Among people who 'Tweet as they think', one of the most tweeted questions is - 'How does Twitter make money?'. For most web users who are regular users of Facebook and other monetized websites like Google, the absence of visible ads on Twitter, tends to be quite surprising. Trade analysts who have been watching the website develop since its founding in 2006, have been predicting the eventual monetization strategy of Twitter for years.
Finally, Twitter has launched its advertising strategy and is now ready to tap its commercial potential. Twitter is ready to walk the monetization tight rope, after spending a good amount of time in devising a non-intrusive advertising model, different from conventional banner ads.
Twitter was launched in July, 2006 by Biz Stone, Jack Dorsey and Evan Williams, as a microblogging site, with the idea of creating the 'SMS of the Internet'. Before venturing into a discussion about its monetization, let me briefly explain how Twitter works. It is designed as a microblogging and social networking site with a difference. Every short message (with a maximum length of 140 characters) published by a Twitter user is known as a 'Tweet' and it's broadcast to all users or a limited number of users (called followers). Every message can be republished or 'Retweeted' by any user.
All the tweets are searchable on the website and now they even feature in search results of Yahoo and Bing. Twitter has truly triggered a microblogging revolution of sorts and is fast gaining popularity as a platform to voice your opinions to the world. Despite having 300 million tweets generated per day and more than 100 million users today, Twitter's monetization plans started only recently. Let us see how Twitter makes money, by enabling users to transmit their thoughts world over like an Internet SMS.
How Does Twitter Earn Money?
Twitter has finally launched its revenue generating model and businesses can leverage the power granted by this microblogging site to promote their products through advertising. Companies like Coca Cola, Disney and Starbucks have already made deals with Twitter for promoting their products. Here are the primary ways in which Twitter is currently generating revenue, by offering innovative advertising solutions.
The major revenue generating machine for Twitter now is its 'Promoted Tweets' based advertising model. The idea is essentially very simple. Advertisers pay for promoting Tweets related to their product or purchase these tweets. The promoted tweet will be listed at the top of Twitter search results, for relevant key words. Also, the name of the company promoting a tweet is displayed below it, as - 'Promoted by...'. These tweets may also be displayed on the homepage streams of users who may be analyzed by Twitter to be interested in the product or service. To sum it up, promoted tweets are regular tweets, with preferential treatment.
This provides companies with direct access to more than 100 million Twitter users, as potential customers. These promoted tweets are also displayed on Twitter's mobile and desktop clients, as well as third party clients installed on mobile devices. Advertisers pay for a promoted tweet on a CPE (Cost-per-Engagement) basis. Depending on the bid amount which may vary from a few cents to a few dollars, the advertiser pays the price he has bid initially, when any user clicks, retweets, replies to or marks the promoted tweet as favorite. So advertisers only pay, when the promoted tweets work for them.
Another advertisement revenue idea implemented by Twitter is 'Promoted Trends', which is an outgrowth of the promoted tweets idea. The advertiser's purchased trends are prominently featured on the website. The trends purchased and promoted by advertisers appear at the very top of the 'Trending Topics' list, presented for user perusal.
Clearly marked as a promoted trend, it leads the user to a list of relevant tweets, among which promoted tweets obviously top the list. Again promoted trends are clearly marked and find exposure on all Twitter client platforms on desktop and mobile devices. Promoted trends cost thousands of dollars, as they provide higher exposure compared to promoted tweets and granting 'Exclusive' status to an advertiser.
Twitter has also created 'Promoted Accounts' for advertisers, which are shown in the 'Who to Follow' section, presented to users. These accounts are charged on a 'Cost-per-Follow' basis. It improves brand visibility and helps a business in improving its follower base.
Another innovative revenue generating channel for Twitter is the 'Enhanced Profile' feature, which currently costs a few thousand dollars. Among the privileges offered to brands with such profiles are the freedom to feature their logo or use any other form of visual branding on the page, list promoted tweets at the top, share tweets with image and video links displayed conspicuously. It remains to be seen how effective this new feature will prove to be.
Not surprisingly, another source of income for Twitter is political advertisement. Restricted to USA, this advertising channel allows candidates to promote themselves. Considering that Twitter has high net penetration in the country, political tweets are taken very seriously, as Twitter provides a direct mouthpiece for candidates, besides being a back channel for voter interaction.
Twitter Feeds on Yahoo and Bing
One of the first revenue generating opportunities for Twitter was created through deals with Yahoo and Bing, who bought the rights to display live Twitter feeds in their web search results. Twitter earned millions of dollars in revenue by selling the rights to publish live tweets on any trending topic. It's a win-win deal, as it brings more users to Twitter and provides search engine users with fresh data about all the latest developments.
Google had a similar deal with Twitter, which gave it access to Twitter feed, allowing it to be published in search results. Surprisingly, Twitter and Google didn't renew their deal and decided to call off their partnership. Nevertheless, Bing and Yahoo continue to profit from the partnership, providing Twitter with a revenue stream.
Self-Serving Advertisement Platform
Twitter has finally opened its self-serving advertisement platform recently, after going through a test phase since November. Initially, the platform has been opened to only 10,000 small businesses, with a sponsored free ad credit of $100 by American Express, which is the monetary mediator.
The new platform will provide an automated system for advertisers to custom-design their ad campaigns on Twitter, without intervention of sales representatives. Advertisers can choose their budget and select advertising options accordingly, with geotagging and a 140 letter limited advertising tweet of their choice. This service will put Twitter in the league of Facebook and Google, who have similar self-serving models of advertising.
Using all the above described features, an advertiser can create a campaign on Twitter to promote his brand, products and recent events. The linkup with search engines for display of feeds, further increases exposure for advertisers. According to market research sources, Twitter's revenue in 2011, swelled to a $139.5 million.
As the site goes global and sees a rise in users, its innovative advertising strategy is predicted to bring in more than $500 million revenue, by 2014. It's current market valuation is a whooping $8 billion. Twitter has followed the Google way of perfecting their web service and creating a stable user base, before introducing an advertising based revenue model. Surely, if Twitter continues growing at this pace, an IPO is on the cards in the near future.
While Twitter keeps growing and adding new users everyday, its revenue generating potential is only going to rise with time. If it keeps expanding at the same rate, eventually Twitter will go past the billion dollar mark in revenues as its monetization plan goes in full swing and gains popularity. For more information regarding advertising on Twitter and how to use the leverage provided by the website to promote your business product, visit the business site of Twitter, which offers detailed guidelines.