I’ve been using Twitter pretty solidly for over a year now, and I love it. Twitter is one of those applications that has succeeded not because it exploited a market that already existed, but because it created a market that didn’t yet exist. Twitter manages to straddle the space between a blog and an instant messaging application by leveraging the simple fact that people have way too much free time. Twitter has also managed to reach a critical mass of users and has solidified its lead in this space which is why even Google backed Jaiku couldn’t manage to dent it. Twitter’s subscriber base had surpassed 3 million in the August/September timeframe and perhaps has already passed 4 million users at the rate at which it is growing.
All of this leads to a company that is a runaway success, right? Right? Well, perhaps if we are operating in a “dot-com bust” mindset, then Twitter is one of the most successful companies out there. But by these metrics, Digg was also an extremely successful company, but has yet managed to actually successfully monetize itself. Twitter has tens of millions in venture capital, and millions of users, but will they be able to turn these subscribers into cash?
There are a few examples of high profile companies, such as Ubuntu, that are basically operated as charities. The problem is that not everyone has their own Mark Shuttleworth. Twitter is funded by venture capitalists, and trust me, they are not in it to redefine the internet. They are in it to redefine the size of their bank accounts. Twitter has to eventually turn a profit, or Twitter will be shut down.
Turning Tweets into Dollars?
But how will they do it? Well, one of the ideas that has been constantly pounded into my head since I took my new job at Dominion Digital in September is the idea of “business value” and how to measure it. I’ve always been an extremely “hands on” tech guy who absolutely loves to create software (and that isn’t changing anytime soon), but I had honestly not spent enough time thinking about the things I had created in terms of their business value. The business value was already decided by someone else, and the business value was often just assumed. I don’t have that luxury anymore, and so I think that my mind has started over-compensating in the “business value” department. The other day while writing a tweet within tweet deck I started wondering about the future of Twitter.
If there is one thing that the web 2.0 revolution has taught us is that users will not pay for things that were once free. And services that have a free version and a pay version will end up with about a 1 to 100 pay to free ratio. People have just become too accustomed to getting things for free. These forces combined have pushed most websites into a single direction, being supported by ads. Practically every website that provides free content is ad supported, and the ones that aren’t are supported by donations and quite frankly they are always struggling. Seriously Wikipedia, just throw up some ads and stop begging me for money 🙂
Twitter wouldn’t be able to support itself with donations, it doesn’t have the altruistic clout to demand that people just hand over money. Twitter can’t start charging, because even though they have reached critical mass they would easily start bleeding customers to another service that would be backed by companies that have other sources of revenue. Twitter has about 20 employees, which is so small that Google could easily crank up Jaiku and still spend less money than they do on coffee. Twitter could probably offer a premium version, but what would they really sell? They could crank everyone’s api quotas down and then charge for better service, but then they just be pissing off and alienating their current customers, which would again open the door for a competitor to step in and destroy the company’s market share.
Traditional Options are Out.
The final nail in Twitter taking a typical monetization strategy is that ads just won’t cut it for them. Sure, there are a few people that use Twitter’s website, but they are generally newbs that just signed up for the service. Practically everyone uses either a desktop application such as Twhirl, TweetDeck, Witty, etc… or uses Twitter through SMS. Are they going to start inserting ads in people’s tweet streams? Something tells me that this wouldn’t be very effective, and again users just wouldn’t respond very favorably to having ads being shoved in their face. Also, since Twitter’s api is pretty much open, people use all sorts of different twitter clients, so even if Twitter released an official Twitter client to put ads into it, they would have a horrible time convincing people to use it. They’d probably have to close down their api in order to get people to use it, and in doing so they would kill what twitter is all about. Anyone remember the wonderful instant messaging wars that ended so uneventfully?
So if they can’t charge, and they can’t use ads effectively, what are they to do? I first started thinking about what people were already doing on Twitter that could be improved upon, and therefore charged for. So, I thought about how when people tweet about certain companies, they have people who respond to those twitterers to try and find out what they thought about the product, service, etc… Personally I think that this is great, companies should monitor twitter for mentions of them and then interact with their customers. But they could certainly take this a step further. Twitter (or another company) could release software which allowed companies to more accurately track and respond to mentions of their name or products. They could provide advanced reporting and tracking for this, because as we all know, information is gold in the business world. As the volume of chatter on Twitter increases, certain companies could be interested in leveraging it further which would mean that they would need more than one person on the other end of the tweet stream. If Twitter could provide companies a way to split a single Twitter account into multiple sub-accounts so that companies could have multiple people responding to Twitter mentions then this would easily be a service that Twitter could charge for.
I searched on Twitter just recently for “Sony” and found that they had been mentioned about 50 times in the last hour alone. “Amazon” had been mentioned 118 times within the last hour. If Amazon wanted to have a few people to respond to these tweets how would they manage who had already been responded to and who was skipped? It would be difficult to manage this without writing custom software. If Twitter promoted its own use for business purposes and then provided the tools for companies to easily manage these interactions I think that they could create a nice revenue stream, while at the same time managing to stick around for the rest of us! If they priced it reasonably then I think that even smaller companies would invest some money in tools to manage customer interactions on Twitter.
Now this is just one small suggestion, and I’m sure that the folks over at Twitter are investing some serious time into figuring out how Twitter can turn a profit. If they don’t figure something out soon they might find themselves in Digg’s position, with a declining valuation and investors that have become more reluctant to throw more money at the company. In my opinion though, until they can propose a reasonable plan to turn a profit, Twitter is just another case of techno-charity.
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It’s a good idea Justin.. They could provide official verified accounts to companies that could be used to send customer comments directly to companies and for outgoing official company notices. The api could have a new verified bit for the account and the clients could show an icon indicating that (like the lock in a browser). Companies would pay to have verified accounts – ask Verisign.
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