Digital Media Buzz > Spinning Tweets of Gold: Twitter’s Revenue Model

Spinning Tweets of Gold: Twitter’s Revenue Model

By John Greaves

Twitter, the social networking giant that has revolutionized the way we interact with each other and search for information, seems to be planning to monetize using third-party applications. On the other hand, it might be planning to charge companies for access to its site’s products. Or maybe it will just sell ad space. It’s still not clear despite Twitter co-founder Biz Stone’s promise that we would know how his company plans to start making money in early 2010.

The question of Twitter’s move toward monetization has been a topic of discussion for years, and of course, Twitter has a history of promoting third-party apps without being paid for them. So intense is interest in how Twitter will monetize that a hoax last year concerning paying for premium accounts led to a firestorm of outrage that increased when protesters learned they were the victims of a prank by BBspot.

This is partly because Twitter’s investors have long maintained that they were in no hurry to make money off the micro-blogging site. Stone told reporters in 2009 the company wasn’t fretting about the need to monetize. “There are no dates when we need to break even. We have plenty of money in the bank,” he says.

The question remains, what is Twitter planning and will it be successful? In 2007 Evan Williams, co-founder of Twitter and the current CEO, let slip some of the ways he thought the site could generate income. “Two more-straightforward ideas: 1) Ads on the site. We have a little AdSense on there now, but we haven’t really tried. As the traffic grows, some tasteful sponsorships might be sellable. 2) Charging companies who are using it for marketing or other commercial purposes. If an organization finds Twitter to be a valuable communication tool with their customers/constituents/etc — especially if we’re sending lots of SMS’s for them, which cost us money — it seems viable to make an offering around that,” he said.

Steve Hofstetter, a comedian who has helped create apps for Facebook and the iPhone as part of promoting his brand, is enthusiastic about Twitter monetizing through ad revenue.  “Click on their website right now, you know they have that little useless twitter definition, who gets utility out of that? People in the office enjoy that, if you made that a tiny little ad; it doesn’t just give utility to Twitter, marketers put ads on sites because they’re good for the consumer, I’ve found good stuff through banner ads,” Hofstetter says.

Nevertheless, according to Radar Research founder Marissa Gluck there is a problem with simply relying on advertising to monetize social media. “In terms of advertising, click-through rates and engagement historically tend to be very low on social networks, consumers aren’t really there to search out products or to purchase, they’re not in that mode, they’re not in that mentality, so consumers are not really engaging with ads on social networks because they want to engage with their friends,” Gluck says.

On the other hand, Gluck points to the fact that Twitter wears many hats in the social media arena and can perhaps choose multiple revenue streams to be successful including the second option Williams mentioned. “Twitter is everything from a social network to an RSS feed to a broadcasting platform, so Twitter is a little bit different, which is why for Twitter it makes more sense to look towards paid subscriptions from commercial enterprises as well as advertising,” Gluck says.

Ian Swanson, the CEO of Sometrics, a company that helps developers and brands monetize the social Web, thinks Twitter is right to avoid the ad model for now. “If you look at the expertise of the company, you’ve got to say is this a media company, is this a company that belongs on Madison Avenue or is this a tech company? They really know their strengths. Hey we’re really good at building this platform, really good at the technology - so let’s allow the brands and third-party applications to build on top of our platform and if we go through and charge people for that access, almost like taxing the system, eventually they’re going to make money and that’s just a smart approach for them.”

This echoes comments made by Stone to the Reuters Global Technology Summit in May 2009. “”There are no people at Twitter who know anything about advertising or work in advertising. So we don’t have anyone there to make or take those calls,” Stone says.

It is obvious that third-party applications have figured out how to monetize using Twitter. A PR Newswire press release notes that TwitterJobSearch, the first real-time job search engine, has evolved its offering to include an In-Stream Ads service. Back in 2007, Steve Poland even blogged on easy ways to make money with Twitter using third-party applications. Ad.ly “enables Twitter publishers to make money from the content they produce on Twitter by sending one tweet every day from advertisers that they approve.”

The question is not whether it’s possible for Twitter to monetize itself. Rather everyone is wondering whether 2010 will be the year when Twitter begins to spin tweets into gold.