The $1 per month Twitter business model

Twitter is focused on promoted tweets to bring profits, but could it charge a monthly fee and keep tweeters from abandoning the service?

Gawker pounced on Twitter today with an article titled "Twitter's Secret History as the World's Worst Tech or Media Business," exposing what author Ryan Tate called "not encouraging" financials, which were leaked by a source allegedly with close knowledge of the company's recent past.

However, by the end of the article Tate allowed that "Twitter's laughable first five years of financial performance might just be an entertainingly weak introduction to a decades-long saga of epic riches, fame, and glory."

Twitter has some runway before the profit motive overwhelms its corporate senses. It has more money than it knows what do with at this juncture, collecting about three-quarters of a billion dollars over its nearly six year existence. And it continues to amass users globally, playing a role in revolutions, scandals, and politics, and spawning a worldwide verb, like Google has--all of which helps to assuage the impatience of investors large and small.

Like Google, Facebook, and every other player in the digital media realm, Twitter is banking on advertising to earn profits, and to fuel a Facebook-like public offering. "2011 was the year we began scaling it. And 2012 is the year when we demonstrate that it's a juggernaut," Twitter's Satya Patel told Bloomberg Businessweek's Brad Stone regarding the company's advertising.

Twitter CEO Dick Costolo, when he addressed the Web 2.0 conference in October 2011. Dan Farber/CNET

Twitter is basically a mass-scale marketing platform, in which every tweeter is a marketer and every follower a set of eyeballs and a potential re-marketer.

Twitter CEO Dick Costolo told Stone that the core of his business strategy is the "promoted tweet," an advertiser's tweet that shows up at the top of a user's feed. Retweets and clicks from the advertiser's tweet bring in the revenue. Twitter has a $120,000 deal for advertisers who want to show up for a day on top of the list of popular topics on the main Twitter page.

It could be a nice ad business, but will it put Twitter in Facebook or Google revenue territory and deliver the kind of profit shareholders expect? Can Twitter avoid littering its pages with videos, banners, and other anathemas to its company ethos?

Nearly four years go I half jokingly proposed a business model to a then fledgling Twitter, suggesting that the company ask users, "If you like Twitter so much, how about paying $5 a month for the privilege, with a guarantee of service." For some, I wrote, "that's less than a day's worth of coffee, a lowly beer, or maybe soon a gallon of gas." (The price of gas is climbing toward $5 today, as it was in 2008.)

The price of Twitter

How much would you pay a month to keep tweeting?

It's time to update that proposal. Could Twitter charge a monthly fee and keep tweeters from abandoning the service? How about $1 a month--half the price of a small coffee? The Starbucks-drinking Twitter users can afford the modest fee, which could generate more than $1 billion in revenue per year with the flick of 100 million credit cards.

Of course, the counterargument is that Facebook, Google, and other social services are free, so why should anyone pay to make Twitter's shareholders richer? And, some of the 100 million users would revolt, enabling a Twitter rival that doesn't charge a monthly fee to rise up and capture the allegiance of disgruntled users. In addition, many people around the world, using Twitter on their phones, don't have $12 a month to donate to the Twitter cause. Twitter could wither and become a ghost town.

On the other hand, Twitter is unrivaled at this juncture and getting more deeply embedded into cultures around the world. What if somehow the $1 per month could ensure a certain quality of service, additional features, and a minimum of invasive ads? It might work. Users would be happier, and the company would be more profitable and able to invest in its products. Having transparency--knowing that the $1 per month wasn't wasted on excessive bonuses, private jets, and sushi flown in from Japan--would be essential.

As we have seen with smartphones and tablets, people are willing to pay for applications delivering content, breaking with the original Internet premise that content is free. If you find value in Web content or services, what is it worth to you?

 

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