9.39 Twitter Inc.

Twitter Inc., founded by Jack Dorsey, Biz Stone, and Evan Williams in March 2006 (launched publicly in July 2006), is a social networking and micro-blogging service that allows users to post their latest updates. An update is limited to 140 characters and can be posted through three methods: web form, text message, or instant message. The service has become immensely popular worldwide, has been used to give live reportage of civil unrest in Egypt, Iran and elsewhere, and has been intermittently blocked by the Chinese government and others. Tweets are also becoming a force on the US political scene. {19}

According to Alexa, Twitter is one of the ten most-visited websites worldwide. Estimates of users vary as the company does not publish statistics, but inside sources suggest there were 119 million Twitter accounts in 2011, this statistic breaking down to: 85 million accounts with one or more followers, 56 million Twitter accounts following zero other accounts, and 90 million Twitter accounts with zero followers. {12}

According to Quancast, some 27 million people in the US had used Twitter by September 3, 2009. Analysis of 2,000 tweets by Pear Analytics over a two-week period in August 2009 identified 6 categories: pointless babble ( 40% ) conversation ( 38%), 'pass-along value' (9%), self-promotion ( 6%), spam ( 4%) and news ( 4%). {11} Half the activity centered on some 20,000 'celebrities'. {13}

Twitter Inc. is based in San Francisco, California, but has additional servers and offices in other US cities.

Business Model

To date, Twitter has been very successful in promoting its potential, and in obtaining significant funding. Twitter first raised over US$57 million from venture capitalist funding in three tranches: $1-5million in 2006, $22 million in 2008, and $35 million in 2009. Another $200 million was raised in December 2010, valuing the company at some $3.7 billion. The March 2011 sale of 35,000 Twitter shares at $34.50 each on Sharespost valued the company at $7.8 billion. An investment of $400 million was made by Digital Sky Technology in August 2010, {14} and a possible IPO in 2013 has been announced. {10}Twitter's global advertising revenues were expected to almost double to $582.8 million in 2013, from $288.3 million the previous year {20}.

Twitter announced plans in April 2010 to offer paid advertising in the form of ' promoted tweets' on selected search results on the Twitter website, and some presales may have been achieved as 2010 annual revenues are reported at $45 million (though the company operated at a loss overall). Annual forecasts for 2011 were also put at $100-110 million, but again cannot be verified. Much has been rumored but Twitter at present keeps the market guessing.

Several ways of monetizing Twitter have been suggested: {10}

1. Subscription fee: possibly difficult now users are used to a free service.
2. Display ads: being tested in Japan, but conversion rates are generally low on social media sites.
3. Include local ads relevant to tweeters' messages and locations: may be seen as intrusive.
4. Sale of accumulated users' response data to web services and company websites. Already the case with Facebook, but not popular with Evan Williams. {2}
5. Sale of licenses to application developers. {2} {3}
6. Advertising on Twitter geographical accounts. {6}

Threats

Threats come from:

1. Alternatives, e.g. Sina Weibo (China's more popular answer), Tweetree, Tweetvisor, iTweet, Hootsuite, etc.
2. Twitter being made responsible for content in libel actions, etc.
3. Takeovers from Google, Microsoft and Apple, who recognize the competition. {2}
4. Anti-trust enfringement. {8}

Points to Note

1. Great potential, but no proved business model in sight.

Questions

1. Explain the current interest in Twitter.
2. How does Twitter compare with other social media sites?
3. Where does Twitter funding come from, and is the model sustainable?
4. Discuss ways of monetizing Twitter.

Sources and Further Reading

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