TWITTER SEARCHES FOR A BUSINESS MODEL
Twitter, the social networking site based on 140 character text messages, is the buzz social networking phenomenon of the year. Like all social networking sites, such as Facebook, MySpace, YouTube, Flickr, and others, Twitter provides a platform for users to express themselves by creating content and sharing it with their “followers,” who sign up to receive someone’s “tweets.” And like most social networking sites, Twitter faces the problem of how to make money. As of October 2010, Twitter has failed to generate earnings as its management ponders how best to exploit the buzz and user base it has created. Twitter began as a Web-based version of popular text messaging services provided by cell phone carriers. Executives in a podcasting company called Odeo were searching for a new revenue-producing product or service. In March 2006, they created a stand-alone, private company called Twitter. The basic idea was to marry short text messaging on cell phones with the Web and its ability to create social groups. You start by establishing a Twitter account online, and identifying the friends that you would like to receive your messages. By sending a text message called a “tweet” to a short code on your cell phone (40404), you can tell your friends what you are doing, your location, and whatever else you might want to say. You are limited to 140 characters, but there is no installation and no charge. This social network messaging service to keep buddies informed is a smash success. Coming up with solid numbers for Twitter is not easy because the firm is not releasing any “official” figures. By September 2010, Twitter, according to comScore, had around 30 million unique monthly users in the United States, and perhaps 96 million worldwide, displacing MySpace as the number three global social network (behind Facebook and Microsoft’s Live Profile). The number of individual tweets is also known only by the company. According to the company, by early 2007, Twitter had transmitted 20,000 tweets, which jumped to 60,000 tweets in a few months. During the Iranian rebellion in June 2009, there were reported to be over 200,000 tweets per hour worldwide. In October 2010, Twitter was recording over 1.2 million tweets a month. On the other hand, experts believe that 80 percent of tweets are generated by only 10 percent of users, and that the median number of tweet readers per tweet is 1 (most tweeters tweet to one follower). Even more disturbing is that Twittter has a 60 percent churn rate: only 40 percent of users remain more than one month. Obviously, many users lose interest in learning about their friends’ breakfast menu, and many feel “too connected” to their “friends,” who in fact may only be distant acquaintances, if that. On the other hand, celebrities such as Britney Spears have hundreds of thousands of “friends” who follow their activities, making Twitter a marvelous, free public relations tool. Twitter unfortunately does not make a cent on these activities. The answer to these questions about unique users, numbers of tweets, and churn rate are critical to understanding the business value of Twitter as a firm. To date, Twitter has generated losses and has unknown revenues, but in February 2009, it raised $35 million in a deal that valued the company at $255 million. The following September, Twitter announced it had raised $100 million in additional funding, from private equity firms, previous investors, and mutual fund giant T. Rowe Price, based on a company valuation of a staggering $1 billion! So how can Twitter make money from its users and their tweets? What’s its business model and how might it evolve over time? To start, consider the company’s assets and customer value proposition. The main asset is user attention and audience size (eyeballs per day). The value proposition is “get it now” or real-time news on just about anything from the mundane to the monumental. An equally important sset...
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