Wednesday, August 20, 2008

Monetizing Twitter

Via a Tweet, I just read an article about "The trouble with Twitter" (article tries to make a case for Twitter having very few methods of monetizing the service). I could not disagree with the author more. First there is the ridiculous comparison to Facebook valuation:

"...Compare that with Facebook, which has a perceived value of $300 a user—or at least it did last year, when Microsoft purchased its 1.6% stake for $240 million and the site had 50 million users..."

If your going to make a comparison, at least use "apples to apples". Microsoft's investment in Facebook was strategic... (kept competitor from buying Facebook, and allowed Microsoft a much needed advertising deal with Facebook). So to turn this investment into stating Facebook's value is $15 billion is rubbish.

The article goes on to imply that advertising is Twitter's best shot at revenue, and that even that will not monetize well. It continues to identify (and pan) 4 potential sources of revenue:

"Twitter could ask users to pay. It's been done before—competitor Pownce charges user fees for enhanced content—but is difficult to add fees once the service has been established as free."

Rubbish! When I came on board with RoboForm it was a freeware product (with a decent number of users). I successfully (and slowly) moved RoboForm to a freemium model from the previous freeware model (RoboForm PRO is currently $29.99). RoboForm today not only commands a whopping 90% share of the consumer password manager market - but it is likely the most loved product by its users with barely a whimper about users having to pay for what they previously had for free.

"• Twitter could get messages to pay. With millions of messages flying around, why not convince some to be "sold" as product placement? Blogger Steve Poland suggests that Twitter could insert text ads into every 10th or 50th tweet. But again, users would rebel."

To state that "users would rebel" is speculation, and the devil is in the details. I envision a Twitter where some Tweets are "paid tweets", and others not. This is no different then Google's paid search model. When you view a search result, some are organic, and others are paid for. In the future, companies who represent their brand on twitter will likely pay while non-commercial tweets would remain free. If there is a value to a brand in using Twitter (there is), they will pay.

"• Twitter could extract money from user data. Millions of people now share intimate thoughts via Twitter. Think of the market research potential. Companies are already mining these huge swarms of data. Dell has enlisted Visible Technologies to learn what users are tweeting about its products. But if Twitter itself tried to monitor user data, privacy concerns could quickly alienate users."

To invite the privacy Nazis to the party is equally ridiculous. Why should Twitter be thought of any differently to other companies that harness personal data (Facebook,Linkedin,etc). Again, the devil is in the details (users did revolt against Facebook's Beacon) however if down properly, and disclosed clearly in it's privacy agreements why not? The author does correctly point out that Twitter will end up containing swarms of data. You can be certain this will become a large revenue opportunity.

"• Twitter could sell ads. Twitter is already doing this in Japan.

Advertising is the most viable option, but the total potential pool is not huge. Social media sites are notorious for having low ad response rates, and advertisers will enter a new forum cautiously."

Yes, some social media sites have low response rates, however this will change over time (see my previous blog posts about Facebook and Going Vertical). The reality is much different though. Someone will "Tweet" about a great book they just read, and that Tweet will be tied to an Amazon affiliate link where others can purchase the book. Or perhaps the Tweet will be location aware - "Craving Pizza in NYC", and as GPS allows Twitter will attach ads from local pizza parlors in NYC.

I need to add that IMO, Twitter will be sold within the next 12 months, as Social Network Service Providers (most likely Cisco) recognize the true value of the Twitter communications platform.

So in summation, I believe that Twitter will enjoy multiple (and successful) revenue streams as its eco-system, and environment allows. This does not even include Twitter's potential for licensing their API in the future, syndicating there data, etc. When it comes to monetizing software the sky is the limit if you know what your doing.

*be sure to view my previous blog post regarding my vision of what Twitter will be in two years (It won me a Nokia tablet from Forrester's Web 2.0 guru, Jerimiah Owyang).

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