We have a problem: Twitter one of the last useful “social networks”1 needs to start making money and fast. Making money isn’t really the problem, the problem is how Twitter wants to make money and how the need for money is fundamentally changing the service itself.
Right now Twitter seems to be using “Promoted Tweets” and “Promoted Trends” as their way to monetize the service. I have no clue how much these ads cost, or how many they run at once, but lets just say they are making $100,000 (This article says $80k and this WSJ article says $100k) off of each of the two — for one day. Let’s assume there are 3 of these running each day. That means that in one month Twitter has made roughly $9 million dollars (again assuming they can find 3 advertisers willing to pay $100k every day). I think that is unlikely given how ineffective I can only imagine these ads are.
Marco Arment on the latest episode of Build & Analyze pleaded for Twitter to just inject ads into the users tweet stream every so often. A good idea (one that I support), but again it would be very difficult to keep the revenue at a high enough level without allowing just about every advertiser. Google makes a lot of money in $1000 chunks, not in $100,000 lump sums.
What if Twitter decided to start charging users?
Imagine that Twitter’s estimated 200 million user base was asked to pay $6 a year to use the service (something that would amount to $0.50 a month). I would guess Twitter would lose some users — let’s be brutal and assume they lose 70% of users instantly. That leaves the service with about 60 million users – a large drop.
That is 60 million paying users though, and at $0.50 each monthly that amounts to $30 million dollars in revenue each month. To put it another way: if Twitter charged users $0.50 a month and lost 70% of their user base, they would still make $21 million dollars more each month than I estimate they do with promoted tweets and trends.
Now we have to go back and look at my original math, to get a promoted [whatever] to reach $30 million in revenue each month Twitter would need to be running 10 of these promoted items everyday at $100,000 each. That just doesn’t seem likely to me. Perhaps they are and I just don’t see them, but if I am not seeing them, then how beneficial can they possibly be to businesses? And if they are of little benefit to businesses, then they won’t sell for very long.
There are some obvious things going on here:
- We must assume that Twitter wants the service to remain free to users at all costs.2
- We must further assume that Twitter doesn’t want to display traditional ads.3
Making those assumptions means that Twitter has decided a large, vast, user base is better than a small profitable user base. I am not here to argue which they should do, but I think it needs to be noted that if 30% of Twitter’s estimated 200 million user base paid just $0.50 a month — Twitter would be making gobs of money.
Or think about this: what if you could pay $29 a year (like a Flickr Pro account) and in return your account would be verified (telling the world it is actually you) and you wouldn’t see promoted anything. Thus, Twitter could keep serving those promoted items and charge the power users not to see them. I would guess that the ‘Pro’ accounts would bring in more money than the ads do on a month by month basis if such a system were to be implemented.