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8 seconds! This is the average attention span of a human being in today’s fast-paced world. Whether one’s motive is to create a personal brand, promote a product/service or do anything that garners public attention, keeping it crisp and clear is the way to go. What better than a platform that gives you 280 characters to reach out to the world instantaneously.
Yes, we are talking about Twitter, symbolized by the famous blue bird. Founded in 2006 by Jack Dorsey, Noah Glass, Biz Stone, and Evan Williams as a result of another startup Odeo being stung by the launch of Apple’s iTunes, today Twitter is one of the leading social networks with 192 million monetizable active daily users worldwide.
People from all walks of life are a part of this community. Whether an actor wants to promote his upcoming movie, a politician wants to connect with the public, or the common person wants to raise grievances, Twitter is one platform that caters to all of them. Its mission is to enable anyone to share their ideas and views instantly with the world.
Twitter generated a revenue of $3.7 billion in the fiscal year 2020, an increase of 7.4% over the previous year. Anyone can create an account to tweet their views instantly with a global reach and all this is for free. Well, this leads us to the question “How does Twitter make money or What is the revenue model of Twitter?”.
Twitter Revenue Model: Break Down
The source of revenue in Twitter’s case is divided into two categories:
- Advertising Services: This is the large chunk of the revenue pie, having contributed $3.2 billion, i.e., 86% of the revenue generated in 2020.
- Data Licensing: Providing paid access to data accounted for a revenue of $0.5 billion i.e., the remaining 14% of the revenue in 2020. Though on the smaller side, it has the potential to increase manifold in the future as data about users and their preferences gains more importance in the consumer-centric world.
Advertising services generally comprise of Twitter exhibiting promoted products in the form of:
Promoted tweets: Of all the tweets that appear on a user’s timeline, a specific type is the one labeled as “promoted”. Based on the user preferences, their likes, and dislikes, Twitter algorithms try to feature promoted tweets on user timelines that may pique their interest in the product or service. This gives brands a chance to enhance their visibility.
Promoted accounts: Twitter provides suggestions to users about “Who to follow.” This is based on user preferences, demographics, location, and overall activity on the platform. It can help a rookie brand promote itself or even an established brand in boosting a new campaign and going viral. Promoted accounts are a way for advertisers to create a community of users on Twitter who are curious about their product or services.
Promoting a trending topic: Hashtags display the pulse of the trending topics. For instance, #crypto is one of the popular hashtags nowadays due to the globally rising curiosity for cryptocurrency. A promoted trend is displayed on a per-day per-geography basis.
The figure above depicts the flow of content and money amidst the various stakeholders involved in the entire process of advertising services on Twitter.
There is a pre-decided advertising budget set at the beginning of a campaign, but advertisers pay based on the number of clicks or retweets. Advertisers can also use streaming video ads to cater to a certain target group on the platform. Features like live-streaming and video on demand help content providers in enhancing their reach and user engagement globally.
500 million! This is the number of tweets made per day across the world on average. Imagine the extent of data that can be extracted through this source. Twitter refers to this data as the firehose and provides businesses paid access to it.
With various advanced analytical tools available at their disposal, businesses can draw out rich insights through this data to cater to consumer needs in a more personalized manner.
The figure above depicts the flow of data and money amidst the various businesses and Twitter.
Twitter generates revenue in data licensing through two ways:
- Providing data products and licenses that permit Twitter’s data partners to access, search and analyze historical and real-time data comprising public tweets and their content.
- Offering mobile advertising exchange services through the MoPub exchange.
This naturally brings in the angle of data privacy and security concerning sensitive user information at stake. Twitter claims that it takes all possible measures to ensure no misuse of data by the authorized parties and adheres to the Digital Advertising Alliance Self-Regulatory Principles for Online Behavioral Advertising. It considers the DAA’s consumer choice tool facilitating users to pull out of interest-based advertising.
Key Metrics Twitter uses to check the efficiency of its Revenue Model
A few of the key metrics used by Twitter to monitor its performance of its revenue models are monetizable daily active users (mDAU), changes in the ad engagements, and cost per ad engagement. mDAU is described as people, organizations, or accounts that used Twitter or any of its applications that show ads on a given day. This helps in gauging the magnitude of the audience and their engagement with Twitter.
Ad engagement is described as the usage of one of Twitter’s paid advertising features by its audience. It can comprise actions like retweeting, replying to a promoted tweet, following a promoted account, viewing an embedded video, subscribing for an advertiser’s service, completing a transaction on a third-party website, and so on. Changes in ad engagement help Twitter in analyzing the connection of users with advertising products or services.
Challenges Faced by Twitter
- The pandemic has led to a trimming of advertising budgets which has affected the revenues of Twitter in a significant manner, resulting in a net loss of $1.1 billion, the first such instance since 2017.
- Twitter has a noticeably smaller user base compared to its competitors like Facebook, YouTube, and Instagram. Thus, user engagement is a factor that needs to be enhanced.
- With data privacy and security becoming a make-or-break point, Twitter has found itself on the wrong side of the fence in the past. The positive after-effect has been the conscious effort to prevent any such incidents and give data sensitivity the utmost importance.
- The largest market for Twitter based on revenue is the USA, and the latest trends show that the user interest in Twitter has begun to plateau in the country.
- The rising menace of fake news, fake accounts, hate propaganda, and manipulation of public sentiment comes as a by-product of Twitter’s mission of providing a platform facilitating global communication without any barriers. This needs to be kept in check.
The Way Forward
With a slump in advertising revenues due to the ongoing pandemic, Twitter has had to mull over introducing a subscription model. Though there has been no clarity as to how they plan to charge the users, certain possibilities like introducing premium features on profile customization and ad-free timelines have been in the pipeline.
However, this idea clashes with Twitter’s value proposition of providing a platform for users to air their views instantly and free of charge.
Over the past three years, Twitter has now added just 20 million monthly active users, with its user count hovering around 330 million for the better part of that period, indicating that the platform may have reached its growth limit.You will find more infographics at Statista
Twitter has also considered converting Tweetdeck into a paid service. Advanced Twitter users use Tweetdeck to view tweets from multiple feeds simultaneously.
Twitter may have to tread a thin line between ensuring that it enhances its revenue model and hence sources’ reliability and maintain its mission of giving the users the power to share information instantly without any barriers.
It will be interesting to observe the kind of strategy Twitter adopts in the coming years.
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