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Twitter is a Cash Cow in the Making

Cash CowWe have been talking a great deal lately about how Twitter should be monetizing their service. Most of this talk comes after news that Twitter secured $20 million in venture capital, to push its total valuation to $250 million. It wasn’t long ago that Twitter started looking for a product manager to define a revenue stream. This is a smart move for a company that has relied solely on venture capital from day one.

Andy recently wrote a post detailing his thoughts for a Twitter subscription program. This is an idea that even Twitter’s CEO Evan Williams has spoken about in the past.

We’ve though about it. We had to do some thinking about that to raise a bunch of money, but it’s not actively in development right now. The broad strokes on the matter are obviously Twitter is being used for a lot of commercial purposes right now, in addition to social purposes. We think that works pretty well. We think there’s a lot of companies that we’ve talked to that seem to be getting a lot of value out of it. If that continues, if that becomes a rich world for users and the companies, we think we can extract some revenue from that.

While I think that a subscription based program of some kind would be a good idea (one I would probably subscribe to), I think that implementing that alone would miss Twitter’s full potential completely.

Twitter’s Full Potential

As Seth Godin states, Twitter is a protocol. What’s a protocol? A protocol is a set of “rules determining the format and transmission of data.” The Twitter Protocol is made possible through Twitter’s overwhelmingly open API. Because of it we can integrate Twitter into just about anything.

So, Twitter is a protocol, whats the big deal? Protocols control the flow of information. Those that have become masters at information control have built insurmountable wealth as a result.

Here’s two real world examples at how the Twitter Protocol could bring on lots of wealth.

URL Control: Many Twitter users use some type of URL shortening service to make their URLs more manageable with in 140 characters. At the moment Twitter is integrated with the infamous TinyURL. If Twitter brought URL shortening in house they could not only brand out going URLs, but they could also control them. Think about every link that leaves Twitter to places like Amazon.com or eBay.com, now think about those links all of the sudden turning into affiliate links. Or how about all of the links that point towards Google SERPs, now think what it would mean if they changed into links that integrated the AdSense for Search program. Are you seeing were I am going with this?

Twitter as a payment gateway: Back in June of last year, Nate Westheimer proposed the idea of Twitter becoming the next big payment processor, by monopolizing on the mobile communications industry’s need for a mobile payment processor like PayPal. I still think this is a solid idea and I am shocked that not many have talked much more about this. Westheimer tells us that combining Twitter’s carrier free social messaging service with a payment processor could put the company in a position to define the mobile standard for payment processing.

The true power behind popular protocols can almost never be predicted, mostly because they are defined by how they are used. This means that as Twitter grows it will have to remain observant of emerging trends of its users, so that they can wield their protocol in ways that allow them to prosper with the aide of their users. For myself, I am excited to see the future.

  • http://twitter.com/jonathannelson Jonathan Nelson

    twitter as an information protocol is dead on correct. every day there seems to be 1 more app that ingeniously integrates twitter into itself. i’m happy for the twitter team. i love it seeing them succeed.

  • http://patchlog.com Mihai Secasiu

    There are so many ways you can annoy a user and push him to your competition and your suggestions for URL control are just a few of them. Twitter’s own shortening service would be nice, maybe add in some analytics but I would be very unhappy if a user might get to a page that’s different then what I would want them to see. Passing twitter’s own affiliate id is a bad idea. The marketers and bloggers are huge contributors to twitter’s popularity and I don’t think any of them would like their amazon aff id replaced when they share a link to an item on amazon.

    FriendFeed already has it’s own url shortening service and they don’t abuse it ( not yet, and hopefully never will )

    The payment gateway idea might seem good but if I know anything about protocols is that they work best for the things they were designed to be used and twitter was in no way designed to be used as a payment gateway.

    DNS is good at transforming hostnames into ips, there is some proof of concept application that would allow you to use DNS as an almost anonymous p2p service ( is a few bytes / second doesn’t make you go crazy while waiting for that cracked version of windows 7 to download )
    I bet I can write a twitter app that would let me use it as a p2p service but that still wouldn’t make twitter a p2p service.
    There is some other proof of concept that uses tinyurl as a virtual storage drive.

    All examples of protocols doing something other then they are supposed to do but they are almost useless at doing the “other” stuff.

    Mihai Secasiu’s last blog post..Webmin Bulk Add Ip Addresses

  • http://www.whostalkin.com Joe Hall

    @Mihai

    Adding their own affiliate IDs doesn’t implicitly mean taking others away. There are numerous ways that this could work. Maybe if the user has added an affiliate ID then twitter wouldn’t.

    I also would have to disagree with your assertion that protocols never should change or adapt. Because of the constant evolution of the most famous protocol the Hyper Text Transfer Protocol (HTTP) we are now able to build a much more richer internet that isn’t bound to flat hyper text, but rather integrates all aspects of media development.

  • http://patchlog.com Mihai Secasiu

    Ok I agree, inserting an affiliate id where there isn’t one wouldn’t hurt anyone but figuring out when to do it might be a challenge.

    The HTTP protocol has not changed a bit in the last 10 years (
    http://www.w3.org/Protocols/rfc2616/rfc2616.html )

    Just because new sites appear every day it doesn’t mean http has changed, just because of all the social media buzz, video and flash appeared it doesn’t mean HTTP changed.

    In the same way just because every day you see a new app that’s using twitter api it doesn’t mean twitter itself is evolving.

    There’s one more thing. Seth may have said twitter is a protocol and in some way it is, but when a protocol depends on one company the rest of the world is worried about risking their business to one company. HTTP is not controlled by anyone or is controlled by many and that’s better then only one.

    Mihai Secasiu’s last blog post..Webmin Bulk Add Ip Addresses

  • http://promote-my-site.com Don Draper

    Adding their affiliate id would violate the TOS of most affiliate programs. It’s known by another name: hijacking. I’d be interested to see what % of tweets have content that is affiliate ready — it’s got to be minuscule. And I know I’d stop using twitter if I thought it meant my followers would soon start sending their Amazon commissions to someone else just because I tweeted with them.

    Twitter may be a protocol, but the cat is already out of the bag. Hardly any of the third party apps that exist for twitter would exist if they had to pay for access to the protocol. For the people that think you can monetize a protocol, then why hasn’t someone monetized the email protocol? Protocols only work when lots of people agree to them.

    And Twitter’s real problem, if indeed they’re taking another $20M, is that their numbers now change significantly. They now have to be a $40M/year company just to get to break even. If that number doesn’t make sense to you, then you don’t understand how VC deals works. So the bar for everyone’s ideas on how twitter is a cash cow is that twitter has to clear more than $40M/year or they’re a failure.

    Don Draper’s last blog post..Social Voting Exchanges

  • http://patchlog.com Mihai Secasiu

    I left a comment again but it had a link in it ( to HTTP rfc , no spam ) so I guess your spam filter thought it was spam…

    Mihai Secasiu’s last blog post..Webmin Bulk Add Ip Addresses

  • http://www.whostalkin.com Joe Hall

    @Don -

    I am not asserting that twitter should charge for access to their protocol. I agree that would be a bad idea.

  • http://patchlog.com Mihai Secasiu

    Actually charging the high volume api users would not be such a bad idea. I remember Jesse Stay of Socialtoo said in a comment on his blog that he would happily pay twitter a fee to get rid of the API limit.
    Sure not everyone would do that and twitter would likely not charge everyone to encourage new applications

    Mihai Secasiu’s last blog post..Webmin Bulk Add Ip Addresses

  • http://www.whostalkin.com Joe Hall

    @Mihai -

    I will admit that yes, HTTP hasn’t formally changed in the technical way that the W3C may define it. But it is apparent that people are using it in many different ways then it was originally intended. In the same token you are right that the emergence of different Twitter apps don’t prove any direct change with twitter, but it does show that there has be a very noticeable change in the way that users are using Twitter. In Andy’s previous post he points out that users are now using Twitter for communication, networking, and marketing. Its no longer just a micro blogging platform.

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  • http://www.andrewmelchior.com Andrew Melchior

    Great post…has got me thinking. I am relatively new to Twitter but and finding it fun and useful.

    Andrew Melchior’s last blog post..Ice Fishing at Fish Lake Utah

  • http://www.alphaxion.com alphaxion

    Twitter is something that could be very easily integrated into corporate intranets – an inhouse deployment would allow Twitter to sell their code as a product.
    Support contracts or hosted solutions could plump up revenues and federation fees to allow internal users to tweet out into the public could be amazing for things such as press releases, driver/software update announcements the moment they’re available on the net. Ability to announce beta signups, special events etc.. all from automated systems within corporate intranets. Hell, even as a means of providing support to customers by announcing bugs etc.

    If utilised and deployed well enough it could help with intra department messaging, hell it could even be used to send out messages within network monitoring software instead of using email.

    But of course, people will ignore this because I seem to be suggesting something that is blasphemous – acknowledging that there is a market outside of the cloud that has made fistfulls of cash for the past 40 to 50 years ;)

    alphaxion’s last blog post..bumper update!

  • http://www.whostalkin.com Joe Hall

    @alphaxion – I like your ideas. But why would it have to exist outside the cloud? Why not implement like many enterprise grade systems, like Google Docs or Zoho. I think twitter could easily integrate a cloud base system like you are suggesting for intranets.

  • http://www.alphaxion.com alphaxion

    Not everything needs or can to be in the cloud, I know of many companies that would want to or require they have an inhouse version because they value the control they would have it over keeping it with a 3rd party, demand data ownership (extremely important, something many people ignore) as well as keeping in with company security requirements.

    As I said, it can either be a hosted solution (“in the cloud” as you would put it) or an in-house deployment. Either way, their software can be used through-out corporate systems (some of which better suite hosted such as corporate websites, some of which better suit in-house such as intranet or network monitoring) to enhance, facilitate and automate the flow of info both internally and externally.

    You need to fit the solution to the company – cloud computing has been pushed for the better part of 30 years and time and time again companies show that it isn’t a one size fits all – I don’t know about you but depending on the company and the sensitivity of the data I wouldn’t want them going any where near SaaS offerings such as google docs (a doctors surgery for example).

    And when it comes to making money, nothing coins it in like a juicey support contract and CAL’s – just ask MS about them ;)

    I explained it a bit better in my “how can friendfeed monetise” post here – http://www.alphaxion.com/?p=600

  • http://www.aafter.com Subhankar Ray

    Protocol in the terms of Communication, must feet in the OSI model of layers. Twitter is all the way up in the 7th layer as an application. How is it a Protocol?
    Our guys at AAfter search has combined Twitter in answering questions. We are all happy to be at the application layer trying to make money, and thankful for all the hard work done by guys who developed TCP/IP, HTTP(S), TCAP, and other real protocols.

    Cheers!

    Subhankar Ray

  • http://www.aafter.com Subhankar Ray

    Sorry for the bad spelling it is ‘fit’ not ‘feet’

  • http://www.whostalkin.com Joe Hall

    @Subhankar I am using the term “protocol” loosely here to describe rules of communication in general. There are many other definitions that can be applied, but this is just a loose interpretation.

  • http://joelaz.com Joe Lazarus

    Would you recommend that the large online email & IM providers also pursue these revenue strategies? Should Yahoo! Mail start adding affiliate ID’s to all the links in people’s personal email communications? Should AIM become a payment mechanism? I agree completely with @Mihai… the examples above are either bad ideas or not core to the Twitter service at all.

    Joe Lazarus’s last blog post..The Rural Alberta Advantage – The Deadroads Photo by the2scoops

  • http://www.watchingwebsites.com Sean Power

    Hi Joe,

    Seth Godin’s idea that twitter is a protocol actually reprises Alistair Croll’s idea that Twitter is a protocol (penned about a month before). It’s a neat article. http://www.bitcurrent.com/twitters-not-a-site-its-a-protocol/

    I was just talking to Alistair today about the notion that Twitter is ripe for many types of exits. For disclaimer’s sake, he and I are co-authoring a book.

    By the way, your take on URL shortening is a good one. I think that a critical piece for URL shortening tools will be analytics.

    anyways, great article. keep it coming.

    Sean Power’s last blog post..Twitter New User Survival Guide

  • http://patchlog.com Mihai Secasiu

    I agree to the fact that not everything has to be in the cloud. It seems these days everybody thinks the cloud is the answer for everything.
    I don’t think twitter could make money from selling their code. Maybe they could sell support services but I doubt there would be many willing to buy their code when there are already two open source alternatives ( laconi.ca and jaiku )

    Mihai Secasiu’s last blog post..Webmin Bulk Add Ip Addresses

  • http://www.alphaxion.com alphaxion

    @mihai but neither laconi.ca nor jaiku have the compelling feature that twitter has – the userbase.

    Unless they sell federation keys to allow installs of those to communicate to the public twitter network.

    And yes, they can totally sell their product. If no-one wants to buy it then nothing lost, if people buy it then they’ve created a real revenue stream.

    I don’t see what they have to lose, the size of their public userbase is compelling enough to get people interested.

  • http://joelaz.com Joe Lazarus

    @alphaxion On possible risk is that a failed revenue attempt could lower their acquisition price, not to say they shouldn’t try.

    Joe Lazarus’s last blog post..The Rural Alberta Advantage – The Deadroads Photo by the2scoops

  • http://www.alphaxion.com alphaxion

    @joe but surely that shouldn’t be an issue if they are trying to be a real company and not just use the old “burn through VC cash and then try to get bought out by Google” method.

    A company valuation should be based on how much revenue they are generating or project to generate. Right now I’d say twitter wasn’t worth anything as it would be nothing but a drain on the resources of whoever buys them until they can figure out what to do with it.

    The only other way they could be valuable is if a competitor wants to snuff out a competitor and buys them to migrate accounts across to their system.

    alphaxion’s last blog post..bumper update!

  • http://patchlog.com Mihai Secasiu

    @alphaxion when you say hosted solutions or selling the code it seems to me like you’re selling the technology not the use base . Businesses would not need a hosted solution or the code to gain access to twitter’s user base, they already have that for free.
    Also selling the product doesn’t mean they just put a “buy” link on their site, they have to invest more money into marketing, sales and tech support as @joe lazarus says a failed attempt will not only lower their acquisition price but will also cost them money real money

    Mihai Secasiu’s last blog post..Webmin Bulk Add Ip Addresses

  • http://www.alphaxion.com alphaxion

    As I’ve said, there are many situations where you can’t use the public twitter network for specific data, which is where an inhouse version with federated users (users that do have their tweets in the public) can bridge the gap between taking advantage of the userbase *feature* while still keeping critical data private.

    And by private I mean not on twitters database servers not “protected updates” mode.

    And don’t ever forget, the userbase is NOT the product, the code people use to communicate with each other IS. Users a feature of the product and a selling point.

    Also RE: aquisition price, that should only be a concern if your ultimate aim isn’t to create a company but to incubate someone elses purchase.

    And with regards costing money, well the simple equation is that to make money, you have to spend it.

    Nothing ventured, nothing gained.

    alphaxion’s last blog post..bumper update!

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  • http://promote-my-site.com Don Draper

    @alphaxion – So the future for twitter is to compete with Oracle, Microsoft, IBM, and SAP? The most that merry band of 20 somethings could hope to accomplish in that is to show the opportunity to the enterprise software vendors and then promptly get crushed. There is absolutely no way enterprises are going to spend money on a startup without revenue. They’d be nothing but a new software company trying to sell into a very tough market. The IBM rep would just insert a powerpoint slide of the fail whale and not even have to say anything. The era of small startups being able to sell anything into large enterprises ended back in 2000.

    And while we may think twitter is all that, in the world of Oracle, Microsoft, IBM, and SAP their supposed $250M valuation isn’t even what they spend on lunch in a quarter.

    @Joe Lazarus – “One possible risk is that a failed revenue attempt could lower their acquisition price, not to say they shouldn’t try.”

    Is this how out of touch with reality the VC funded startup world has gotten? Companies should fear revenue attempts because failure might hurt their acquisition chances? Everyone criticizes the excesses of the sub-prime mortgage mess, but that doesn’t hold a candle to what has been going on in the VC world.

    Don Draper’s last blog post..Social Voting Exchanges

  • http://www.whostalkin.com Joe Hall

    @Sean Thanks for the heads up about the origin of the original concept. That is a neat article. I think that analytics are an untouched area of interest with Twitter. Looking forward to the book!

  • http://www.alphaxion.com alphaxion

    @don where am I saying they need to compete with the DB makers? I see twitter as a potentially useful communications tool within a company.
    Bearing in mind twitter will need to run on an SQL/SQL like DB anyway I fail to see how it is in competition with that specific product.

    I can see it being a complimentary (as in will run along side of) system to already established intranets and other functions. It’s API means it can be plugged into from and by many things.

    alphaxion’s last blog post..bumper update!

  • http://promote-my-site.com Don Draper

    @alphaxion – Those companies haven’t been db vendors in 10 years. They are application vendors. They all have architectures that would allow them to create a twitter type service in short order. They already have collaboration suites in place. And it would be more secure, have group policies, etc. Twitter wouldn’t stand a chance.

    Don Draper’s last blog post..Bad News for Twitter

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  • http://www.alphaxion.com alphaxion

    I’m sure they’re still developing db2, SAP, MSSQL…. ;)

    Yes, they can quite easily create their own version. Especially as sharepoint would happily accommodate these kinda features along with integration with Office Communicator.
    I never said that they couldn’t, but it would still be worth a try to offer it as an inhouse solution themselves. Mix that with the large public following of twitter and you have a great PR tool or version announcement method. They could license their technology to the likes of solarwinds to provide a way of alert messaging without using smtp into a system that is ripe for a good bit of analytics.

    If they can offer it at the right pricepoint I don’t see why they can’t carve out their own piece of the pie. Hell, they could go to MS themselves and offer to license their technology.

    I’m just keep to see ways of making money for the likes of Twitter and Friendfeed without resorting to advertising.

    alphaxion’s last blog post..bumper update!

  • http://www.peoplepond.com/david_mcinnis David McInnis

    I am not opposed to the idea of Twitter charging for API access on a CPM query basis. Access can be granted to applications with less than 10k or 25k queries per month before having to select a CPM plan. I would pay.

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  • http://www.davidrisley.com David Risley

    There are multiple ways Twitter could make money. Increased API limits being one of them. I can see some kind of “Twitter Pro” account or something with some perks. Several high-use users would probably go for it. Me being one of them. :)

    David Risley’s last blog post..Blogger Survey for 2009

  • http://www.fasblog.com/ fasblog

    Twitter does have alot of potential to be monetized but Twitter is not earning any money at the moment simply because they have not bothered to monetize. A free service, great going :)

    fasblog’s last blog post..9 THINGS I HATE ABOUT PEOPLE

  • http://www.hsbc.co.uk/1/2/personal/current-accounts Jerry – current account

    It used to be that Lycos, Yahoo! and Altavista all had pages laden with ads, and then there was the newcomer “google” with its plain and speedy search. Everyone said “how will they make money?”. You see, they found ways

  • http://www.fairytalebaby.com jason

    That is great that they are making it happen, why cant I do that?Hmmmmm

  • http://www.worldsalon.net Supermance

    microblogging is getting famous nowdays,,,

    Supermance’s last blog post..Buying Homes With Resale Value

  • http://www.efluencemarketing.com St Louis Web Design

    couldn’t agree more!

    St Louis Web Design’s last blog post..Why Your Website Doesn’t Work

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  • http://www.delovesto.com Tony

    There are two ways to market and earn from a web site. The traditional way is to put all the earning tools into place, so the users experience popups, adsense and afiliate ads etc, and then there is the Twitter way, where the pages are completely devoid of anything that will slow them down or clutter them – for now…

    At some point where many thousands (or even millions) of users cannot live without their Twitter, it’s possible for them to change the rules, once they already have a solid captive user base.

    Tony’s last blog post..Shopping With Debbie

  • http://www.perfectmoney.com/ muri

    I love twitter,and pretty love the idea of monetization after famous,my suggestion is I think twitter has to away from the advertisig hype like ppc or adsense look like,rather then advertising model of PPC I more aggree that twetter give such a Viral Marketing access model in which can make the user keep looking user keep the experinced of having “polite ads.inside there warm coated twitter user account