Let me just come right out and say it: I like Twitter. Granted I only really got involved with it in the first place as it was a useful little bit of glue logic that let me cross post my blog onto Facebook with a minimum amount of set up. Whilst I was on honeymoon on Turtle Island it became the perfect one-way communication channel to the wider world, where I could send a 140 character summary of the day back to the real world and then be done with it. More recently I’ve been knee deep in Twitter’s API and have come to love it for the sheer simplicity it offers, ensuring that the first bit of code I deem “done” is always my Twitter integration. Still I’ve always had a skeptical eyebrow raised as to how these guys are going to capitalize on their endeavour, seeing as they are the 12th most visited site in the world.
For the most part they’ve been doing what most start ups do initially, venture capital funding rounds. Whilst there’s no exact figures around we do know they’ve got upwards of $70 million dollars in 3 separate funding rounds (with an additional $100 million rumoured to be in the works too). Couple that with the cash injections from Microsoft and Google to include tweets in their search results (to the tune of $25 million) the guys at Twitter really aren’t strapped for cash by any stretch of the imagination. However without some strategy to actually monetize the service they provide that money will only last so long before they have to close up shop. The usual strategy here is to try and find a large company to buy you out (ala Youtube, what you thought it was profitable?) which in the case of Twitter there would be no shortage of potential suitors.
However it seems that Twitter isn’t your traditional up-start start-up and have figured out a monetization strategy that seems rather familiar:
Earlier this evening, we broke the news that Twitter was about to launch its new ad platform. The news has just been confirmed: moments ago, the New York Times published a report detailing the new platform, which is officially being called “Promoted Tweets”. Update: AdAge has published a report as well.
Here are the details outlined in the articles:
- As we previously described, the new system serves up ads based on keywords in Twitter search queries.
- Promoted Tweets will appear at the top of the search results page, with small text indicating they were sponsored. The Times piece notes that companies could use this to combat negative tweets (they can place a positive tweet at the top of the page)
- A Promoted Tweet isn’t guaranteed to stay afloat for a long time — if the tweet isn’t tracking well in terms of replies, clicks, and a number of other metrics Twitter is calling “resonance”, it will be pulled, and the advertiser won’t pay for it.
- One ad will be shown at a time
- Initial ad partners include Best Buy, Virgin America, Starbucks, and Bravo
- Advertisers will be paying on a CPM basis initially, with plans to adjust the model once Twitter can better gauge how people are engaging with Promoted Tweets
Anyone who’s tried to make some cash on the Internet can recognise what this basically amounts to, it’s Google’s monetization strategy all over. For the uninitiated there are two sides to Google’s (largest) revenue stream: AdWords and AdSense. The former is basically a market for advertisers to buy advertising space on certain keywords which could appear on Google’s search results or web pages running AdSense. Payment is done on a cost-per-click basis so in essence you only pay when someone clicks through. AdSense is the other side of the equation which is the system where publishers can reserve space on their web sites for advertising which Google then populates based on the keywords it finds on the website. If you go back and take a closer look at Twitter’s ad system you’ll notice how similar they look.
Honestly though I’m not suprised. Unlike small time players that can get away with slapping some advertising on their blog and calling it a day it doesn’t really scale up to the size of something like Twitter. Sure they’d make a fair amount out of it but it would be peanuts compared to them actually going out directly to advertisers and cutting deals directly. With their initial partner list showing some rather big names you can see that this has probably been bubbling away in the background for quite some time and shows a lot more promise than some of their other monetization ideas did.
The system itself apparently is already in full swing for a lucky few (see here for how they roll out new features, its quite cool) and seemed to coincide with a bit of a revamp of their landing page. The reaction hasn’t been all that positive but you’d expect that. It seems some of the twitterati (or tweeple, as I like to call them) assigned a kind of indy rock band persona to Twitter and when they finally decided to “sell out” it comes as a massive shock. However I believe it will be a very short lived outrage as even the closest competitor identi.ca has no where near the same amount of traction that Twitter does. Additionally should there be a mass exodus from Twitter you can guarantee the other services will look to monetize like Twitter as quickly as they can in order to cope with the increased traffic they’d receive. You can only run on venture capital for so long before the benefactors start looking to get their slice of your service’s pie.
Personally though it’s a bit of a non-event. It won’t change the way I use Twitter and since I’m not exactly a big shot on there I’m not going to be looking to capitalize on this new advertising medium. It’s good to see Twitter finally coming up with a solution to their monetization problem and I’m sure the VCs are rubbing their hands together with glee at the prospect at finally getting something back for the untold millions they’ve pumped into the Internet’s latest starlet. I’m very keen to see how this affects their bottom line, and time will tell if this will turn Twitter into another advertising giant like their big daddy Google.
