How Will Twitter Monetize
- 22 Comment
There has been a lot of talk about how Twitter will monetize their service. I am on twitter (@davidbrim), but am not as active as some of my colleagues in the industry (Not everyone can have a 99.9% twitter grade like @tedmurphy). As of now I have a Twitter Grade of 80%, feel free to test out the twitter grader tool and get your score. Either way I still wanted to touch o
n the “how will twitter monetize” topic and encourage others to do the same.
I feel there are a number of ways that twitter can monetize that can be extremely profitable.
- Highly contextual advertising below tweets
- Charge users a small annual or monthly subscription fee
Imagine sending a tweet saying your going to Red Lobster, your followers would be able to click through to Red Lobster’s site where a landing page could offer you a 15% off coupon. This kind of advertising could actually be appreciated being that it is highly relevant and adds value.
These ads would have to be performance based. Either CPL, CPA or CPC. They wouldn’t do well as a CPM model because it would be too difficult to quantify the people who actually saw the ad. I for one know there are a lot of tweets of people I follow that I never see. No advertiser in their right mind would want to pay for ads on a CPM model unless it was an extremely inexpensive deal.
Twitter could also charge people a certain amount to upgrade per month/or year to not receive ads within tweets. This would be a good idea, because regardless of how relevant some will feel the ads are, there are still going to be some people that feel the ads are spammy and would be willing to pay the premium to get rid of them.
This is something interesting to think about. Ask yourself would you pay $1 a month, $5 a year or another nominal amount to use twitter? There’s going to be a lot of people that wouldn’t pay for something that they’re used to getting for free. However on the other hand twitter has so many thought leaders and professionals that utilize it that many people would find the nominal subscription fee well worth the ability to build relationships, network and share meaningful content.
They could also impliment a freemium model. The base model of twitter would be free and they could offer some sort of upgraded service at a premium.
The revenue potential from both models is really a function of their user base. So how many users does twitter have? According to Compete twitter has nearly 3.5M unique visitors per month. I don’t think that’s an accurate estimate of people that actually use Twitter, being that many people use applications like Twhirl, Tweetdeck or applications for their mobile devices.
From what I gather nobody really has a strong hold on how many users twitter has, but twitter and they’re not talking.
TechCrunch estimated back in March that twitter had 1M+ users, 200k active users and over 3M tweets per day.
There has also been people such as Daren Rowse of Problogger that estimated there are tens of millions of people using twitter across the globe.
Lets do some hypotheticals…
CPC Model: If twitter has 1M users and a total of 3M tweets a day, all with some form of contextual advertising…With an average CTR (Click through rate) of 2% and an average CPC (Cost per Click) of $.50 their daily revenue would be: $30,000 per day.
Here’s the math just in case you were wondering:
3,000,000 tweets x .02 CTR= 60,000 clicks
60,000 clicks x $.50 (CPC)= $30,000 per day
$30,000 x 365= $10,950,000 per year
Affiliate Model: It’s hard to say the CPA or CPL an advertiser would pay out on twitter because so many different types of advertisers would be relevant. I was going to take a shot and try to do a projection, but decided not to. There are advertisers that are paying out $1.50 for a registration and advertisers paying out lucrative commissions for travel packages or other products or services. If I tried to project it wouldn’t be accuarate at all…
But what the hell…Using the same 3M tweets per day stat and 2% CTR if there was a 10% conversion of those that click through and the CPA was $10. Twitter would have a daily revenue of: $60,000 per day.
3M tweets x 2% CTR= 60,000 clicks
60,000 clicks x .10 <–Conversion x $10= $60,000 per day
$60,000 per day x 365 days= $21.9M per year
Hybrid Model: Most likely my guess is that they would do a hybrid model…part CPC and part CPA. So for the sake of argument we’ll take 1/2 of my calculation for CPC and 1/2 for my CPA calculation.
$16,425,000 per year
Keep in mind this is probably way out of the ball park, but atleast I gave it a shot.
According to Tech Crunch Twitter raised a total of $15.1M:
| Total | $15.1M |
| Series B, 7/07 2 Charles River Ventures Union Square Ventures Marc Andreessen Dick Costolo Naval Ravikant Ron Conway Chris Sacca |
$100k |
| Series C, 5/08 3 Union Square Ventures Bezos Expeditions Spark Capital Digital Garage |
Do you think the investors would be happy with the numbers I projected? My thought is the revenue I projected is very attainable for Twitter and would add value, however I feel the real cash out for Twitter’s investors and founders is acquisition.
I project that a large Tech Giant will want to acquire Twitter and try to monetize it in the ways I mentioned or use it as a piece of a larger puzzle they are trying to put together within the next 3 years.
What do you think?
22 Comments on this post
Trackbacks
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Mike Harmon said:
Nice site. There
November 14th, 2008 at 7:16 pm -
James Betterson said:
Its funny that you made this post about Twitter. I just signed up to Twitter last week and I like what I see so far.
My twitter grade is a 19! lol. I definitely need to work on improving that in the future.
Its going to be interesting to see what happens with Twitter. As I said before, I just signed up to the services so I’m unaware of the progress the company has made since they originally launched their services.
I’m sure Tech Giants are keeping a close eye on the Twitter and thinking of ways to monetize the company’s services.
My question is how would a company use Twitter as a piece to a larger puzzle?
November 15th, 2008 at 4:05 pm -
Randy Mountz said:
David some excellent insights here
November 17th, 2008 at 8:32 am -
Matt | Small Business Entrepreneur said:
I honestly can’t say which way it will go when it comes to monetizing, but with that many viewers it is a tantalizing prospect for the developers of Twitter that is for sure. I wonder how many of the Twitterholics would turn their back on Twitter if they were to monetize…seems the community disdains advertisements for the most part (Magpie was panned), only time will tell I guess.
Matt
November 17th, 2008 at 10:44 pm -
David Brim said:
@Mike Harmon…thanks for commenting, glad you like my blog!
@James….Welcome to twitterville! Twitter is a great tool for networking, building relationships and sharing quality content…Enjoy! Regarding my comment about a larger company using twitter as a piece to a larger puzzle…Twitter has a high amount of users, many of which are influential. Though twitter’s technology can be easily imitated (ex:yammer, twingr, etc) when you have a high amount of users a larger company can usually find some way to either monetize them in a way that fits into their overall company goals. This could be done in multiple ways for instance using user’s contact info to push them a long to another paid service, or incorporating twitter’s technology into one of their existing or future platforms which has a monetization strategy.
@Randy…Thanks! Nice seeing you last week at IZEA’s retreat.
@Matt…It seems like people don’t usually take well to ads, however if their ads are highly relevant to the tweet they can actually add value. Word of mouth is so important and if a mixture of advertising and word of mouth can be done correctly I feel all parties will win. Your right though, time will tell if twitter users will actually accept monetization or move onto the next big thing…tough to say for sure
Thanks for commenting everyone!
November 18th, 2008 at 9:35 pm -
David Brim said:
Looks like I was ahead of the ball game on this post…Anthony Richardson brought an article TechCrunch published today to my attention discussing the same topic.
TechCrunch said more than half twitter’s users would pay.
You can see the article About Twitter on TechCrunch Here
November 20th, 2008 at 10:41 pm -
Vatroslav Mihalj said:
People do not come to social networks, especially Twitter (140 char posts), to click on ads.
An interesting way of monetization would be to make money on Twitter SMs updates. It is simple to create a premium destination for sending SMs to it, and a bit more work to setup service based on mobile terminated billing, so that receving updates gets charged (just like in the USA).December 10th, 2008 at 4:24 am -
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