A few weeks ago, rumors started circulating that soon Twitter would start charging businesses to send out messages or tweets. These rumors made sense. The microblogging service has to pay cell phone carriers for tweets sent to handsets and since its inception the company has been running off of venture capital with no business model or clear path towards monetization. Following the Craigslist model of charging companies, not individuals seemed ideal for Twitter. But last week, founder Biz Stone announced that the service would remain free to all.
So how will Twitter make money? Well, apparently it doesn’t have to bring in revenue anytime soon–maybe even years. Investors have proved very patient when it comes to returns on their social media investments. Facebook, now with over 200 million users, still doesn’t have a business plan. Twitter also obtained an additional $35 million in funding this week–and it wasn’t even seeking more investment. The company still has plenty of money from it’s last fund raising round.
But eventually Twitter will have to generate revenue. In the same blog post, Stone alluded to plans for monetization. Although he couldn’t have been more vague as to what those might be, saying: “What we’re thinking about is adding value in places where we are already seeing traction.” The blogging world has thrown up several ideas of how Twitter could make money. In my view, the most sensible of these are package deals with cell phone carriers and allowing companies to bid for answering consumer questions.
The problem with advertising on Twitter is that the service dependent on maintaining a very high level of relevancy. Throw too many ads at the users and the service loses it’s connection and eventually it’s audience. However, users in other countries may not have the same expectations, especially if they are new users. Twitter’s Japanese website included side banner ads from the first day.
Twitter is likely to take time figuring out monetization. When it does come up with ideas, they will probably be tested in other countries first. When anything new is tried in the U.S., the reaction will be gauged very carefully. There may be some trial and error and false starts. Layers of monetization may be introduced very slowly over a period of years.
For now, Twitter will remain a small (currently 29 employees), lean, independent company plotting it’s next moves carefully banking on future success. Lat last year the company turned down an offer of $500 million from Facebook, so their confidence must be pretty high.