Samir Balwani recently wrote an article on Left The Box speculating on some of the problems microblogging companies like Twitter, Plurk and BrightKite will face in monetizing their product. Ever since Fred Wilson helped fund Twitter last year without knowing how it would make money, stakeholders in the system have wondered how Union Square Ventures will get their ROI.
Samir mentions a couple of common bad ideas (boldface added):
When the question of Twitter monetization first arose, one of the answers was creating tiered membership. Where each tier allowed a number of friends or followers. The problem with this idea is that it penalizes that site’s most popular users. It doesn’t make sense to hurt those that help your site the most.
There’s also been talk about making Twitter a paid site, with a monthly membership fee. Although, paid content is not dead, it requires unique content. Micro-bloggers are used to free access and have too many options. If Twitter became a paid service, users could easily just move to Plurk or any of a number of other services that do nearly the same thing.
In order for Twitter or any open service to become profitable, there needs to be a balance between opportunities to charge and respecting the dynamics that created the community in the first place. Monetization requires some non-traditional thinking that still allows the service to be free to most and API development to continue.
Charge for API Requests
Samir sees problems making money due to the presence of API. Since most people are not forced to go to the same place of interaction, it becomes difficult to sell ads to support the service. The monetization of Twitter, however, is probably tied strongly to their API in a positive way: request-rate surcharges.
The current limit is reportedly back up to 100/minute/account and has been as low as 20. What if the open API was free at a low request rate—to continue aiding development of new applications, visualizations and support tools—but that these projects could pay for a higher request rate? A paid API subscription could also offer much of its content for free but charge for special queries or deeper result sets.
As was evidenced in the May-June 2008 technical valley, when Twitter was fighting outtages and loss of functionality, third-party development atrophied slightly. Perhaps the 20-request limit is too low to encourage new development. In theory, though, successful systems would bear the profit load and might in turn recoup some of that cost by offering their own tiered API.
Self-Selected Advertisers
Another possibility that would fit the Twitter mentality is opt-in advertising. Create corporate accounts for a fee and make it a requirement that all users select at least three to follow. The service won’t work (account is disabled) unless the member is actively subscribed to three or more. Perhaps like Twitterrific, there could be a second profit point by offering paid memberships that reduce or eliminate the ads.
This might prove effective for two reasons. First, if you get enough advertisers across enough verticals (technology, politics, family, entertainment, religion, etc), there is a real choice available to each member. I don’t have to be subjected to Microsoft if I’m an Apple guy, or Pepsi if I like Coke. Because the options are plentiful and the requirement modest, the likelihood that the advertising message would be well-received is strong. Ed Dale refers to this as side-by-side marketing.
Second, because the ads appear in the form of tweets and advertisers are members, the same follower dynamics will apply. Companies who spam content will be unfollowed and replaced with another advertiser. Companies with irrelevant content will similarly see fewer eyeballs on their message. The beauty of the Twitter channel is that everyone has her own way of using the service and her own tolerance for certain kinds of behavior. Collectively, norms for advertisers will quickly be determined not simply by loyalty to the product brand but also by quality of use of the channel. It would not be unexpected to see many active users self-selecting to see more than the required number of ads.
Open Source Service Model
Our own Brad Wheeler has talked a lot over the years about how open source products can make companies profitable by monetizing support services. Perhaps the solution for Twitter is not to worry about advertising or membership costs at all but rather look at ways to help individuals manage or trick-out their accounts, or to provide development services to companies wishing to leverage the API. The tweets passing through the public stream attract people needing help, and that is where Twitter can focus their for-pay efforts.