Saturday, March 21, 2009

How does Twitter make money?

Following up on my previous post about Twitter basics, I thought I'd address another question from class that raised a number of concerns. "How does Twitter make money, and should I trust my information to someone that may not be here in XX months/years?"

Excellent question, and definitely something to be concerned about as you consider new business decisions. I wrote about several ways that Facebook could make money (in addition to advertising) several months ago, because I enjoy using the service and would like to see it continue. Or maybe I'm subconsciously auditioning to be a Product Manager at Facebook...who knows? Either way, it's interesting to look at how these Freemium companies can generate revenue and stay in business.

As of now, Twitter does not have a revenue model. In fact, this has been the center of much speculation amongst the technorati lately. So let's look at the basic ways that Twitter could make money, as well as some additional opportunities for companies to leverage Twitter to drive revenues for themselves.
  1. Advertising - This is the simplest to understand. Just like Yahoo! or Google, Twitter could begin to monetize their traffic by placing targeted advertising along side the tweets. And considering the real-time nature of their traffic, this could create new advertising models for companies trying to reach certain demographics.
  2. Additional Tweet Space - Tweets are currently confined to 140 characters, a throwback to the days when Tweets were mainly sent via SMS (Text) messaging. But some people and companies struggle to get their message out in this short format. Supporting larger character lengths may be a service that Twitter can monetize.
  3. Auctions for "Suggested" listings - This came up recently, as new members often struggle with who to follow.
  4. Integrated Services - An example might be something like this: Starbucks sets up a Twitter "watching" service that looks for people complaining about traffic-jams or any other delay. When they see this, they determine where the users are located. Then they send those people a Tweet offering a coupon to the local Starbucks. This is a very basic example, but there are thousands of possibilities for companies that want to come up with creative ways to reach their target audience. Twitter could offer a service for those companies that can't do this themselves (SMB's with limited IT knowledge), or companies that aren't sure of the right way to engage with social communities.
  5. Broaden the Scope of the Platform - One of the key elements to any Social Media company or service is a willingness to broaden the usage of the platform. This means that not only could others create monetization opportunities, but you can leverage new opportunities because of the increased breadth. This could mean creating new partnerships to leverage the information in Twitter feeds, or allowing partners to insert themselves into the conversations in new ways.
That's just the tip of the iceberg of ways that Twitter could make money. I'm sure there are dozens more.

There is also the possibility that Twitter will get purchased by one of the major social networks, or by Google.