Curious Case Of Twitter Revenue Generation

twitter-revenueThe way twitter has evolved is fabulous and worth a praise. They became mainstream in a year or two. The aspect we are going to explore in this article is much talked “Twitter Revenue Model”. When everyone in internet business considers advertising as the biggest source of revenue, twitter chose it’s own path. Twitter grew exponentially because of the ease of use and innovative idea of social communication. Twitter recently raised funds at $1 Billion valuation. Web evangelist Robert Scoble went ahead saying Twitter is underhyped and is probably worth five to 10 billion dollars. Let’s dive deeper in to the cash piles and find pearls of wisdom.

Little Bit “About Twitter”

Twitter is a free microblogging service that enables its users to send and read messages in less then 140 characters per message. It founded in 2006 by Jack Dorsey with two other colleagues Evan Williams and Biz Stone. Headquartered in San Fransisco, Twitter actually came out of Obvious Corp’s venture Odeo where Jack worked. Eventually Twitter was formed as an independent entity Twitter, Inc. That’s enough for history lessons. Let’s move to economy class.

Twitter’s Growth And Lack Of Revenue Plans!!!

Twitter has 18 million users as of 2009, reported by eMarketer. And that’s a 200% increase over 2008 numbers. Unique visitors to twitter.com is around 21 million as reported by Nielsen. Enough numbers for revenue generation!! Probably it is for any hot new startup. And same was the case with twitter, but the road block was to What Should Be The Revenue Model? Twitter founders are not a big fan of banner or contextual advertising in particular. Though they don’t hate advertising as cited by co-founder Biz Stone in the blog post. But to continue operations, any business needs cash and twitter was no exception. Most obvious option was to serve advertising in user’s Twitter feed stream. To that Stone replied “Are we going to end up pissing them off?” Other options were to show ads in search results as well as “freemium” model where paid users won’t see any advertisement.

So Where’s The Twitter’s Cash Pot Exactly?

Ultimately twitter founders found two ways (at least) to monetize the service. The first was the deals between Twitter-Google and Twitter-Microsoft(Bing). The deals were to allow the use of tweet streams to show up on Google and Bing search results – The holy grail of Real-time search!! Real time search is quite a buzz word and it means enable searching of real time events and information available on the internet. What’s a better mean other than to tap twitter’s tweet stream for real time search on both the leading search engines. And it’s been said that twitter made lot of money by making those deals, though exact numbers are still a mystery.
The other way of revenue generation is also quite unique. Corporations paying money to use specialized premium services of twitter to stay in touch with their customers and increase their sales. Much talked case of Dell making $6.5 million in sales through twitter. Look at this Dell on Twitter page. Dell makes exclusive discounts for their followers of @DellOutlet on twitter. Ok, that’s another story. But the purport is twitter now has one proven business model to generate revenue without annoying end users with clutter of contextual or banner ads. How this premium model for businesses work? Read the excerpt below from the twitter blog post,

The feature we are beta testing is called ‘Contributors‘ – it enables users to engage in more authentic conversations with businesses by allowing those organizations to manage multiple contributors to their account. The feature appends the contributor’s username to the tweet byline, making the business to consumer communication more personal; e.g. if @Twitter invites @Biz to tweet on its behalf, then a tweet from @Twitter would include @Biz in the byline so that users know more about the real people behind organizations.

What’s The Conclusion Then?

Looking at the growth of twitter and how they devised revenue generation models without compromising user experience, one thing I can note is, they always thought of users and not the money. They made excellent yet simple service and parted themselves from greed of easy money – which they could have earned with in-content advertising. They showed patients for growth and love for the users. Any hot yet new startup should consider following twitter path. Case ends!! :)

Image Credit: TheNextWeb

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3 Comments

  1. favSHARE

    02.03.2010

    This article has been shared on favSHARE.net. Go and vote it!

  2. Ryu

    02.10.2010

    I think more people are making money off of Twitter than the website is making for itself.

  3. logic

    07.23.2010

    great article. the different ideas you mentioned for twitter surviving and thriving at scale are fascinating. however, you seem to have slipped off the deep end there with your conclusion. 160 million hard earned dollars risked by investors so that they can spread love? lol… not just thinking of the users, but being obsessed with their satisfaction is of undeniable importance to any good business. the more value they provide, the more clever and innovative they are maximizing their revenue while minimizing user annoyance, the more of a return they deserve and should expect. perhaps this is out of your area of expertise, but building a successful business is as far from “easy money” as it gets, and “greedy” implies comprising ones morals for profit. you have to be very extreme to think offering a service for free with advertising is greedy, especially when the page you write that on has 3 banner ads :) coming back to reality, the real reason they waited so long to deploy advertising is to not jeopardize potential scale that can be achieved from a free product, before their need to feed their employees self-sustainably becomes imminent. it’s the same as the dot com days… eyeballs vs financial solvency. of course, this makes their value highly speculative, though not to say nonexistent. their potential lies in the innovative business models as you mentioned, not because they love you nor they love entitled moochers, but because they owe it to their shareholders and employees who invested huge time, effort, and capital, and to their users who embrace whatever business model they end up choosing, in order to justly reward the services provided and the risks taken by all those involved with taking twitter from idea to IPO. :) anyways, thanks for the insight into the possibilities. this stuff is certainly exciting to watch :)

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