The Twitter business model

Twitter is one of the smallest social networks in terms of daily active users (152 M) and revenue (US$ 3.5B in 2019). Compare this with Facebook’s 1.8B daily active users (US$ 71B revenue in 2019) or even with TikTok’s 800M daily active users. Yet, Twitter has a disproportional impact on society. It has opened the sluice gates for fake news, misinformation, political manipulation, hate speech, conspiracy theories and unfounded opinions. It seems to occupy a significant portion of the attention of politicians, journalists and advocacy groups. Twitter has enlisted the support of researchers to improve what it calls the health of the network, and at the same time it is trying to move to a network on which people communicate about sports, entertainment, and events rather than about politics.

In this blog I summarize the mission, value proposition, ecosystem and value network of Twitter. This gives us a sound grasp of the strategic position of Twitter. I conclude with a brief discussion of the strategic options open for Twitter. A full report is given in the accompanying White Paper.

Twitter’s mission is simple:

to give everyone the power to create and share ideas and information instantly without barriers.

The creation part is remarkable, for Twitter does not provide any tools for idea generation. However, it does provide a tool for anyone to immediately speak his or her mind and broadcast it without barriers for all internet users to see.

Twitter promises to follow its mission in a particular way:

Our business and revenue will always follow that mission in ways that improve — and do not detract from — a free and global conversation.

This leaves open what “improve” means. To have a free conversation is to have no barriers to expression, and to have a global conversation is, in Twitter context, a conversation that can be followed by any internet user. This is already the case. What could be improved further?

Jack Dorsey clarified this in 2018:

“We have witnessed abuse, harassment, troll armies, manipulation through bots and human-coordination, misinformation campaigns, and increasingly divisive echo chambers. We aren’t proud of how people have taken advantage of our service, or our inability to address it fast enough.”

The free and global conversation must be “healthy” but Twitter is still working out what this means and how to enforce it without violating their mission to allow anyone to broadcast their mind instantly, globally and without inhibition.

For users, influencers and businesses Twitter offers the ability to broadcast and receive tweets free of charge. Users can follow other users and trending topics. Premium content providers may broadcast real-time events using Twitter Amplify.

For advertisers, Twitter offers promoted tweets, promoted accounts, and promoted trends. Twitter Amplify consists of pre-roll and post-roll advertising in premium content.

Businesses can get paid access to twitter data and can get help in analyzing the data.

Like any business ecosystem, the Twitter ecosystem is layered, with lower-level actors providing services to higher-level actors. In addition, there are governing actor s whose authority and impact maybe restricted to one level or may span all levels. The following diagram clarifies this.

Twitter users play two roles: readers and writers. Twitter broadcasts tweets produced by writers, and it shows readers tweets that match their interests and profile. In other words, from an economic point of view, Twitter performs two valuable functions:

• for writers, it produces tweet views;
• for readers, it produces tweets that match their interests.

Users pay for this with their usage data.

The collection of usage data from writers and readers is what we call true data mining: Twitter extracts data from user behavior, just as oil companies extract oil from petroleum reservoirs. User behavior is the resource from which Twitter extracts data. Processing this data, which is customarily called data mining too, is similar to refining oil.

There are several other networks with which Twitter creates value. Here is the value network of premium content providers.

Premium content providers show interesting content to users. Twitter ensures ads are shown together with content, which means that users provide impressions to advertisers (in addition to the usage data that Twitter collects anyway). Advertisers pay Twitter, which shares some of this revenue with the content providers.

More values networks of Twitter are shown in the White Paper. These and other value networks of Twitter are similar to the value networks of Facebook. Twitter has one network that Facebook does not have: It gives companies paid access to its user data.

Twitter has started making a profit in 2019. Most of its revenue comes from advertising (US$ 3.0B in 2019) and the rest comes from providing data access to businesses (US$ 0.5B in 2019). This is in stark contrast with Facebook’s revenue of USE$ 71B in 2019 (for the Facebook, Messenger and Instagram apps) and YouTube’s US$ 15.1B in 2019.

Twitter’s advertising model is no different from that of Facebook. Its data access program is similar to that of LinkedIn.

Twitter is currently acting against spam and fake accounts and this is not appreciated by a number of influential users, such as the current president of the Unites States. However, just like Facebook, Twitter exploits data that it gathers by offering unfiltered global instant communication to anyone with a telephone number and internet access. There is no way this offering can be sustained without also facilitating fake news, fake accounts, hate speech and political manipulation. Something has to give: Restrict access, add filtering or restrict the audience. Possible changes in the business model are removing the anonymity of the sender, moving to a subscription model, or charging a price for a tweet proportional to the size of the audience.

Twitter has added functions to act as a second screen for events, sports and entertainment, such as Twitter Amplify. Twitter may have found an economically sustainable business model in this. Time will tell. It remains to be seen if it will be able to avoid the problem of platform manipulation.

Originally published at https://www.thevalueengineers.nl on October 23, 2020.