On March 22nd, 2006, a young undergrad student at the New York University sent a message on a brand new micro-blogging site called Twitter. The five word message itself was a simple, non-descript one that read “just setting up my twttr”. But it was significant enough as the first ever tweet sent out by none other Jack Dorsey, then the founder of one of the digital world’s most popular and impactful websites.
How the business grew from that one tweet to a valuation of over $18 billion is a good enough commentary on both the space it occupies and the business model of this digital age unicorn.
To understand how Twitter makes money, we will need to step back and revisit the journey of this micro-blogging platform. The fact that it wields unprecedented influence in socio-political areas across the globe makes it powerful.
The Twitter Product
Essentially, the Twitter product is a simple micro-blogging platform that enables users to air their thoughts and views as messages or, in their proprietary parlance, tweets. In the beginning, there was a restriction of 140 characters per tweet which, later, was doubled to 280 characters.
These tweets would reach the followers of a user in their feed on a real-time basis. Likewise, when a user follows other users, their tweets would feature in his own feed. The actions one can do to these tweets are liking it, commenting on it and forwarding it further by adding one’s own remarks which is called retweeting.
This is Twitter in its essence. The simplicity of micro-blogging and the fast-growing community meant the reach of tweets grew exponentially. With that, the platform also garnered a reputation as a sounding board for the whole world and led to its influence and impact becoming unimaginably huge.
It was meant to be distinct from a Facebook, a Whatsapp or an Instagram in its raison d’etre. Twitter was more about spreading thoughts and ideas and allowing them to be heard in a network of people and prompting them to add to the conversation.
After just 6 years of its founding, Twitter went public and in 2017, recorded its first profitable quarter in the fourth quarter. The rest of the statistics too are no less impressive. Here are over 1.3 billion users out of which 330 million are active ones with 145 million active daily. An additional 550 million visitors visit the platform without logging in. With 83% of the world’s leaders using the site, Twitter commands immense respect for its ability to be heard. Nearly 25% of all verified accounts belong to the journalistic community which is a staggering piece of data that points to the platform’s standing as an influencer.
With over 500 million tweets generated in a day, Twitter has become not just the de facto source to hear both breaking news and developing stories. It has also become a meeting ground of opinions and ideas on newsbreaks and developments. With political leaders, celebrities and the newscasters tweeting relentlessly, the user base has not just been growing in numbers but become increasingly active too.
At this point, it is no wonder that corporates too flocked to Twitter en masse. With such a mammoth user base and captive audience, it is no surprise that almost every commercial entity started taking the micro-blogging site seriously. There is hardly a company that does not have a presence on Twitter.
They use it to share information and even interact with their customers. Knowing well the potential reach of both positive and negative tweets about their brand, companies started building their follower base and cultivating influencers. Complaints began to be taken seriously and damage control over an unhappy tweet was given high priority.
Today, nearly 60% of the world’s top brands have over 100,000 followers on Twitter with over 90% of companies tweeting more than once daily. As for users, on an average, they follow over 5 brands too.
Twitter’s Business Model
With the astounding growth and the immense success that reflects through the above numbers, it is clear that Twitter has an extremely good case to make money. The platform’s solid user base and the continuously increasing usage open up healthy revenue streams.
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So, How Twitter Makes Money?
1. Advertising Services
When you have such a large captive audience and the presence of brands too on the same platform, advertising can be a great business solution. The bulk of Twitter’s revenue in 2020 – a whopping 86% at $3.2 billion – came from its advertising initiatives. These come from income generated from their advertising clients from the sales of promoted products that range from accounts, tweets and trends.
An individual or company can advertise by promoting a tweet, promoting an account or by promoting a trend with a hashtag-driven topic. Twitter charges the advertisers based on the amount of interaction that the tweets generate.
Twitter has harnessed the advertising possibilities from its own platform and this shows up in the mix of their revenue where the majority comes from in-house. There is a lesser component of the revenue that stems from advertising on third party sites and apps.
As is normally done in the online space, Twitter also uses an algorithm to identify opportunities to advertise the right products for the right user and pushes these promoted products onto their timelines. There are other avenues on the site where the advertising possibilities exist.
Users typically look for the major trending topics that get listed. With the power of data, it is possible to slice and dice this by country of origin, interest and usage patterns and serve up sharp and relevant advertisement. Another area that interests users is the suggestions on whom to follow and this too attracts advertising.
Video has been increasingly a powerful tool and Twitter has introduced options like in-stream video ads and sponsored video content. By improving the targeting of the audience, these measures have proven to be quite popular with advertisers on the platform.
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2. Data Licensing As A Revenue Stream
This has been an alternate but relatively less prominent revenue stream for Twitter. Data licensing accounted for about 14% or $509 million of their revenues in 2020, registering an almost 10% growth over 2019.
This includes subscriptions to data sold outside of their public API and clients of this stream put a price to both the wealth of historical and real time data curated from the preferences and activities of Twitter users.
The platform also has a proprietary mobile ad exchange called MoPub and this is yet another source of revenue coming out of the fees charged from its users.
There is no doubt; Twitter is here to stay. After all, it is one of the most effective ways of communication and its users base is growing by leaps and bounds.
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