Following up on yesterday’s post titled Notes from the Twitter S-1 IPO Filing, it’s important to drill into how Twitter makes money. Twitter is still experimenting with different advertising, licensing, and partnership opportunities, and it’s clear there are many other options, so let’s look at their current initiatives:
- Data Licensing – Companies like Gnip and DataSift pay large amounts of money to Twitter to have access to the raw “firehose” of tweets, which they then process and make available to other companies for a fee. This is a good revenue stream but limited overall as the number of companies that will buy the data is small compared to the revenue opportunities with advertising.
- Partnerships – Companies partner with Twitter to run specialized programs and campaigns that are outside the standard offerings. For example, the NFL and Twitter just announced a partnership to provide exclusive content only available via Twitter that has a revenue sharing component to it.
- Promoted Tweets – Companies can advertise their own tweets right in the timeline of Twitter users based on context, geographic location, and several other factors making these super valuable and timely. Companies are only charged for these tweets when someone clicks a link in the tweet (thus, a form of performance-based advertising).
- Promoted Accounts – Companies can advertise their own Twitter account as an account for someone to follow and only pay when that action takes place (more performance-based advertising).
- Promoted Trends – Twitter has a popular feature that shows trending topics (e.g. hashtags that are currently popular) such that advertisers can put their own topics in the trending topics area to garner clicks (more performance-based advertising as advertisers only pay for actions).
- Advertising Network – Twitter recently acquired MoPub for up to $350 million to have a leading mobile advertising network. Advertisers place ads and publishers display the ads with Twitter taking a cut of the transactions.
I believe the MoPub advertising network and Promoted Tweets will turn out to be the most successful revenue streams and prove to be unbelievably valuable. The most important thing Twitter can do is to continue building the value and size of the community so that these revenue streams increase in value.
What else? What are your thoughts on Twitter’s revenue streams?