How to make Twitter profitable


For better and sometimes worse, Twitter is one of the most powerful forces onthe planet. Twitter has arguably played a critical role in at least two of thedefining political upheavals of our era: The Arab Spring and the election of apolitical outsider, Donald Trump, as president of the United States.

Every day,Twitter contributes to the political debate, the sharing of ideas and the widespread dissemination, via links, of news articles and the otherwise obscurefindings of academics and nonprofit studies. And, each day, this activity onTwitter contributes to meaningful, ongoing political debate acrosssocieties and across the political spectrum.

Of course, Twitter also is filled with conversations related to our everyday lives.Sometimes they are meaningful, sometimes they are not. But, for many people,Twitter plays a central role in how they connect with friends and family. Likeevery social platform, there is noise filled with high-minded discussions as wellas seemingly mundane conversations.

What is perhaps unique about Twitter is the dichotomy between this valuablerole in empowering and connecting people and its ongoing lack of profitability.With restructuring charges, Twitters net loss in the fourth quarter of 2016was $167 million, or 23 cents a share, and less than 1 percent year-over-year revenuegrowth. For 2017, the company has announced plans to achieve profitability,largely through staff cuts. Skepticism that profitability will be achieved is high.

At the same time, many believe these layoffs mortgage the companys future by cutting the sales force that generates revenues and the R&D staff thatmakes the service more appealing over the long term.In 2009, after writing a book arguing that extreme and growing economicinequality would lead to societal dangers, for our politics and the health of oureconomy, I became an active Twitter user. Over the years, my activity haswaxed and waned, but Twitter remains the central mechanism I use to sharemy ideas.

At the same time, as an internet marketer, I have developed Twittercampaigns for myself and commercial clients. The net result is that I have a strong understanding of how Twitter can build awareness and influence in the political, nonprofit and commercial realm. Most important, my belief in thefundamental value of the service, and the benefits it brings the world, is veryhigh.

A simple proposal

Twitter, like all social media, has evolved dramatically since its founding. Whatthe founders fully envisioned we cannot know. My guess is Twitters foundersnever envisioned corporate accounts with millions of followers. I believe theyset out to create a service that would connect people with each other.

Nonetheless, there is one thing we do know: Today, many business entitieshave millions of followers and communicate with these followers using Twitteras a tool to promote their products and services. This is free advertising, no ifs, ands or buts.

What is perhaps unique about Twitter is the dichotomy between this valuable role in empowering and connecting people and its ongoing lack of profitability.

So, heres a proposal to radically change the economics of Twitter: Chargebusinesses that exceed a set number of followers (perhaps 250,000) a monthlyfee based on their total number of followers. To provide a sense of scale, here arethe follower counts for a cross-section of well-known brands:

  • @TeslaMotors 1.4 million
  • @Verizon 1.7 million
  • @Pepsi 3.1 million
  • @CocaCola 3.4 million
  • @McDonalds 3.4 million
  • @Intel 4.7 million
  • @Marvel 4.9 million
  • @GoogleChrome 6.1million
  • @SamsungMobile 12.1 million
  • @Google 17.6 million

I suspect most of thesebusinesses spend large sums (with in-house personnel or outside agencies)planning and developing their Twitter activities a clear form of advertising that provides value, with no portion going to Twitter. Why would it be wrongfor Twitter to capture, through fees, a piece of the economic value its servicebrings these companies?

To assess the potential magnitude this change might have on Twitters bottomline, lets take a hypothetical example: Suppose Twitter collected an averageannual fee of $600,000 from 2,000 businesses. This wouldrepresent increased annual revenues of $1.2 billion. Of course,there would be costs associated with implementing this policy, but the upsideis enormous: Most of this $1.2 billion increase in revenues would drop straightto the bottom line.

The reality of value delivered

I dont claim to know what the right fee is, or how this fee should increase bythe number of followers involved. But, lets ask the most importantquestion: Would a major brand leave Twitter if a new fee of $50,000 per monthwere imposed? Companies with millions of followers derive far greater economicvalue than this monthly sum. Indeed, I strongly suspect many companiesspend far more simply staffing their Twitter-related social media campaignsand working with outside agencies. Of course, this would be a cost, which addsto these existing expenses. But, once again, I strongly suspect tweets bringthese companies far higher returns than this proposed monthly fee plus anysocial media management expenses. I also believe these companies know it.

In short, a central reason for Twitters profitability problem is that it has beenfar too good a deal for large advertisers (defined as any company with a substantial Twitter following, which means the company has an active,significant Twitter presence).

Yes, I think its legal

I have discussed this idea with a limited number of colleagues. Inevitably, theyask whether charges of this type, levied solely on companies with large followerbases, might represent some form of illegal price discrimination. Myunderstanding is that this suggested revenue idea is entirely lawful.

Heres how it can be done:First, lets take a worst case example that assumes, under the applicable law,corporations that are Twitter users have the same rights as people. Then, these charges could be defined as advertising fees on any Twitter user that has morethan 250,000 followers. (Remember, Twitter allows users to block followers, sono one forces a person or corporation to move from the free classification to thenew, higher-follower paid classification).

Second, discounts for different categories of advertisers (which can be definedby purpose or commercial segment) are, I believe, legal. As a result, individualsand entities with a non-commercial purpose, such as politicians, journalists,academics, news entities, governmental entities and all nonprofits could beexempted from these advertising fees. They would effectively receive a 100 percent discount. Indeed, significant discounts for nonprofits and educational institutions are commonplace across the spectrum of internet services.

Why would it be wrong for Twitter to capture, through fees, a piece of the economic value its service brings these companies?

Finally, the group that may present the most significant issue for this proposalare celebrities: movie stars, athletes, authors and musicians. One again, Ibelieve the issue of category discounts resolves this concern. Twitter coulddecide not to charge these people who for many Twitter users add value to the community or to charge a lower fee (a specific discount for this category).

Now, lets look at the alternative scenario, and assume corporations do nothave the same rights as people. Twitter can freely exempt all individualsfrom charges. Here, Twitter could require corporations to pay advertising feesbased on their volume of followers, with fees starting when a firm has morethan 250,000 followers (or whatever number is deemed appropriate). In this scenario, discounts would apply, as frequently happens now online and offline, to entities that have a political, informational or non-commercial purpose ( entities, political entities, governmental entities and nonprofits). The onedifference is that on Twitter these discounts would total a full 100 percent.

Adding value for corporate users

Next, Twitter could take a small piece of the large revenue increase discussedhere and create services that add additional value for these paying, largecorporate users. I can imagine a wide range of mechanisms that Twitter, withaccess to its firehose of data, could deploy to increase the effectiveness oflarge businesses actively using its service.

New services may be valuable, but are not necessary

In recent years, Twitter has based its path to profitability on serviceenhancements designed to increase user engagement and growth, and on atransformation into a media consumption platform. Twitters recent loss toAmazon of its marquee deal to stream NFL Thursday night games casts anadditional shadow on this often-questioned media-related strategy.

As an active Twitter user, I also can imagine a wide range of serviceenhancements that would increase my engagement. For example, I simply cant imagine why Twitter is not the premier source for an automated, real-time feedof the personalized news topics that meet my interests. The existing News, Trends and #search features fall short of satisfying this craving. However, issues associated with creating more engaging features are outside the scope ofthis article.

Nonetheless, new service features, while desirable, are not needed for Twitter toachieve far higher profitability: A radical shift in its revenue model will enableTwitter to achieve the profitability it merits. Twitters existing user base already delivers enormous marketing and advertising value to businesses. To date,Twitter, in contrast to other media, has not sought to capture an appropriateshare of the value its service creates for businesses benefiting from theuse of its platform.

Jack, give me a call

Jack Dorsey, we have never met, and you probably resent people like mesuggesting ideas that no doubt you have considered and rejected. But, lets face it: Your business is not improving. You are at a crossroads: You can be Yahoo(without a buyer) or a reimagined business, with Facebook-like potential. Isuggest you choose the latter. Lets talk.

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