Tuesday, 15 December 2009

The tweet smell of success: will Twitter profits soar in 2010?




Will 2009 go down as ‘The Year Of Twitter’?

The website of this ‘micro-blogging platform’ attracts over 54 million unique visitors worldwide in an average month (according to comScore estimates) and many more use Twitter via 3rd party apps. I am writing this in the ‘Twitter Capital of the World’: London, England. Instead of sorting out the traffic or the Underground (=subway) ready for the Olympics, we’re all (OK many of us) at our PCs, Macs, Netbooks and mobile devices, tweeting madly. No longer just a platform for friends to stay connected in real time, Twitter has evolved into something much bigger. Marketers are looking at it increasingly closely as it appears to offer larger and more closely targeted audiences than other media channels. The media (mainstream, tech, and yes, even bloggers) is obsessed with Twitter. It has come from nowhere and completely appropriated the Zeitgeist. The company is valued at $1 billion (WSJ). Yet only 4 years ago Twitter didn’t even exist.

Twitter was founded by Jack Dorsey, Biz Stone, and Evan Williams in 2006 and its rise has been rapid. People using Twitter during the fires in California in October 2007 kept their followers (often friends and neighbours) informed of their location and those of the various fires as they spread. The American Red Cross has used Twitter to exchange minute-to-minute information about local disasters. During the 2008 Mumbai attacks,  eyewitnesses sent an estimated 80 tweets every 5 seconds. Twitter users on the ground helped compile a list of the dead and injured and users tweeted vital information eg. emergency phone numbers and the location of hospitals needing blood donations. CNN called this "the day that social media appeared to come of age". President Obama used Twitter in his Election campaign. In January 2009, US Airways Flight 1549 experienced ‘multiple bird strikes’ and ditched in the Hudson River. A passenger on one of the ferries that rushed to help took a picture of the downed plane as passengers were evacuating and sent it to Twitpic before any other media even arrived at the scene. The Australian Country Fire Authority used Twitter to send out regular alerts and updates during the February 2009 Victoria bushfires. The Australian Prime Minister, Kevin Rudd, used his Twitter account to tweet information on the fires, how to donate money and blood, and where to seek emergency help. This sounds like a totally new platform which is operating as a force for good (on the whole). The ex-US national security adviser Mark Pfeifle has suggested Twitter should be nominated for a Nobel Peace Prize.

Twitter’s website attracted a total of 44.5 million unique visitors worldwide in June, 2009 (comScore); at this time it was involved in sharing the news about the Iran Election protests. Twitter apparently continues to show rapid growth: The site had 54.7 million unique visitors in August, whereas it had just 4.3 million in August 2008, (WSJ- comScore).The September 2009 figure was 58.4 million. There is a suggestion that US growth is starting to stall but new Twitter features may well reverse this.

After initially attracting 'geeks' and the 'web-savvy', Twitter has become mainstream with Celebrity ‘tweeters’ eg. Ashton Kutcher, Britney Spears, TheEllenShow and Stephen Fry from the UK where Twitter has grown by an almost incredible 1,959% year on year (Nielsen). No wonder Twitter has just been voted 'Medium Of The Year' by Campaign magazine.

Counting Twitter.com website hits always understates total Twitter usage, as this neglects traffic on third party apps such as TweetDeck, which users access to monitor and publish tweets. TweetDeck alone accounts for an estimated 20% of all tweets. Twitter's audience, therefore, is certainly much larger.

Twitter has so far raised over US$150 million from venture capitalists. Yet apparently it continues to lose money.

Hang on; didn’t we learn from the 'Bubble' (AKA the first internet boom/ bust) that dodgy dotcoms who run up big debts on expensive technology platforms and on ‘buying’ loyal users crash horribly? Boo.com anyone?   We were never going to make those mistakes again, remember?

So what’s going on?

No-one is suggesting that the guys running Twitter are crazy. They have however been tantalisingly unforthcoming about their intentions. Their plan could be:

Either:

(a) Build up as many loyal users as possible then MONETISE. (see below)

OR b) sell the business to a wealthy older generation company (Apple? Facebook? Microsoft? Amazon?)  This depends on someone believing that they can monetise where the founders haven’t (yet) but there are plenty of examples of this not going to plan; just ask Google what is their payback forecast for YouTube which they bought in November 2006 for $1.65 billion in stock, or consider AOL’s $4.2billion acquisition of Netscape; then again there is Skype, bought by eBay for $2.6 billion in 2005. The auction giant struggled to monetise Skype and until recently even faced a lawsuit from its founders as it tried to spin off the business at a loss. (The founders now own 14% again which I believe I called ‘having your cake and eating it’?). However, since it’s Twitter, I’m sure a buyer could be found.

OR c) float (even though Tech company IPOs are currently out of fashion)

OR d) carry on as they are while they're having fun and still growing.

This raises an interesting question; when will Twitter stop growing? Has it already plateaued?.


Gartner’s 2009 Hype Cycle Report (see diagram) suggests that most new technologies/ tech companies reach a peak then hit “The Trough of Disillusionment”   (something we would all surely wish to avoid at any time in our life cycle!)




According to Jackie Fenn, VP, Emerging Trends at Gartner:

“Technologies at the Peak of Inflated Expectations during 2009 include cloud computing, e-books (such as from Amazon and Sony) and internet TV (for example, Hulu), while social software and microblogging sites (such as Twitter) have tipped over the peak and will soon experience disillusionment among corporate users.”  

Well, maybe.

Now let’s consider the ‘M’ word - monetisation.

By the way, I have a theory that this is one of those words that separates people who ‘get’ digital from those who just read/ hear about it in the mainstream (offline) media. If you can say ‘monetisation’ without smirking you are in the former group (and if you spell it with an ‘s’, either you’re British or Australian or someone’s been messing with the country settings on your spellcheck.)

The rumours regarding Twitter monetisation include:

(It's interesting to speculate what these ads might look like: online banners/ skyscrapers? Google AdWords-like text only? Or like tweets slotted between the ‘real’ ones?)

  • Partnership with other site owners
Twitter recently announced that its new ‘sign-up API’ would be live on Citysearch  (the US local online guide)   This is significant because it could point the way to another monetisation strand.

  • Paid-for Premium Accounts
For an indication of Twitter’s plans, let’s look East: Twitter Japan has acted like a ‘testbed’ for the company and operates differently from Twitter in other countries eg. its launch of a video-sharing service.Twitter Japan already allows ads on each page (a feature not yet allowed on the site in any other country).

It is understood to be introducing ‘a tiered payment model that will charge audiences to view tweets from premium Twitter accounts’ (Media Asia).

Kenichi Sugi (Twitter’s man in Japan), announced the changes at the Mobidec2009 conference earlier this year. He said that Twitter would be adding paid subscription options early in 2010 – which would allow business account holders to charge audiences for access to their tweets, links to external websites and images.

Users who want to pay for full access to these premium accounts’ tweets can do so via a monthly subscription model using a credit card or have their mobile network include it in their monthly bill, or buy a pre-paid top up card at convenience shops. Prices will be dependent on the figures set by the charging account holders. Twitter will take 30% (tbc) of all fees generated.

Twitter’s Biz Stone and Evan Williams have talked openly about charging businesses for the commercial use of Twitter – however the idea that users will be charged to access information from such accounts surprised many Twitter watchers. Twitter accounts which deliver real-time information – such as news and original photographs – are the most likely to be able to charge users successfully. (Just ask Rupert Murdoch about the challenges of getting users to pay for content!)

At Web 2.0 in San Francisco, in September 2009, Evan Williams stated that Twitter Mobile in countries like Japan and India – was a big focus because the reach and revenue potential are huge, especially in Japan – where internet mobile penetration levels are some of the highest in the world.

Twitter has signed a major SMS deal with India’s largest mobile operator, Bharti Airtel, enabling its customers to send tweets via SMS and is in talks with mobile network operators all over the world to allow people to post and receive tweets via text message, without the need for web access. Millions of people already post tweets via SMS, use Twitter mobile or third party apps on the go; Twitter wants deals with all the major mobile phone carriers in its target territories.

In the 1989 movie Field of Dreams, Shoeless Joe said: “ If you build it, he will come "  (often misquoted as ‘they will come’ which would be much more appropriate). When applied to websites, we know this 'ain’t necessarily so'. But Twitter has built it, and they’ve come all right - in their millions. Many of us, to varying degrees, are addicted to Twitter. It is a true game-changer. In social media, in marketing and more generally. If we suddenly had to pay for some of it, for ‘special’ attractive content, or for new, exciting, ‘premium’ features, many of us would. Sure: much of Twitter is trivia of interest only to a very few (“Hard-boiled egg for breakfast, yum!”, “Cute picture of my poodle Fifi”, “OMG started raining in Manchester- again!”) but these conversations are between real people talking to their friends, family, colleagues and acquaintances about their lives. The audiences Twitter potentially offers are very attractive to marketers; especially if they can be packaged in a way that is easy to segment, target and buy.

This has been the year Twitter took off; perhaps next year will see the start of pay-back. The guys at Twitter are smart. Several ‘people who know’ think this is going to be a famous case history: Twitter will monetise and soon. Then we’ll all be saying we knew they’d make it all along. What is indisputable is that things are moving fast in Twitter HQ in San Francisco and there’s much more to come. Maybe 2010 will be the Year of Twitter…


(Oh and please follow me on Twitter  )

5 comments:

Anonymous said...

Mike: Good post BUT:

Didn't David Ogilvy warn of the dangers of 'skating around on the slippery surface of irrelevant brilliance'? I think Twitter is pointless babble and marketers will never be able to prove ROI.

It's just a fad and will be gone by 2011. So there!

gcrouchback said...

We won't pay for 'just another messaging medium' - and there is no compelling functionality beyond that in Twitter at present. If they want to charge (or carry intrusive ads or otherwise hook a negative on to the service) they will have to transform the product to something else. Ideas anyone ?

Mike Berry said...

Thanks for commenting.

Anonymous: I read that David Ogilvy quote somewhere too and I wonder what the great ('Mad') man would have made of Twitter.

Personally, I would bet that Twitter will make it through to 2011 in some form and I wouldn't bet against monetisation at some point!

Julian Clayton said...

People talk a load of crap about Twitter. It's not particularly clever; those guys have just been really lucky to have come up with a cross between SMS, email and blogs just at the right time. BUT: the whole concept depends on free access. It can never make money.

If I were them, I would be talking seriously to Google, Microsoft, Apple and Facebook right now and asking for $2billion+ in cash plus fancy jobs in the new subsidiary; there'll never be a better time to sell!

Fee said...

Tsk. This seems to me to be very similar to the Second Life hype and bust reporting. Mainstream media puffs a particular social medium and then reports its demise without any real understanding of the social medium they are reporting, and why it is different from others.

In both cases, superficial entertainment uses are ephemeral, but there are underlying serious uses for both. In the case of Second Life, education. In the case of Twitter the ability to receive very quick crowdsourced replies to specialist questions.

With Twitter, the use of the medium isn't what it is about... it's about your own skill in finding and following the right people, and getting them to reciprocate. If you do it well, you will have a resource in terms of people that it would be hard to accrue using traditional messaging or texting services- or any traditional communications medium. If you see Twitter as trivial and irrelevant, you're probably following the wrong people - the ones who think their every cup of coffee and train journey is worth a tweet.