Twitter’s Business Model

The first news of the earthquake that hit Concepcion in Chile was communicated to the outside world through Twitter, followed by mobile phones, followed by new media followed by print media – In that order!

The question then is, How does Twitter monetize its empowering reach and capitalize on its growing popularity?

Major Web 2.0 companies, such as Facebook and YouTube, have repeatedly said they'd build their audience first and find revenue streams later. But those giants have shown that converting eyeballs into money hasn't exactly been easy; Facebook has yet to start generating meaningful profit, and Google has said on a number of occasions that it has yet to find the right business model for monetizing YouTube's considerable traffic.

To the best of my knowledge, today Twitter makes a negligible amount of revenue from users that send and receive messages as SMS texts, and overall loses an undisclosed amount of money. Yet, the service has grown to more than 2 million per month, ten times more than April 2007, according to Compete.com. As of March 2009, 300,000 active Twitter users per week sent 3.5 million updates per day!

One of Twitter's most likely revenue streams is through advertisements in search results where messages could be tied to what users were searching on. Twitter recently purchased Summize, a search engine specifically designed to sift through Twitter messages, for a reported $15 million in cash and stock.

Another possible revenue stream is corporations paying to use the service to stay in frequent contact with their customers. Several large companies, including Dell, Whole Foods, and JetBlue in the US, have already set up corporate presences on Twitter to let customers know about special offers and even answer customer questions.

Here is what Twitter has decided to do, for now.

The idea is that Twitter will let advertisers sign up to have their ads show up as tiny 140-word posts when users search through Twitter or through other search engines that use its API.

A search for, say, “internet services,” may generate an ad for Cyber Gear. The ads will only show up in search results, which means users who don’t search for something won’t see them in their regular Twitter streams. The services will have the option of displaying the ads, and Twitter will share revenue with those that do.

No rocket science, but guaranteed to generate wads of GREEN. Elementary Dear Watson.

Send your comments to sharad@cyber-gear.com. On twitter at https://twitter.com/GoGreenae