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Twitter announces 'tailored audiences' for ad retargeting

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Twitter is taking a big step to make its ads more effective—allowing advertisers to reach consumers based on what websites they've visited.

The new "tailored audiences" tool is designed to dramatically improve advertisers' return on investment, which should in turn boost Twitter's bottom line.

It's not a huge surprise—this summer Twitter announced it was testing these tools—but it's a crucial step to show advertisers it's worth investing more on Twitter's platform, and to show investors that it has big plans to make more money.

Click here to read the blog announcing the news Thursday.

(Read more: Twitter's future—beyond ads, here's what's next)

Here's why this is a big deal. It's much more effective if advertisers can contact consumers who have already expressed an intent to purchase. For example, if a Twitter user is searching on Tripadvisor.com or Delta.com for Hawaiian vacations, either of those companies, or any other related company could send that user a promoted tweet with a deal on a trip.

The targeted ads can be delivered to users' mobile devices—which is key because mobile is the fastest-growing ad category. But it's worth noting that because of how "cookies" work, the information about which sites users have visited is based on their activity on computers, not mobile devices. If consumers choose, they can opt out, by clicking a box on Twitter's privacy settings. But the hope and assumption is, that more relevant ads will be more useful to consumers as well.

(Read more: Twitter's ambitions: #ChangeWorld #MakeMoney)

Twitter is partnering with a number of companies to make this new technology work. They drop the cookies to track users—anonymously of course—as users move across the Web. A representative from one of those companies, AdRoll, which also works with Facebook, said: "This will really enhance Twitter's ad revenue."

Another key: This could show that Twitter can compete on the same level as its much larger competitor. Facebook has similar targeting with its highly successful tool called FBX.

—By CNBC's Julia Boorstin. Follow her on Twitter @JBoorstin.

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.