Twitter still has no business model, and that's OK

Don't let the attention-grabbing headlines elsewhere fool you. Twitter still has not announced a business model. There are no Pro Twitter accounts. There is no TwitterWords advertising program. You still can't buy plush toy Fail Whales from Twitter.

Twitter is engaged in a few experiments that are providing value to other companies, such as letting Federated Media use its content for its Microsoft-sponsored ExecTweets site. But this is not the big Twitter revenue model people are waiting for.

Twitter CEO Evan Williams continues to tease us on the topic.

"We will make money, and I can't say exactly how because...we can't predict how the businesses we're in will work," he said at a Churchill Club event I attended. To the Business Insider: "Our question is, how can we help? What can Twitter offer for a fee that will improve the experience? Will it be account verification? Will it be lightweight analytics? Will there be opportunities for introducing customers to businesses on Twitter. So many questions." And to The New York Times: "If I say any particular idea, it gets made too much of. We think Twitter will make money. I think it will take some time to figure it out."

Williams appears confident that there is a model out there somewhere, yet in no rush to discover what it is.

Evan Williams, godfather of Twitter.

(Credit: Rafe Needleman / CNET)

After three years, in fact, only now has Twitter hired a person, Anamitra Banerji, whose job it is to actually create a business out of this service. If Twitter's income is reliant on this one person, who just started, Williams' goal--"we're looking at Q1 for revenues" --is going to be tough to reach.

And really, three years without a person working on income? Is that not crazy? In Twitter's case, perhaps not. Twitter is valuable. It provides personal value to individuals in the same way social networks do. It's a great channel for marketing. It's a fantastic way for businesses to connect with customers for feedback. And its search product provides of-the-moment information that you cannot get in any other way. This value is not diminishing; it is increasing.

The situation Twitter's in is not dissimilar to the position that other major Internet-based products have found themselves in. ICQ never made much money until AOL bought it for $407 million in 1998. YouTube was not earning revenue when Google bought it in 2006 for $1.65 billion.

I believe that the execs at these companies did not know how to generate substantial revenue before they were acquired. But other companies certainly saw the value of these products and their audiences, and paid very handsomely to bring them into the fold. Both ICQ and YouTube made their investors and new owners happy. Acquisition is clearly an option for Twitter as well, although Williams, playing the tough guy, has said repeatedly that he has no intention of selling before Twitter becomes absolutely gigantic, if even then.

Twitter won't become huge by making a few bucks with weird little projects here and there. And we should not expect to see a major revenue-generating end-user product from Twitter anytime soon. Twitter needs scale to stay relevant, and it gets that scale by providing a valuable and free service to as many people as possible. Williams has reiterated this: Twitter as we know it today will remain free to individuals and to companies.

However, many companies are already making money from Twitter in various, small ways and are giving nothing back to Twitter itself. That will change, I believe. Deep access to Twitter data (the "fire hose") will let companies create services that analyze Twitter information that they then sell to customers. Twitter does not need to provide that access for free. Controlling access to that data stream, as well as other related stats about Twitter use and content, does not diminish the value of Twitter now or in the future. Also, it is scalable, unlike the onesey-twosey sponsorship deals where Twitter is repackaged, like ExecTweets.

There's also no reason that Twitter should remain free of paid ads. There's plenty of room for context-relevant ads on Twitter.com. And Twitter could also provide an advertising API to companies making desktop and online Twitter clients, so they could generate some revenue of their own--after Twitter takes its own cut, of course.

I have said in the past that start-ups with new ideas need to beta test their business models alongside their technologies. Twitter has most certainly not done that. But I think Twitter's going to be OK, all the same. There is rich value inside Twitter, and I do believe the company can afford to take its time to find the good ways to extract it.

Previously: 11 Twitter business models: Vote for the best.

[Hunnter2k3]

It is actually quite shocking how long he has went without a business model for the site, 3 years is quite a long time.

In saying that, most of the site is basically based around text.
I think background images are external, from what i have seen.

The instant an advertising API is released, oh wow, people will be firing themselves from cannons at it.

[Don_Bain]

Nice balanced post, Rafe.

One can make a case that not adopting a business model can yield a higher acquisition valuation. Here's the deal: a potential acquirer may have a model or ambition that would yield a higher valuation for Twitter than may otherwise be derived from some sputtering business model attempt by the company.. If Twitter were to adopt a business model and it were to demonstrate some approach to an asymptote, then the valuation would be pinned to that rather than what a potential acquirer might imagine they can achieve with their portfolio.

Bigger issue is how to play the classic Gartner hype-curve with regard to timing of such moves. Twitter is to 2009 what Second Life was to 2007 (RT @swords). db

[ChrisLang]

Twitter does not need to monetize their users. They should stick with the "enroll millions of users, get aquired by Google" model. Many of us have said for a long time Twitter would be a huge tool added to the Google social networking features that are rolling out everywhere in Google.

The fact that the Facebook acquisition was panned by Twitter and the fact that Twitter is now Google Friend Connect enabled should tell you something. You can send a Tweet on any blog using the GFC "invite friends" link when you are logged into any GFC widget on any site.

Real powerful when a big Twitter users with say 5K in followers Tweets your blog post from a GFC widget.

Chris Lang
http://googlingsocial.com

[Mr_Mutt]

Considering Google dropped $1.65B for YouTube and still has not come anywhere close to creating a business out of that site that is going to generate $1.65B in return, I highly doubt they're going to make the same mistake with someone like Twitter. The exit via acquisiton for Twitter is to sell a media or news agency on the idea that they can monetize the Twitter feature much like any online ad conduit. The problem is that by doing so, Twitter will start going down the path of MySpace and Facebook and host cluttered pages stuffed with all kinds of stuff that no one wants to see. Twitter already has a difficult time keeping users, and "MySpacing" a Twitter page will likely drive away even more users who like the simple, unobstrusive, free narcisim page.

Then again, one day people may realize that they're not as important as they think they are and that no one cares what you're doing at every moment in time.

[Mendz]

They should've started early partnering with telcos that allow twitter updates via text messaging -- like having a unique number and getting a percentage of the text cost from the telco. They should've started early selling desktop and mobile applications that use the Twitter services. They should've started early integrating Twitter entries with ads. They should've started early developing Twitter for corporate accounts. They should've, they should've, blah, blah, blah and so on and so forth... 3 years and no ideas? Nowadays, that's very slow...

[Business_Reader]

I'm not surprised by the revelation that there is still no business model for Twitter. Thinking about monetizing tweets represents a real challenge in a traditional "pay for use" model by the community of users. But I think there's an additional revenue consideration that needs to be raised across all of the Enterprise 2.0/Social Media tools. That is a question of corporate legitimacy. Until Twitter and others can show how to raise the effectiveness of communications, they'll always be that thing-that-the-kids-use.

The great promise of web 2.0 is not faster or instant access communications, but better engagement and collaboration amongst a relevant community to make better and faster decisions. It truly is the promise of productivity gains for today's knowledge workers akin to the productivity gains automation brought to the factory floor.

Most examples of social media or enterprise 2.0 applications in commercial enterprises (or any organization with an agenda other than social networking) simply treat the technology as a new communication for the same style of communication. Albeit faster, it's still pushing the same old message.

A number of examples exist: the CEO monthly blog (argh!), blogs to replace listservs, the CDC's use of a widget to create virual (no pun intended) updates on the peanut scare. While as channel management tools, there are examples of interesting ideas (e.g., the aforementioned CDC example, Dell's use of Twitter to offer promotions to early adopters); yet these are really just different technologies to push the same message.

Some pioneers, such as Starbuck's use of IdeaExchange from salesforce.com, are looking to create community-based collaboration to engage the more diverse community than traditional and provide the tools for that community to create or influence critical management decisions (http://www.bis-insight.com/Site/Home.html). But until companies recognize that their outmoded operating models cannot drive these kinds of fundamental change, we'll see Enterprise 2.0 take a fast track to the same old destination, and see Twitter and others struggle for revenue

[joshlewis78]

I thought about this issue the other day and came up with this idea:
<a href="http://blog.joshlewis.org/2009/03/19/how-twitter-will-make-money/">http://blog.joshlewis.org/2009/03/19/how-twitter-will-make-money/</a>

I'm sure it's not a guarantee that it'll happen, but there's no reason why they wouldn't offer add-on services to users that utilize the infrastructure they already have. Why not? The only downside I could see with the I Want Sandy idea is that the Twitter folks may want to make sure that all regular customers (non-companies) perceive them as being completely free, so there's not even an <em>option</em> to give them money.

[Stephen4DBarnes]

Its Skype and YouTube all over again. Singular breakthrough communications technologies which never properly monetize their audiences. The perceived value is their reach.

[Mr_Mutt]

Reach for what? Who cares that you have a network of 100M users if that user base is adverse to being solicited to, or directly marketed by the service itself, to spend their money somewhere. Audience means nothing if you cannot sell them something.

[lizzerevangelist]

Monetization is a marathon for a business like Twitter. Nobody made any money selling the telephone when it started out, either. As the article notes, advertising is likely to arrive in full force, because Twitter search is really the best way to see what's going on right now. If you want company while watching 24, you can find it on Twitter.

For those who do use Twitter, we've recently made it easier to add links to your tweets by making http://lizzer.com work with Twitter. It's a bookmarklet that lets you search for, find, and insert links to web pages, images, videos . . . even your delicious links.

[andfx8]

ewwww, once the money becomes involved things begin to turn ugly. i'm just beginning on twitter and i enjoy its simplicity. i'm sure the creators intend to not stray too far from that