Twitter was one of the early platforms that came to scale and had a large impact on how social media has shaped up. It is reaching many areas of life. Their role in the political arena has been the most important element among all. It has played a role in organising political positions and groups and – likely – amplified some political movements. It was purported to play a big role in political movements in the Middle East in the early 2010s. But it came full circle back to its originating country and may have given one particularly active user on the platform the last few votes to become president of the most powerful country. His predecessor was and is still very active on Twitter as well (and has the most followers of all users).
The recent ban on political ads will likely not change much about their role in politics. But attempts to improve the “health” of the platform aim to eliminate platform manipulation in many fields, in particular in the political field. Other VIPs, influencers and those that want to become one are using this platform as one of their top choices. But Twitter is not just there for VIPs and influencers. There are many areas of life that are represented. Many are still using it to hang out there or to keep up to date. Being an aggregator for unfolding events and trends has shaped up as one of the most important value propositions in recent years.
The vision and what they stand for
The mission we serve as Twitter, Inc. is to give everyone the power to create and share ideas and information instantly without barriers. Our business and revenue will always follow that mission in ways that improve – and do not detract from – a free and global conversation. Twitter
We believe in free expression and think every voice has the power to impact the world. Twitter
What they stand for (more recently)
Twitter is what’s happening in the world and what people are talking about right now. From breaking news and entertainment, to sports, politics, and everyday interests, Twitter shows every side of the story. On Twitter you can join the open conversation and watch highlights, clips, or live-streaming events. Twitter is available in more than 40 languages around the world. The service can be accessed via twitter.com, an array of mobile devices via Twitter owned and operated mobile applications (e.g. Twitter for iPhone and Twitter for Android), and SMS. Twitter
About us: We share MBA-level innovation and business management knowledge with Entrepreneurs, Founder-CEOs, App Creators, Startups, Professionals, Executives, MBA Students/Graduates, Business School Professors and other smart people.
We generate the substantial majority of our revenue from:
- the sale of advertising services with the balance from
- data licensing and
- other arrangements.
Twitter’s payment models fall into the known CPM, CPC, CPA models typically via auctioning mechanisms (which also is standard). Additionally, they have fixed price products as well as bundled arrangements.
- “Auction: Promoted Tweets and Promoted Accounts are pay-for-performance (CPA) advertising products or pay on impressions (CPM) delivered, each priced through an auction.
- Promoted Trends are featured by geography and offered on a fixed-fee-per-day (and geography) basis.
- Advertisers are obligated to pay when a user engages with a Promoted Tweet, follows a Promoted Account (CPA), when an impression is delivered, or when a Promoted Trend is displayed (CPM). These advertising services may be sold in combination as a bundled arrangement or separately on a stand-alone basis.”
- Programmatic: The programmatic space is a bit of a moving feast for Twitter. They are reported to be one of the very few large platforms to open their advertising inventory to outside programmatic advertising through a number of dedicated platforms (WPP, Dentsu Aegis and Omnicom). It is not a sign of strength but one of commodification of their ad inventory. They have experimented with programmatic ads via the embedded Twitter Timeline Ad network on 3rd party sites but seem to have shut it down recently. Additionally, they have acquired MoPub in 2013 a platform matching demand and supply side on placing ads in mobile apps which allows for programmatic advertising. MoPub-generated revenue is covered under “other revenue”. The other way to run programmatic ads on Twitter is via developer APIs and functionality (but requires skills or professional services to do so)
(2) Data licensing
Twitter sells access to their public data to analyse (1) historical and (2) real-time data. There are two levels of access premium and enterprise. “In some of our data licensing arrangements, pricing is a fixed monthly fee over a specified term. In other data licensing arrangements, we charge customers based on the amount of sales they generate from downstream customers using Twitter data. Certain of those royalty-based data licensing arrangements are subject to minimum guarantees. Royalties in excess of minimum guarantees […] have been immaterial to date.”
(3) Other revenue
Other revenue is generated in the form of commissions on the mobile ad exchange (MoPub). The MoPub ad exchange enables buyers and sellers to purchase and sell advertising inventory by matching them in the exchange. Twitter bundles data services and other revenue into one figure when the report on it.
As always with platform business models, we need to think about the value proposition to all sides of our multi-sided platform (well, there are more sides than shown below but these are the most important ones).
Value proposition for Tweeters (users)
- Breaking: news, sports, events as they unfold in real-time and from as many angles as the user desires in a fast-paced fashion. Twitter calls itself the #1 discovery platform (for what’s happening now)
- Immediacy: Users can follow influencers directly. Twitter has reduced the grip of the incumbent mass distribution channels
- Bringing people together: brings together networks of people from near and far who do and don’t know each other. They can amplify each other’s views by liking, retweeting, sharing
- Expressions & opinions: Further, users can express their opinions (within boundaries) and be part of a “debate” (or shouting match in some cases)
- Trending: Searching what is trending or following hashtags can be a good way to explore updates on topics that one would have not easily found on other platforms. It’s not a straight and targeted exploration but Twitter will present tweets/accounts that it assumes to be of interest for users
- Following / keeping up: It can also be a good way to keep up with updates from like-minded people / influencers. Users can define lists around topics (e.g. I like following economics, monetary policy, markets among other)
- Viewpoints: users have the chance to follow different viewpoints from left, right, centre of the debate
- Organisation & amplifying voices: Twitter is known having helped groups of users to communicate and spread their messages. Some political movements have organised and spread through this medium
Value proposition for influencers
Influencers are vital to Twitter and vice versa. The Pareto rule of a few creating a majority of content holds true for Twitter (like many other platforms). I am showing this in our additional resources.
- Immediacy: Yes, I have mentioned it above. Immediacy is of value for both the followers and the influencers. Messages do not get diluted, modified by the intermediary or gatekeepers. Incumbents will argue that this comes with its own risks but it is of value for influencers
- Word-of-mouth & organic virality: Gaining followers, retweets and likes are a great way for influencers to be noticed and getting their messages out
- Collaboration: like-minded influencers join forces by including peers’ accounts in public tweets (via @-character or posting on the same #hashtag)
- Gauge & refine messaging: Reactions to different types of tweets and viewpoints can help influencers to find out which message are more likely to be heard, repeated and liked (all of this without the need for polling services, though a polling option is built-in)
- News cycle: The real-time character of the platforms supports riding on top of the news cycle for those skilled enough to take advantage of it
- Segments: Twitter has shown to be of particular value for certain content verticals, esp politics, news, sports, events, entertainment
Value proposition for businesses / advertisers
- Native integration / video ads: Twitter is a good place for video ads. They can be relatively natively integrated (I will detail this more later). However, it also requires the right type of creative (image or video) and getting the targeting right (and for Twitter’s algorithms to embed it in the best possible context)
- Non-interrupt: On a spectrum from high to low-interruption marketing, Twitter sits somewhere in the middle of the spectrum. But, as mentioned, a lot also depends on the creative and the targeting. Having repeat ads displayed in the middle of breaking news with little relevance to the news itself can lead to ignorance (or worse reactions)
- Word-of-mouth: well-made ads with the right messaging have the opportunity to spread organically
- Ad formats: Twitter has good ad formats that align well with their core value proposition. Snapchat, by comparison, has shown significant creativity in this space. They have been creating non-core value-ad features with additional ad formats. Facebook, on the other hand, has recently reduced the number of ad formats considerably
- Self-serving business tools: Most of the advertising features can be self-served which is a win-win for Twitter and advertisers. The downside is a heightened risk of bad ads, e.g. clickbait
Value proposition for developers
- APIs: Twitter was quite open for developers for a long time. It has certainly helped them to scale fast in the early days. In recent years, when they were under financial strain, they decided to considerably reduce the support for their developer community and outsource these functions and limit the various types of integration. There is certainly a causation between the relative openness of Twitter and the negative impact of bots and platform manipulation
Partnering service providers: The APIs provide opportunities for agencies to provide more tailored support for advertising clients as we will see shortly under key partners
Similar value propositions
There are over 39,000 businesses and startups on Crunchbase that fully or in part rely on Social Media functionality or have such an app. This easily exceeds the "games / gaming" category by 2x.
You could add to this related types of apps, such as user-generated content / media sharing, messaging, chat, search, vertical search, location-based search, review platforms among others and you'd probably end up at 100k+ businesses. Here's an article that shows 95 social media apps as the tip of the iceberg.
I have covered these types of platforms / apps in several long articles: Google, Facebook, Twitter, Snapchat, Pinterest, Groupon, Yelp. It might be the most extensive resources on the internet on the business model of these companies / apps. And I am being contacted by many who feel that understanding these types of apps, platforms and functionality can drive the growth of their business:
“The content you have created is super valuable and really makes it clear how those large players are earning their money” Malin Andersson, Co-Founder Worldsmarathons.com (Purchaser Super Bundle).
Business model first: I appreciate we all love to design and develop. But the view that I have expressed many times is that the business model matters most. Developing randomly can cost you years. There are typical elements that you will see across all of these apps. But each of these businesses implements them somewhat differently.
Comparing the differences, similarities and results has been crucial in understanding what drives success (and what doesn't). I have put all of this together in our social media / search super bundle. I am also providing learning aids that will help you to focus on the key parts in a way that can get you through it in a few hours time. Learn more here....
- Users: Normal users are there to follow, interact, share their views as well as content and to participate in other forms
- Content creators:
- Influencers: individuals who amass very large follower bases in order to be able to reach them directly and to get shared (potentially virally). This includes active VIP participants among world leaders, government officials, celebrities (TV, music, etc), athletes, journalists, sports teams, media outlets, etc
- Companies and other content creators: there are those companies who aim to get followers and eyeballs based largely on organic traffic. These participants are also valuable for Twitter because they will aim to add value to the users with their content in order to get likes, retweets and followers
- Micro-influencers: Twitter is also a place for micro-influencers with big followership in their niche
- Websites/blogs: Many websites and blogs share content via Twitter
- Events are not necessarily partners but are an important engagement driver from which many users – incl VIP users – tweet content
- Premium content (video) partnerships: Twitter has started to partner with Bloomberg in 2017 and since has added a few dozen new partnerships with content from:
- News: Bloomberg TicToc, CNET, WSJ, TIME, etc
- Sports: It has partnerships with the NBA, MLB, PGA TOUR, FOX Sports and many others
- Entertainment: LiveNation (live concert series), MTV Video Music Awards and many other
- Other: Content that fulfils certain requirements can be put forward to participate in the Twitter Amplify program to earn revenues
- Advertisers: there are large advertiser bases from many industries. Most businesses will aim to run a combination of ads and organic content with the aim of getting it spread by the users and gain followers. Different types of businesses will prefer different types of ads. For companies that regularly create new content, such as media companies, online magazines, follower ads (Promoted Account) will be more beneficial. Companies aiming for website traffic or conversion may prefer Promoted Tweets
- Customer service partners: Twitter has a host of partnering service providers that they recommend for their customers to get more out of Twitter’s advertising and data tools
- Twitter Ads partners: “Ads partners combine their own enterprise tools and expertise with Twitter’s Ads API to help brand and agency marketers create and manage high-quality ads with advanced features and capabilities.”
- Twitter Data partners: “data partners put Twitter data in context, giving you actionable insights for social care, customer experience, product development, and so much more.”
- Partnering tools: Twitter has embedded 3rd party tools to be used in combination with their own ad management tools, e.g.
- (more partners in our in-depth resources)
Twitter has longstanding issues causing negative network effects. It has been at the forefront of their activities to improve the health of the platform for the last few years.
- Reducing negative network effects and enhancing positive network effects: the paradigm of growing the user base at all cost has changed finally to make place to healthy growth and getting rid of many fake and ill-intentioned accounts as well as bad behaving actors on the platform. After years of bad financial results, Twitter has been profitable for the first time in 2018 (even before the one-off tax windfalls). This should give more breathing space for working on the health of the platform
- Engaging the users is mission-critical for any platform business. In Twitter’s case, a lot of this happens due to the content that participants share, mainly super users (which includes influencers, VIPs from various areas, etc). But it also requires to ensure that interactions don’t spiral out of control into “shouting matches” or other sorts of negative interactions
- More recently, Twitter started partnerships with professional content creators for the purpose of user engagement
- Innovate: new features for users and businesses including monetisation features are crucial. Twitter (like many others) uses a mix of internal innovation efforts and acquisitions. However, there is also a list of not successful innovation/acquisitions, such as Vine, Moments, Threads and potentially Periscope to name a few. Personally, I have found Snap to be more creative in their value-add monetisation features
- Improve the app, website: while ongoing tweaks to website/app UI/UX are normal, 2018 saw the first major update in seven years to Twitter. The tech stack was completely rebuilt among other changes
- Improve algorithms: Twitter’s timeline algorithms (in terms of what to display to users) has changed several times. It consists of several sections and allows switching between top tweets and latest tweets. And then there are a whole range of other algorithms affecting advertisements (and the interest graph that largely determines what will be displayed for each user)
- Careful management of influencers and content on Twitter is crucial for their success (as one stark example take the attempt of a former intelligence employee to gather sufficient crowd funding to buy out Twitter in order to ban the sitting US president)
- Marketing via organic and paid traffic across various channels. Organic growth through word-of-mouth and integration (embedding) into 3rd party webpages have played a big role in Twitter’s growth
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Key Resources / Assets
The master resource (or asset) of any platform are its network effects. It is the resource/asset that needs to be built and nurtured. Here is how this translates into more detail.
- Users (Tweeters):
- Content creators: such as super-users, influencers & VIPs that attract large follower bases and create engagement (evidenced in responses, like retweets, etc)
- Active users: 145m mDAUs (monetisable daily active users) as of Q3 ‘19
- Content assets:
- Content shared by users (tweets), and retweets, likes, responses, etc
- (Categorised) Content related to #Hashtags, trends, events and the details to build users’ interest graph
- Embedded content assets, such as videos, images, infographics, links, etc
- The Twitter brand and associated trademarks (e.g. “Tweet”). Twitter has built a brand that may make them appear bigger than the financial results would suggest. It ranks 2nd in the iTunes News category (Jan ‘20)
- The App, the technology / digital assets
- The app (4.5-stars on Google Play Store, 4.6-stars on iTunes App Store)
- The website also hosts the full feature set for users
- The business tools are only available on the website (there is no dedicated Twitter business app)
- Relationship to advertisers ranging from small/medium size businesses to large multinational brands. According to one stat, “65.8% of US companies with 100+ employees use Twitter for marketing”
- Acquisitions are always a great insight into the capabilities a company wants to gain. Now, the list of Twitter’s acquisitions is long (over 50 items) and covers many different types of businesses. Let’s look at some of the bigger ones (we only know the transaction value of a subset only)
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Creating App biz models
How to develop a business model for your App. Our firm belief is that a huge amount of apps fail because there is no clear thought behind the business model. If you are developing an app, make sure to think about the business model in parallel. This is an epically long article on the topic using search / social media platforms as an example. This 10-step guide can be applied to most types of apps & their business models. Read also the complete guide to the revolutionary platform business model.
(We are looking at this from the lens of the underlying needs, how they are served and the things that affect customer relationships. There is a natural overlap with the value proposition) Undoubtedly, one of the most important aspects of Twitter’s business model are its customer relationships “We have witnessed
- troll armies,
- manipulation through bots and human-coordination,
- misinformation campaigns,
- and increasingly divisive echo chambers,”
We aren’t proud of how people have taken advantage of our service, or our inability to address it fast enough.” Jack Dorsey, Co-founder, CEO Twitter A pretty damning, honest and self-critical judgment. Anyone that has spent any time on this platform in the past knows it is/was acutely true.
Relationships to users
The relationship to its users – and non-users – is one of the most important elements of their business model and the one that requires ongoing focus for the foreseeable future until it has notably improved. The coverage of news, sports, entertainment and events is one of the biggest value propositions. But it is used for many purposes. Some of the biggest negative network effects plaguing Twitter come from the political arena which I will use as a proxy for the wider negative effects requiring attention. Platform manipulation comes in various forms: Platform manipulation can take many forms and our rules are intended to address a wide range of prohibited behavior, including:
- commercially-motivated spam, that typically aims to drive traffic or attention from a conversation on Twitter to accounts, websites, products, services, or initiatives;
- inauthentic engagements, that attempt to make accounts or content appear more popular or active than they are; and
- coordinated activity, that attempts to artificially influence conversations through the use of multiple accounts, fake accounts, automation and/or scripting.
- Classic geo-demographic segments
- 145m monetisable Daily Active Users (mDAU)
- Higher penetration in younger audiences, such as millenials
- More urban, higher education, higher income
- Globally 66% male, in the US it’s more balanced (54% male)
- Strongest markets (based on total addressable ad users, Oct ‘19):
- US, Japan, Russia, UK
- Behavioural/interest, addressable audiences:
- Gender, age (brackets), language
- Device, carriers, OS (version), Wifi, etc
- Tailored audiences (CRM lists or via tracking)
- Behaviour (shopping / spending patterns)
- Conversation (by #hashtag)
- more in the in-depth resources
The big game are the addressable micro segments (which allow targeted ads). These segments can be used by advertisers. The most valuable audiences will attract the highest ad revenues per user.
Many platform business models which we have covered are purely virtual.
Other types of platform business model are based on tangible goods: sharing economy businesses are some of the most successful among them.
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Their Website/App is by far the most important channel
- Most transactions/functions on the user side are automated through the app/website
- Twitter has a considerable amount of privacy and safety functions
- Data collected: It allows setting of and finding out what data Twitter collects from the users
- Content preferences, incl notification settings and a lot more
- Blocking and reporting users were features available for a long time
- Author-moderated replies: is a new feature and a nicer term for the ability of the author to hide replies. Twitter’s intention is to give authors the ability to hide offensive or irrelevant responses. Critics fear that it can be used to silencing dissenting (but valuable) opinions. This is a new feature that is progressively being rolled out internationally and it will be useful to see how it shapes up
Other interaction channels:
- App stores organic and ads
- Social media pages:
- Facebook: 15m followers, occasional posts to users
- LinkedIn: ~700k followers, reaching out to users, businesses and talent
- YouTube: ~250k subscribers, content for users (posting on certain hashtags) and businesses
- Pinterest: (24k, this account is discontinued)
- Twitter: Well, Twitter has many accounts on their own platform for many different purposes, their biggest one is also one of the biggest on the platform with 57.1m followers
- User support: largely automated and/or help pages
- Word-of-mouth: Twitter is present organically in many conversations and news articles. You will often see pertinent Tweets from prominent politicians and other VIPs embedded into articles
- Embedding into 3rd party websites: it is very easy to embed timelines and other Twitter content into webpages without any programming efforts
- Twitter APIs have helped Twitter to grow fast but it is also one of the key gateways for undesired behaviours in that it allows bots and other automated tools to manipulate the platform. While very useful in the early days, my impression is that Twitter has tackled too late the associated downsides of automation (which are the large armies of bots involved in platform manipulation). They are under enormous pressure to get this channel under control and to remediate the damage done to their reputation
Cost of revenue:
- infrastructure costs,
- content costs,
- amortization of acquired intangible assets and
- amortization of capitalized labor costs for internally developed software,
- allocated facilities costs,
- traffic acquisition costs, TAC (incl third party costs for placing ads on third-party publishers’ websites, applications)
Research and Development
- personnel-related costs, including salaries, benefits and stock-based compensation,
- amortization of acquired intangible assets, allocated facilities costs, and
- other supporting overhead costs.
Sales and marketing:
- personnel-related costs, including salaries, commissions, benefits and stock-based compensation,
- marketing and sales-related expenses also include advertising costs, market research, tradeshows, branding, marketing, public relations costs,
- amortization of acquired intangible assets, allocated facilities costs, and
- other supporting overhead costs
General and administrative:
- personnel-related costs, including salaries, benefits and stock-based compensation,
- fees and costs for professional services, including consulting, third-party legal and accounting services and facilities costs and
- other supporting overhead costs that are not allocated to other departments.
Interest expense (post-EBIT expense):
- interest expense incurred in connection senior notes issues (see funding) and interest expense related to capital leases and other financing facilities.”