Twitter business models – a modern day case study

Startup

(Image courtsey Bootload, via diy.despair.com)

Over the New Year there was some discussion about Twitter’s business model (naturally I found out about it through my Twitter stream). This isn’t particularly new, David Chartier suggested six ways Twitter could make money back in April. Allen Stern started this round of discussion, asking is Twitter F’ed? He argues that the Twitter client, Twitterific makes money by charging for the software, while Twitter hasn’t made any money. Given that Twitter is chewing up bandwidth they’ll need to find a viable business model soon. Stern argues that going for the approach of eyeballs first, business model later may backfire.

The ever reliable Dave Winer responds succinctly, arguing that Twitterific reaches only a very small percentage of Twitter’s overall audience. If you had to choose, you’d want the big free audience over the small fee paying one. He suggests they could make their own client, but more importantly:

there are lots of ways for Twitter to make money once there are enough users. And right now their business is to grow and their first priority is to stabilise their service

Stowe Boyd suggests another method, that of reusing Twitter’s social stream in other applications:

if third parties wanted to build other apps that use a twitter-esque social stream, they might make an agreement to reuse the twitter pathway. .. As long as I could push stuff through the pipe, I would be willing to pay a per message bulk deal. And I believe that the notion of a common social stream — being reused by many apps — is a big chewy idea.

Whatever the model is, the discussion is a case study in modern day economics. There are a number of interesting elements to it I think. Firstly, it seems that normal economics doesn’t seem to apply. As is often stated, economics is the study of scarcity, and we are dealing with abundance. So what is the pricing model that works here? It may be that old school economics triumphs, you can’t beat the old dogs, but it does seem here is a service that is hugely popular and useful. If it can’t be made to work economically then there is something wrong with the structure of the market and our theories, not with the product itself.

Secondly, it is the ideal representation of the get the eyeballs approach to new businesses. This may be restricted to the US, I think Twitter would have struggled to get funding from UK venture capitalists. The conversation would have gone:

Twitter – "We’ve got this great idea for a service, we’ve trialled it and take-up is phenomenal. Here are the projected usage figures" (Shows graph with big staircase jumping off the top of the axis)

VCs – "Woooh, we like it! And so, what’s your business model? How do you monetise all those users?"

Twitter – "We haven’t figured that yet. Don’t worry, we’ll come up with something later."

VCs – "Bye"

Lastly, I like the way the community itself is chipping in with suggestions for what would be a good business model. In David Chartier’s post he quotes Evan Williams (one of Twitter’s founders) saying that "Our top concern when it comes to monetisation will be to do so in a way that does not negatively impact users."  And it seems that the Twitter community is willing to help them do that.

If I was an academic in a Business School, I’d be looking at Twitter as a test bed for how the new economics pans out.

One Comment

  1. Twitter is going to get bought out. They keep avoiding the money making issue, and instead prefer to just throw around ideas for how they can monetize twitter, instead of actually trying some of them out. Its around to stay, thats for sure, but my guess is it’ll be under different ownership than it currently is.
    -Marc

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