Twitter's Monetization Strategy: Developers, Developers, Developers

There's endless speculation about how Twitter will make money - and when. Twitter is really hot right now, making it attractive to advertisers for both outbound marketing and deep insights. However, I don't think Twitter will be able to build a long term, sustainable business through advertising revenues. 

The brief history of online communities (all 15 years worth) informs us that it's virtually impossible to make money around them. No one has been able to build a sustainable business doing so that has lasted more than five years. The reason is, people online are fickle. We come and go. This is why I wrote that Twitter is peaking - at least as far as in its ability to grow users.

What Twitter has done, however, that very few companies have achieved, is build an amazing platform that developers love. That ecosystem, if they invest in it, changes the game. 

Suddenly, Twitter is no longer a web site. Rather, it is becoming the web's first major social operating system. Twitter is to rapid fire online communication what Microsoft is to PCs, Apple and Blackberry are to mobile phones, Google is to search and advertising and Facebook hopes to become to the social graph. The numbers from comScore don't tell the real story. This BusinessWeek photo essay, which shows the innovation in the platform, does.

If Twitter invests in growing its platform and empowers developers to do more with its API (i.e. build profitable companies), it can create a remarkable business much as these other giants have before them. The beauty of it is they will never have to worry about the ever cyclical online advertising market or the fickle consumer who is in search of the next hot site. What's more it can spur all kinds of innovation, as the platform has already done.

This is the surest path for Twitter: mold the robust platform into a social OS and add premium services for developers and Twitter could become a giant business that weathers the ever-changing fickle nature of online communities. Choose instead to focus on growing site traffic and advertisers and it will fall prey to the same fate as The Well, GeoCities, Tripod, ICQ, Friendster and every community that walked before it.

So Twitter, be Microsoft, not AOL. Focus on the developers. Enable them to monetize and to grow with you. Become the Internet's first social OS and the rest will take care of itself. Do not chase Madison Avenue. Build the platform, monetize it with value-added services and inspire innovation and Madison Avenue and the rest of the world will plug into you.

Comments

[Eloy Zuniga Jr.]

Agreed. My favorite applications have been those that find their place and play well with others. I don't need you all the time, but if you play nice w/ my other cloud-life applications then welcome friend.

[@MattWilsontv]

I thought facebook was trying to be the first social OS?

[Steve Rubel]

I see Facebook becoming a distributed social network with communication features while Twitter becomes a distributed communications platform with social networking features. They may compete, though.

[Betsy]

I agree.

As an OS they are a neutral entity, and thus is customizable by the end user entirely.

Versus FB which, once you've "friended," to have your UI (and experience) hijacked by others dubious SM application choices. I been thinking about this for a bit and touched upon it here:

http://theliquidbetsy.com/2009/04/value-social-media-x-stuff-as-x-⇒-∞/ -

We all like Social Media, we just like Social Media served our way.

Twitter: http://twitter.com/thebetsy

[Kontra]

Hopefully you recognize MSFT make most of its money on Office, which became default apps by MSFT crushing its 3rd party competition.

[Neal Wiser]

Hi Steve, I think you've made some rather significant, and surprising, errors in your assumptions.

Twitter will almost NEVER be able to make money from their developer ecosystem, at least not in any quantity that would matter, for several reasons;

1) The vast majority of developers building Twitter apps are NEVER going to be unable to generate revenues themselves.

2) Those who do will almost certainly struggle just to cover their own overhead, not to mention contributing to Twitter’s bottom line.

3) There simply won’t be enough paying customers to go around. Providing services to corporate customers might work, but with all the free alternatives available, I question if there will ever be enough paying customers.

4) The analogy to Microsoft is dead wrong. Microsoft had the benefit of building a virtual monopoly around an ACTUAL Operating System (something that everyone with a computer needs). In order for developers to build apps for that OS, they had to buy both the tools to build the apps and the OS to run them on (less true now).

Regardless, the idea that Twitter could become an OS, even a "Social" OS, is flawed. In order to do so, Twitter would have to so permeate the very fabric of all areas of Social Networking as to be synonymous with the sector as Google is to search, and that is not going to happen with micro-blogging. It would be more accurate to say that Twitter could become a micro-blogging ISP which provides a core service to a much broader system of service providers; basically an exponential evolution, but a logical step beyond what Twitter is now.

[Richard Sharp]

Steve, you have nailed it - Twitter is clearly a social media development platform ecosystem enabling many potential consumer an business facing applications. Neal above somehow does not get that Twitter does NOT have to "permeate the very fabric of social networking" - it has the DNA to become and is fast becoming the "fabric" itself.

[Neal Wiser]

Hi Richard,I think you missed my point.In order for Twitter to become an OS, it needs to reach much father than just micro-blogging (a "development platform" is not an OS). Otherwise, Twitter really is just service provider offering an Entrance into micro-blogging, not dissimilar to how ISPs offer an Entrance into the internet itself.

[Tory Lynne]

This is great! I've never thought about it from this angle. I hope they work this out...

[Michael]

Hopefully your ISP has less downtime than Twitter.

[John Bender]

$600 for VS, yah MS loves us!

I've said it over and over and over, they need to release their dev tools for free when its for personal use. It would create a much more robust open source community around .NET.

Be something other than Microsoft.

[wayne schulz]

Not a word about search so far?

This seems to be Twitter's true value.

I'll take $50 on a Google cash out with a $25 backup bet on Microsoft please.



Thanks for starting this conversation - it's interesting.

[Joe Lazarus]

While it's possible that Twitter could monetize through their developer network, I'm not sure I follow the logic of your argument. If you don't think Twitter will be able to sell enough ads to monetize Twitter.com directly, how do you picture other third party developers covering costs for the API while also reaching profitability themselves? Would the developers need to sell ads through their site or service? Are you suggesting that the third party developers could be more effective in terms of building a scalable ad platform? Or, would the third party developers be able to command some sort of premium for paid services that Twitter isn't able to offer directly?

I view the Twitter API as their distribution channel. Most companies pay their distribution partners (ex. the Amazon affiliate program) rather than charging them for distribution. If Twitter were to charge for API distribution, that would require the developer partners to generate more revenue than Twitter is able to generate on their own in that the total revenue would be split between the developer and Twitter. My hunch is that the thousands of Twitter API partners today are barely breaking even. Any API fees would eat into the developers margins and put them out of business unless they are more effective at monetizing the experience than Twitter is themselves. Right?

[Wayan]

Twitter should have sold to Facebook, which itself just sells wampum to VC's as a profit model.

[Steve Rubel]

Joe, think of Twitter like email - except instead of it being an openstandard, they control the dial tone but let others innovate on top of itand profit.

[William Siebler]

Can anyone say wait for the highest bid;)

[Mobile Marketing]

Sounds like someone has high hopes for twitter

[Martin]

I keep having the thought that while Twitter's genius lies in it's simplicity, Twitter may be too simple to make money.

That said, I did argue a short while back, like you, that Twitter could make money from application and service providers. Essentially, Twitter lets developers discover and implement profitable ideas and then possibly *share* revenues.

re: search - I hear a lot of talk about monetizing search, like google. But I see them as fundamentally different. I search for real-time *conversations* on Twitter, and content on Google. At some level, advertisers simply need to join the conversation to advertise in Twitter search... (cutting out twitter)

my crack at this problem:http://www.martinruiz.com/post/66491020/can-twitter-make-money-a-prototype

[Atul Chatterjee]

Social networking sites have been economic successes in the far east for quite some time now. (not in English).

[The System]

Twitter is sustainable because the concept of immediate updated news has not yet been explored. Twitter will be bought by the BBC or some other powerful global comms company , that will use it's powers to deliver instant news in ways as yet only imaginable.Twitter is the hot wire and potential channel for billions of news and marketing streams - no wonder the press are really worried!