiveness of the targeted ads.  For example, the click through and conversion rates are still unknown.  Twitter has been testing the system using beta advertisers, who can attest that there has been “significantly increased audience reach” as well as high engagement rates.

To bring this all back home, I believe there is outstanding value in Twitters’ targeted advertising system.  It will allow marketers to go beyond ‘Promoting’ their tweets, a system that would raise your post to the top of users Twitter feeds for a short time, however there was no targeting involved whatsoever.  With this new system, end users see more products that appeal to them or are related to their interests in some way.  Thus driving sales for that particular product, if the right target market is reached. This could be especially useful to the average small business owner, who may only rely on social media to promote the company, instead of a dedicated web page.

This could lead to a large boost in mobile commerce, through Twitter users who simply find an advertised product to their specific liking.  The push is meant to increase ad dollars to Twitter from eager marketers, as well as more effectively reach its user base with relevant ads and content.  It seems logical that the next step would be for Twitter to implement a direct buying feature for their 140 million users, this would further spur innovation and the competitive mobile payments market, as well as open up new E-Commerce solutions for businesses and advertisers.