Nobody thought that Twitter would be so successful but then nobody had thought the same about SMS as well. The simplicity and non-intrusive nature of SMS made this paging like service popular amongst mobile users. Twitter brings together the conversation of social network and brevity of SMS to provide super fresh real time updates on the web. Success of Twitter confirms my belief that the future of social networking is on mobile.
Twitter is a free social networking and micro-blogging service that enables its users to send and read messages known as tweets. Tweets are text-based posts of up to 140 characters displayed on the author's profile page and delivered to the author's subscribers who are known as followers. One might wonder what can one write in just 140 characters but people have found the knack of communicating in less words and use smaller URLs to share links. It is the cocktail of social networking, live search and link sharing that makes Twitter so popular. There are many third party companies that have made search a live stream of tweets possible (I missed the live stream search in my post on Future of Mobile Search). I do not know if this is an early trend in replacing the hegemony of Google on search as the Google algorithm does not make live search possible.
A hacker in July managed to get internal Twitter projections on revenues and user base which were published on TechCrunch. As per the hacked documents, Twitter is expected to earn revenues for the first time in Q3 of 2009 and aims to cross the user base of 1 billion by 2013. From a modest revenues of $400,000 in Q3’09, it plans to scale it up to $1.54 billion by 2013 with $111 million of net earning. Twitter has far exceeded its target of 25 million users by end 2009 (Refer the figure below that has been sourced from TechCrunch)
What is the business model of Twitter that gives them the confidence of not only getting a billion users by 2013 but also becoming a billion dollar company? In this post, I have tried to list a few options in front of Twitter some of which are in active consideration by Twitter.
Possible Business Models for Twitter
Till date, Twitter has raised around $57 million from venture capitalists like Institutional Venture Partners, Benchmark Capital, Union Square Ventures, Digital Garage, Spark Capital, and Bezos Expeditions. With so much riding on Twitter, Twitter fast needs to roll-out its revenue model. Below are a few revenue streams that Twitter can consider:
Advertising: This is the most common business model for any internet venture and certainly is applicable on Twitter as well. Given the high user base of Twitter and the relative high number of tweets, there are ample of opportunities for advertising. Advertisements can be either be on the SMS alert or in the feed.
E-Commerce: I read about an interesting news article on New York Times on the possibility of Twitter offering shopping advice and easy purchasing (Link). The platform is designed in a way that it can offer advice to shoppers and companies do promote their products on Twitter. What is needed is to enable the payment platform and convert Twitter into the biggest e-commerce site in the world.
Monetize Data Mining: Twitter is a gold mine of data and rich information can be taken out of it even without compromising the privacy of the users. This information would benefit the companies a lot in designing and targeting the products to the right consumers. The companies are spending a lot of money on consumer research to be able to get this kind of information and would be happy to get it from Twitter for a fraction of their current cost.
Freenium: Twitter can follow the model that is being followed by LinkedIn or many other internet ventures, which is keep the basic service free for consumers but premium comes with a price. Corporate may be charged for customizing the homepage theme to match their corporate theme or special applications may be developed for the enterprises for a fee. There are reports that Twitter is already thinking in this direction.
SMS Revenue Share with Operators: A lot of SMS are getting generated because of Twitter. Twitter can force the operators for revenue share from the SMS revenues. Though this is a difficult but operators will not be able to block the service due to its popularity.
Revenue Share with Third Party Companies developing Twitter related Applications: A large number of start-up firms have developed applications related to Twitter and are monetizing the services offered by them. Twitter may decide to charge for API sharing when being used for commercial purposes.
Utilize the Twitter Platform to enter into other services: How about Twitter syndicating the newspaper for you with the relevant tweet feeds. This newspaper can be generated on the fly and can be customized to individual needs. Just a couple of days back, Twitter announced its intention to geo-tag the tweets. This could help Twitter to create a customized hyper local newspaper. Other services that Twitter could get into are local search and advertising. A lot of companies promote their products on Twitter an offer discount coupons to their consumers. Twitter, with geo-tags, can make the promotions more targeted bringing down the overall marketing spends for the company.
Valuation: Finally, Twitter can play the valuation game – Get a large number of users for the service and then sell off the business for a large valuation. Twitter is ready to wait for the right price and has already declined the $500 million offer from Facebook
What next for Twitter?
The most critical thing for Twitter would be to keep itself relevant. The trends are set by youngsters on the net and their preferences do change. Social Networking was such a rage till last year but now its growth is in line with growth of internet. Hence, Twitter would need to keep up with the changing taste of users. Twitter currently has over 40 million users but as per Nielsen estimates, the retention rate is just 40% and many people drop the service after a month so the site may potentially reach only about 10% of all Internet users. Another article by Gizmodo points to the fact that only 5% users of Twitter have over 100 followers and just 5% of “loud mouths” are creating 75% of tweets. If Twitter is unable to broad base the usage, it may fail to attract the enterprise customers.