Twitter's blog uses the example of a local florist wanting to advertise a Valentine's Day special to nearby shoppers as an example:
They’d prefer to show their ad to flower enthusiasts who frequent their website or subscribe to their newsletter. To get the special offer to those people who are also on Twitter, the shop may share with us a scrambled, unreadable email address (a hash) or browser-related information (a browser cookie ID). We can then match that information to accounts in order to show them a Promoted Tweet with the Valentine’s Day deal. This is how most other companies handle this practice, and we don’t give advertisers any additional user information.
This is similar to Facebook's retargeting features in FBX, All Things D notes, although Twitter doesn't have an ad exchange.
Many browsers, however, are beginning to block third parties as a default. And Twitter will respect that decision.
According to its blog, Twitter supports Do Not Track and won't employ that specific data if a user has a DNT enabled browser.
There's also a way to disable the feature in account settings.
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