Twitter: Hunting for a Business Model

It’s been a Twitterific kind of week, in a lot of ways. Not just because Ev Williams seized the reins of power (such as they are) at the startup — which led to lots of theorizing about why Jack Dorsey, who originally came up with the idea for Twitter, was so suddenly sidelined — but because Twitter is probably the classic example right now of a Web 2.0-type service that has plenty of users, but still no actual business model. With the U.S. and even the global economy in a state of upheaval and layoffs sweeping through Silicon Valley, what happens to such a company?

Twitter investor Fred Wilson seems to be getting more and more exasperated with the question about the company’s business model, but as my friend Mark Evans notes, it’s a question that has become a lot more pertinent than it was even a few months ago. Another investor, Bijan Sabet of Spark Capital, says Twitter will introduce a business model of some kind next year, and Henry Blodget at Silicon Alley Insider believes that the company could eventually be worth $1-billion once it figures out how to translate a devoted user base into actual dollars and cents.

Fred’s comment — about how Google (GOOG) “eventually figured out how to make money,” and therefore Twitter will too — strikes right at the heart of the problem. Anyone who argues that building a user base and figuring out how to monetize it later is a dumb way to run a business has to deal with the fact that Google did exactly that, and that doing so hasn’t just worked out for the company, but has been spectacularly, mind-bogglingly successful. Does that mean anyone can do it, or was Google somehow special and/or lucky? I don’t think anyone really knows the answer to that.

Is Twitter the same as Google, in any fundamental way that matters? It’s true that Twitter has a large user base, but at the moment it’s primarily geeks and techies and social-media consultants. Can it go “mainstream” in the same way that Google did? I’m not sure. The need that Twitter fulfills isn’t quite as obvious as it was with Google, and the way in which Twitter is better than existing methods of communication isn’t obvious either. That said, the fact that it’s showing up on the evening news and even inside companies is a sign that mainstream use might not be all that far away.

What remains to be seen is whether the business models or revenue streams that Bijan Sabet is talking about interfere with what has made Twitter so popular. Will people care if there are giant ads in the stream, or if sending more than a certain number of updates costs money?

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Comments

[Ted Murphy:]

Twitter can be the next Google, they just need to realize that they're going about it backwards. Google started with a highly focused, monetizable product (search page views always had far higher clickthroughs for banner ads than any other type of page views), and they have added other apps that are essentially a funnel for their money machine. Twitter has started with twittering (nuff said), and now they have to add a siphon into some very, very focused areas for people who want to sell products.

And by focused, I mean that 98% of twitter is not monetizable. Look at keyword search -- its maybe 2% of all US pageviews but 42% of all US internet advertising revenues. Some ideas for focusing:

- any search or rss feed should be examined for e-commerce possibilities. If you have someone searching for "tennis players," make damn sure you show them some online tennis stores.

- open a Twitter classified section, and make it a permanent link. Kind of a Craigslist within Twitter.

2008 Oct 20 09:36 AM

[Michael Comeau:]

When Google started it was traffic with no revenue model. It may take a long time for Twitter to figure out how to make money. But, the service itself has to remain free or people will abandon it.

2008 Oct 21 12:32 PM

[sloane:]

Didn't Google start with a business model, though, even if took them a while to begin generating revenue?

Dr. Tantillo ('the marketing doctor') did a post on his
blog ( blog.marketingdoctor.t... ) last week on the success of Google's business model: "Google’s a powerhouse is because they have managed to do what no one else in the history of advertising has done before: connect the selling of goods and services directly with the people looking for those goods and services."

Full post: blog.marketingdoctor.t...

Twitter may be useful to a lot of people, but I don't think that it connects sellers to consumers.

2008 Oct 24 09:56 PM

[Obed Butuk:]

You are right twitter needs to be able to connect the sellers with consumers, businesses with vendors in an intstant way just like the social connections

2008 Nov 16 01:11 AM