Tw e e t Tw e e t :

T w i t t e r ’s B u s i n e s s M o d e l

T witter, the social network

based on 140-character text
messages, continues in the
long tradition of Internet developments
that emerged seemingly out of nowhere
to take the world by storm. Twitter’s basic
idea was to marry short text messaging on
cell phones with the Web and its ability to
create social groups.
Twitter has since expanded beyond
simple text messages to article previews,
photographs, videos, and even animated
images, and today has over 310 million
active users worldwide (as of June 2016).
The 5,000 tweets a day that it began with
© Kennedy Photography/Alamy
in 2006 has turned into a deluge of around
6,000 tweets per second and 500 million per day worldwide. Special events, such as the
Super Bowl, tend to generate an explosion of tweets, with a total of 28.4 million tweets
during the course of the game in 2015. Some celebrities, such as the pop star Katy Perry,
have millions of followers (in Perry’s case, over 90 million as of 2016).
Like many social network firms, Twitter began operating without any revenue stream.
However, it quickly developed some important assets, such as user attention and audience
size (unique visitors). Another important asset is its database of tweets, which contain
the real-time comments, observations, and opinions of its audience, and a search engine
that can mine those tweets for patterns. In addition, Twitter has become a powerful
alternative media platform for the distribution of news, videos, and pictures. Twitter has
sought to monetize its platform via three primary advertising options, Promoted Tweets,
Promoted Trends, and Promoted Accounts, although it continues to develop more and
more variations on these products.
Promoted Tweets are Twitter’s version of Google’s search ads. In response to a search
on Twitter for tablet computers, for example, a Best Buy Promoted Tweet about tablets
might be displayed. Promoted Tweets typically cost between 20 cents and $10. Twitter
also offers geo-targeted and keyword targeting functionality, which enables advertisers
to send Promoted Tweets to specific users in specific locations or based on their Twitter
activity. Twitter’s research indicates that users are much more likely to engage with such
Promoted Tweets than traditional online ads.
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 54 C H A P T E R 2    E - c o m m e r c e B u s i n e s s M o d e l s a n d C o n c e p t s
SOURCES: “Twitter to Cut Jobs as
It Aims For a Turnaround,” by Mike
Isaac, New York Times, October 27,
2016; “Twitter, Grappling with
Anemic Growth, Tries to Bolster Its
Advertising Business,” by Mike
Isaac, New York Times, July 26,
2016; “What Happened to
Twitter’s Music Strategy?” by
Cherie Hu, Forbes.com, May 31,
2016; “Nearly a Year Later, Jack
Dorsey’s Twitter Shows Few Signs
of a Successful Turnaround,” by
Alice Truong, Quartz.com, May 30,
2016; “Will The Death of Twitter’s
Buy Button Be the End of Social
Commerce?” by Natalie Gagliordi,
Zdnet.com, May 28, 2016;
“Report, Twitter Has Stopped
Caring About ‘Buy’ Buttons, Just
Like the Rest of Us,” by Nate
Swanner, Thenextweb.com, May
26, 2016; “Twitter Downgraded to
Sell: Hope Is Not a Strategy,
Research Firm Says,” by Mathew
Ingram, Fortune, May 24, 2016;
“Twitter Narrows Loss, Adds Users,
and Misses Revenue Forecast,” by
Mike Isaac, New York Times, April
26, 2016; “Twitter Gains Rights to
Stream Thursday NFL Games,” by
Ken Belson and Mike Isaac, New
York Times, April 5, 2016; “Twitter
Will Offer Selected Tweets to Keep
Users Coming Back,” by Mike
Isaac, New York Times, February
10, 2016; “Here’s Another Area
Where Twitter Appears to Have
Stalled: Tweets Per Day,” by Alexei
EC13_CH02.indd 54
Promoted Trends is the second major Twitter advertising product. “Trends” is a section
of the Twitter home page that identifies what people are talking about. A company can
place a Promoted Trends banner at the top of the Trends section, and when users click on
the banner, they are taken to the follower page for that company or product. A Promoted
Trend must be purchased for an entire market for a day (for example, the United States)
for a flat fee. In the United States, the fee is now $200,000, up from $80,000 when
Promoted Trends were first introduced in 2010.
Twitter’s third primary advertising product is Promoted Accounts, which are sug-
gestions to follow various advertiser accounts based on the list of accounts that the user
already follows. Like Promoted Tweets, Promoted Accounts can be geo-targeted at both
the country level and the local level. Promoted Accounts are priced on a cost-per-follower
basis, with advertisers only paying for new followers gained. Prices range from $.50 to
$2.50. Twitter also offers Enhanced Profile Pages for brands. For a reported $15,000
to $25,000, companies get their own banner to display images, and the ability to pin a
tweet to the top of the company’s Twitter stream.
In 2013, Twitter began a natural progression into the video ad market. Video clips
that include video ads can now be embedded within tweets. Known as the Twitter Amplify
program, the program now includes media partners such as CBS, ESPN, Condé Nast,
MLB.com, Warner Music, and others. Twitter also launched a television ad targeting
product in 2013 that allows marketers to show Promoted Tweets to people who have
been tweeting about a television show. In 2014, building on the Amplify program, Twitter
announced a beta test of Promoted Video, which allows advertisers to distribute videos
on the Twitter platform, and in 2015, it began allowing advertisers to use Promoted Video
to link directly to app installations, as well as an ad purchasing feature for videos called
“optimized action bidding.” This allows marketers to customize ad purchases to improve
their return on investment.
But it is mobile that has proven to be the primary driver of Twitter’s business and
the source of most of its revenue. Twitter began testing Promoted Tweets and Promoted
Accounts on mobile devices in March 2012, and by June 2012, reported that it was
generating the majority of its revenues from ads on mobile devices rather than on its
website. Twitter has acquired companies like MoPub and TapCommerce to bolster its
mobile capabilities, and in 2015 made its largest acquisition yet, spending $533 million
to acquire digital ad platform TellApart. Twitter hopes that TellApart’s technology will
help improve its mobile ad targeting. Currently, Twitter derives over 80% of its advertising
revenue from mobile.
Twitter also continues to refine its data mining capability, recognizing that its stockpile
of customer sentiment about products, services, and marketing efforts is among its most
valuable assets. In 2013, Twitter purchased Big Data startup Lucky Sort and since then
has acquired a number of companies such as Topsy Labs and Gnip that will help it improve
its ability to provide information about its users’ behavior.
Twitter went public in November 2013 with a valuation of about $14 billion, raising
$1.8 billion on top of the $1.2 billion it had previously raised from private investors and
venture capital firms. The public offering was viewed as a rousing success, with the stock
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Tweet Tweet: Twitter’s Business Model  55

price jumping almost 75% on its opening day, despite the fact that at the time, Twitter Oreskovic, Businessinsider.com,
June 15, 2015; “Twitter Is Now
had not generated a profit. However, its share price has declined significantly from its Letting Apps Advertise With Video,”
high of over $74 in December 2013 down to around $18 per share as of October 2016, by Garett Sloane, Adweek.com, July
8, 2015; “Twitter To Pay About
well below its IPO price. Analysts have reiterated serious concerns about Twitter’s lack of $533 Million For TellApart, Largest
profitability and anemic growth rate. Only about 20% of U.S. Internet users use Twitter, Acquisition To Date,” by Zach
Rodgers, Adexchanger.com, April
compared to the over 60% that use Facebook. The vast majority of its users (almost 30, 2015; “Where Did Dick Costolo
80%) are located outside the United States, although the United States is the source of Go Wrong?” by Erin Griffith,
Fortune, June 12, 2015; “Twitter’s
over 50% of its ad revenues. Evolving Plans to Make Money
Another issue is user engagement. Research indicates that the vast majority of tweets From its Data,” by Vindu Goel,
New York Times, April 11, 2015;
are generated by a small percentage of users: one study found that the top 15% of users “Twitter Launches New Ad
account for 85% of all tweets. This is problematic because Twitter only makes money Product, Promoted Video, into
Beta,” by Sarah Perez,
when a user engages with an ad. User retention is another problem. One study found Techcrunch.com, August 12, 2014;
that Twitter had only a 40% retention rate: 60% of users failed to return the following “Twitter Changes Pricing Model for
Advertisers,” by Mark Bergan,
month. Only about 11% of the accounts created in 2012 are still tweeting. Acknowledging Adage.com, August 7, 2014;
a need for a change in direction, CEO Dick Costolo stepped down in 2015, replaced by “Twitter ‘Buy Now’ Button Appears
for First Time,” by Kurt Wagner,
co-founder Jack Dorsey. Mashable.com, June 30, 2014;
Twitter recognizes that one of its problems is that it is perceived to be more confusing “Twitter Buys TapCommerce, a
Mobile Advertising Start-up,” by
to use than Facebook. Twitter’s first move with Dorsey at the helm was to launch Moments, Mike Isaac, New York Times, June
a feature that packages tweets into thematic groups that are easier to follow. The company 30, 2014; “Twitter’s Growth Shifts
to Developing Countries,” by Vindu
also announced upcoming changes to relax the 140-character limit for certain types of Goel, New York Times, May 27,
content and to provide a curated selection of tweets for users who have been away that 2014; “Twitter Pushes Further Into
Mobile Ads with MoPub Integra-
might be especially interesting based on their previous activity. Analysts argue that these tion,” by Yoree Koh, Wall Street
moves are merely cosmetic. Journal, April 17, 2014; “Twitter
Acquires Gnip, Bringing a Valuable
Dorsey has also vowed to narrow the company’s focus on their core service. Twitter Data Service In-House,” by Ashwin
is moving away from products and features that don’t do enough to enhance the basic Seshagiri, New York Times, April
15, 2014; “Only 11% of New
user experience. For example, Twitter had hoped that it would become a hub of social Twitter Users in 2012 Are Still
e-commerce, and rolled out a Buy Now button in 2014 that allowed users to add products Tweeting,” by Yoree Koh, Wall
Street Journal, March 21, 2014;
to their Amazon shopping cart. However, in 2016, development on the service has halted “Twitter’s Big Battle is Indiffer-
due to the users’ lukewarm response to the feature. Other services that have failed to take ence,” by Yoree Koh, Wall Street
Journal, February 10, 2014; “A
off, such as Twitter’s #Music app, have been shelved until further notice. For the time Sneak Peek at Twitter’s
being, Twitter is focusing on improving its video capability, including improving support E-commerce Plans,” by Yoree Koh,
Wall Street Journal, January 31,
for its popular Periscope video service. In 2016, Twitter purchased the rights to stream 2014; “#Wow! Twitter Soars 73%
Thursday night NFL games. The ability to stream live events on Twitter is a substantive in IPO,” by Julianne Pepitone,
Money.cnn.com, November 7,
change in strategy that could help keep users on the site longer. 2013; “Twitter Amplify Partner-
Despite Dorsey’s reshuffling, including restructuring Twitter’s board and firing 8% ships: Great Content, Great Brands,
Great Engagement,” by Glenn
of the workforce, Twitter has yet to reverse its flagging earnings and stagnant growth. In Brown, Blog.twitter.com, May 23,
October 2016, Salesforce was rumored to interested in acquiring Twitter, but decided not 2013; “Twitter’s Latest Buy: Big
Data Startup Lucky Sort,” by Daniel
to pursue a takeover. Shortly thereafter, Twitter reported yet another loss for the third Terdiman, News.cnet.com, May 13,
quarter of the year, and announced that it was cutting an additional 9% of its workforce 2013; “Twitter’s New Video Plan:
Ads, Brought to You by Ads,” by
and shutting down its Vine video app. It is clear Twitter has not yet found a business Peter Kafka, Allthingsd.com, April
model that works. 16, 2013.

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