You know what Twitter is – the whole world does. Twitter started out ten years ago and has since grown in leaps and bounds, quickly becoming one of the most popular social media channels on the internet. It has become an outlet and a voice for many, including, of course, the current American president.
Twitter’s impact on the world, in general, is not insignificant, and yet, its value seems to be decreasing over time. Twitter’s stock hasn’t been doing so well, and there are many out there who consider it to be a broken business model. This is perhaps because its revenue model has stayed the same through all these years, and while it’s still hoping to turn a profit, this remains to be seen.
So, in light of all of this, what is Twitter’s business model, how does it work, and how does this popular social media platform make any money?
Let’s answer all these questions.
Twitter: What is it?
Evan Williams, Noah Glass and Jack Dorsey came up with Twitter in 2006. You’ll find the company’s headquarters in San Francisco, and these days, there are more than 300 million active monthly users. This officially ranks it as the ninth most popular social media website online.
Time and again, Twitter has proven to be a relevant platform for breaking news, from the 2016 Presidential elections to Greta Thunberg’s war on climate change.
So, how do you value a social media website, then? It all depends on how many users it has, and the type of engagement it’s getting from these users. The reason why Twitter is struggling right now is that its users are declining, and therefore its overall engagement rate is decreasing. Other social media networks like Instagram have long taken over, leaving Twitter in the dust in terms of popularity and interaction.
Twitter’s Business Model
Twitter has a pretty similar business model to other social media channels out there. It asks new users to create a profile, and then these users can update their profiles with short tweets that have a 280 character limit. You’ve got to be registered to tweet, but if you’re unregistered, you can still read other people’s tweets.
You can post tweets either through the website or your smartphone. As a registered Twitter user, you can also follow other accounts, and get updates on their latest tweets. Many social media companies have recently been putting a lot more time and energy – and money – into promoting video content, as this is proving to be more popular than other mediums.
Twitter, like YouTube and other social media networks, shares the revenue of videos, where they currently get 30%.
Twitter has also been trying to bring live-streaming to its platform as well and has also been hard at work attempting to purchase exclusive rights to things like political debates and NFL games. As you may have already guessed, the more people that use Twitter to upload and share video content, the more Twitter earns.
Partnerships and Acquisitions
Again, like so many other social media channels out there, Twitter has attempted to extend its revenue through partnerships with other companies. From Vine to Periscope and Magic Pony Technology, Twitter has made many attempts to increase its revenue through partnerships.
How Does Twitter Make Money?
So, let’s get down to the nitty-gritty of exactly how Twitter makes money. Currently, 85% of Twitter’s revenue comes from advertising and marketing sales. Individual companies can advertise on Twitter, where they will have to give up a portion of the profits.
The second major way that Twitter makes money is through data licensing. This is where Twitter sells public data to various companies that may benefit from it, primarily for marketing reasons. Companies can use this data to analyze current market trends and get exclusive insights into companies and brands.
So, what are the roadblocks getting in the way of Twitter making more money? They are three-fold.
Firstly, they’ve currently got a smaller user base due to the fact that they now have a lot of competition in the form of other social media networks like Pinterest and Instagram.
Secondly, this has led to low user engagement, which in turn results in the third roadblock, which is negative profits. Users can interact with the same people and share the same content on other platforms, and companies can purchase public data from similar networks, too.
The bottom line is that Twitter’s current business model is simply not profitable. It may be working for other social media platforms out there, but not for them.
What Will Twitter Do?
So, in light of this information, what will Twitter do about their current lack of profit? One of the things that Twitter can do is change its business model into more of a tiered pricing kind of situation.
This means that they will charge Twitter users an annual subscription fee, which will come with additional services depending on the subscription that they’ve chosen.
However, the only way that they can do this is by becoming a media company, not a social network. This is because other social networks, like Facebook, are still free, so there’s no incentive for anyone to pay to use Twitter.
It’s obvious at this point that Twitter is still a popular, effective way of communicating with people and sharing unique content. However, it’s not as personal as some of the other social media networks out there, and it’s declining in popularity. If it continues down the path it has chosen, there’s not knowing how long it will last.
All we can do is sit back and see if Twitter is wise enough to change up their business model, otherwise, they could soon be forgotten about, and acquired by someone else who is in a much more profitable position.