The Trouble with Twitter
Twitter's business model is starting to show. An early sign came in April, when the popular microblogging service launched in Japan and the home page for every Japanese user included a big banner ad in the top right corner.
Then, on Aug. 7, Twitter made another change, this time in the U.S., by limiting the number of people a single user could connect with, or "follow," to about 2,000. Most recently, on Aug. 14, Twitter made the biggest move yet to slash costs. It killed outbound message delivery to mobile phones via short message, or SMS, in all countries except the U.S., Canada, and India.
• Twitter's communications could certainly be turned into money. We count four ways for Twitter to generate cash, though each has limits:
Twitter could ask users to pay. It's been done before—competitor Pownce charges user fees for enhanced content—but is difficult to add fees once the service has been established as free.
• Twitter could get messages to pay. With millions of messages flying around, why not convince some to be "sold" as product placement? Blogger Steve Poland suggests that Twitter could insert text ads into every 10th or 50th tweet. But again, users would rebel.
• Twitter could extract money from user data. Millions of people now share intimate thoughts via Twitter. Think of the market research potential. Companies are already mining these huge swarms of data. Dell has enlisted Visible Technologies to learn what users are tweeting about its products. But if Twitter itself tried to monitor user data, privacy concerns could quickly alienate users.
• Twitter could sell ads. Twitter is already doing this in Japan.
Advertising is the most viable option, but the total potential pool is not huge. Social media sites are notorious for having low ad response rates, and advertisers will enter a new forum cautiously.
In the end, Twitter will most likely be sold and become a hood ornament to another service, like Gmail is to Google (GOOG) or Hotmail is to Microsoft (MSFT). The corporate buyer won't get much ad revenue, but it will pull millions of communicating consumers closer to its own business model.
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