Twitter — Show Me the Money

Starting with the dot.com bubble of a few years ago, marketers have been intrigued by the new Internet technologies and their profit-making potential.  Huge amounts of investment capital have flowed into these ventures and most quickly collapsed victimizing both employees and investors.

 Amazon.com somehow emerged from this morass but had to change its business model to succeed.  It seemed that the more books Amazon.com sold, the more money it lost.  To survive, Amazon.com was able to reconstruct its business plan and found a profitable revenue stream from licensing its backroom technology.

 Now, we find ourselves in the midst of another round of promising schemes based on the “social networking” movement.  One of stars of this movement is “Twitter.”

In the way of background, Twitter was founded by Evan Williams, Biz Stone and Jack Dorsey in 2006.  Williams formerly created the “Blogger” blogging service, which he sold to Google.  Stone also worked with Google and later teamed up with Williams to create the podcasting company, “Odeo.”  Twitter was a side venture inside “Odeo” by Dorsey, who is now chairman of Twitter while Williams, who has more experience running startups, is the CEO.  Financial support for Twitter comes from Union Square Ventures, Digital Garage, Spark Capital and Bezos Expeditions, an investment group led by Amazon.com’s Jeff Bezos.

 Twitter’s messaging service is a blend of text messaging, blogging and random thoughts.  According to “All That Twitters Isn’t Gold: A Popular Web Site in Search of a Business Plan,” published in the April, 2009, issue of Knowledge @ Wharton:  “Some observers have described Twitter’s service as a ‘micro-blogging’ platform that is a real time gauge of what users are thinking, seeing or doing.”

 The Twitter platform also allows people to be citizen reporters and provide on-site reports of earthquakes, terrorist attacks, street demonstrations and the like.  The success of the “Arab Spring” overthrows of Mideast governments has been attributed, in part, to the Facebook and Twitter social networking sites.  Celebrities like entertainers and athletes, with their huge Twitter followings, use their Twitter platform to spout off on all sorts of things.  What makes Twitter so fascinating is that messages – or tweets – must be less than 140 characters.  (A character is a letter, space, number or punctuation symbol.)

 Unquestionably, Twitter has been astonishingly attractive. It has 400,000 tweets posted per quarter in 2007, which grew to 100 million per quarter in 2008.  In Feb., 2010, users were sending 50 million tweets per day.  As of June, 2010, the number of tweets per day had increased to 65 million each day – or 750 tweets per second.

 With growth numbers so staggering, Twitter has an unofficial market capitalization of between $4 billion and $9 billion.  An initial public offering (IPO) is clearly on the horizon.

 The problem is how is this concept going to make money?

 The Knowledge@Wharton article reports:  “…Predicting Twitter’s business prospects has become a bit of a virtual parlor game in Silicon Valley as observers guess how the service might ultimately turn a profit….CEO Evan Williams has been coy about the company’s revenue plans.  IN December 2008, Williams said, Twitter ‘will make money…I can’t see exactly how because we can’t predict how the business we’re in will work.’

 The Knowledge@Wharton article writes that the challenge at this point for Twitter is walking the line between growth and making money.  “For instance, Twitter could focus on becoming profitable yet shortchange itself by failing to scale its base for users.”

 Transforming the Twitter model into a money-making business plans is a strategy question that marketing students at colleges and graduate schools across the country might find most challenging.  It offers a wonderful opportunity for a strategic marketing or marketing research case write-ups.

One of the obvious alternatives is to create an advertising-based business model.  Subscriptions and data mining are also revenue generating possibilities.  Wharton Prof. Andrea Matwyshyn offers some perspective.  She points out that using information about users for better targeting markers is fraught with risks like subscriber backlash over privacy issues.  Wharton Marketing Prof. Peter Fader believes the subscription revenue option also has problems.  He points out that subscription models usually have an archive of exclusive content that people want.  Twitter is about the here and now.  “Nobody cares about yesterday’s Tweets.”

Fader points out similarities between Twitter and My Space.  “There is a real strong analogy between My Space and Twitter.  My Space started out as a consumer thing and has become a commercial wasteland.”