Twitter: Can they make (big) money?


To answer this question, you need to consider 3 key issues: 1) Can Twitter create a strong offering for users, businesses and partners? 2) Can Twitter develop a revenue model around this offering? 3) Will their business quickly scale while warding off competitors? To help address these questions, I have referenced some excellent Twitter insights from MIT’s Technology Review.

Twitter’s performance to date is compelling. RJMetrics, a business analytics firm, estimates that Twitter has 75 million accounts , with 15 million responsible for most of the traffic. Twitter has helped usher in the Real-Time Web, in which information is generated and consumed almost instantaneously through interconnectedness with social networks, blogs, and other news sources. CNN Breaking News, for example, has nearly three million Twitter followers. Increasingly, Twitter is the first stop for people seeking real-time news. While it’s easy to talk about paradigm shifts it’s often hard to measure and document; the Company will not share numbers, and third-party measurement of Web audiences remains dodgy. If the Real-Time Web is the next, big thing, how will Twitter capitalize on it?

Strong Offering?

Billions of tweets today do not simply translate into a viable, long term business. To build a big business, Twitter must continue to attract new users, retain existing users and drive usage. All of this is dependent on making tweet-borne information actually useful to the right people at the right time. Fortunately, this is happening. Twitter is evolving from being a trendy provider of banal and trivial (for businesses) personal information to a source of topical, high value information such as breaking news, stock quotes or product recommendations. The Company is striving through technology and product management to improve the relevancy, usefulness and reach of its data stream while minimizing spam. At the same time, the firm is aggressively adding new applications such as StockTwits (for real time stock quotes) and Twitpic for photo distribution. Similar to iPod’s experience, attracting application developers and making it easy for them to work with Twitter’s technology will be crucial to expanding the service’s appeal. A couple of deals suggest that Twitter’s data stream is beginning to bear fruit.

Revenue Model?

Recently, Twitter inked important first step deals for $25 million with Google and Bing to feed real-time tweets. This will make Twitter profitable for the first time, while legitimatizing their value proposition to search engines. Outside of these successes, however, Twitter has yet to identify the winning revenue model. There are many potential ways to monetize tweets including keyword-based advertising, sales of market research data (e.g., product mentions) and placement of sponsored tweets. Or, it could be something completely different that has yet to emerge.

Figuring out the right revenue model is only half the battle. To demonstrate a business case to marketers, Twitter will still need to track and measure user behavior. This is especially challenging for the firm, because the most common unit of Web usage, page views, doesn’t really apply. Tweets, after all, aren’t pages; they’re the units that make up data streams moving across many platforms and being consumed in a myriad of ways.

While Twitter data in theory should be salable to companies, so far the marketplace is tentative. A recent survey by Kognito, a business intelligence firm, found that only 14 percent of market research companies surveyed had immediate plans to mine social-networking data at all.

Twitter’s own internal documents point to an optimistic (or delusional) future. By 2013, the Company is aiming to have 1 billion users, taking in $1.5 billion in revenue and $1.1 billion in net earnings. Can they get there?

Scalability?

Creating a market has placed Twitter squarely in the cross hairs of some well-funded industry giants like Google and Facebook, who are working on similar offering, as well as a slew of start-ups. Though Twitter’s head start is an important first mover advantage, it may not prove to be sustainable from a operational or technological perspective. Reaching a billion users will pose significant operational challenges including attracting enough talented employees and providing user support. Moreover, there are questions as to whether the existing technology foundation can support anything close to a billion users leveraging a wide variety of apps. The Company has no apparent ownership rights to the basic technology for micro-blogging so competitive product parity is very likely. Moreover, developing key word, real-time searches and location based services based on data streams is not easy and there is no magic algorithm on the horizon (unlike what Google was able to develop) that can deliver highly relevant, spam-free results every time.

It is still very early in the game and Twitter is hardly alone among online social-networking sites in its struggle to find a lucrative and glitch-free business model. The path to market success in technology is rarely an obvious one as Google’s experience demonstrates. Google’s scalable growth was fueled by selling ads based on keywords not through deploying superior search technology (although it needed be good!). The next 12 months will be crucial for Twitter to ‘jump the shark’ and emerge as the overwhelming consumer choice.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

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1 comment so far

  1. Jeff Wilson on

    Interesting post Mitch. I have always fought with a question that i think comes before whether they can make big money… Are they viable?

    There is reason to believe that Twitter is very much a one trick pony buoyed by celebrity and business personalities. These personalities could be called “fickle” to say the least. So what happens when the “big new thing” comes along and the celebrities vacate Twitter?

    I’m just not convinced that Twitter is stand alone and it may just be defying logic at the moment. Were it part of Google in some way, say an “Ask Twitter” type application where you can ask questions to 75 million people and get answers immediately? That has incredible purpose and value.

    I just think its too easy to replicate.

    Will be interesting to see how these deals with the search engines work out.

    Cheers!

    Jeff – Sensei


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