Twitter Needs To Accelerate Monetization

I haven’t said all that much on Twitter thus far. The hype machine on the Internet, meanwhile, does constantly spew stuff about the microblogging service. But I will start covering Twitter once a quarter as part of our Tech Stocks coverage, alongside a few other private companies, including Facebook.

Facebook has more than 500 million users, while Twitter has nearly 200 million registered accounts. The social Web is a trend and a way of interacting that will drive the next decade of the evolution of the Internet. Facebook has become the biggest player in the social networking era, and Twitter is moving up in terms of the number of users. However, there is much the company can do for its monetization strategy.

Twitter’s Revenue Model
Founded in 2006, Twitter has grown steadily. Internet research firm eMarketer expects Twitter to triple its ad revenue in 2011 to $150 million. From the 200 million registered Twitter accounts, about 110 million Tweets are posted each day. This indicates a serious gap in monetization strategy – we’re talking 75 cents per registered account this year, at best, and .3 cents per Tweet. Facebook, on the other hand, reported revenue of $1.2 billion for the nine months ended September 2010 and $777 million in annual revenue in 2009. Facebook will get to at least $2–$3 per account this year. Not spectacular, but better. As I suggested in my earlier post on Facebook, if they get into vertical search by rolling up a few companies, they can easily get to $5–$10 per account within a year or two.

It was only last year that Twitter got serious about making money. It started off with search deals with Google and Bing. Then, in April of last year, it launched its Promoted Tweets ad platform in which ads will launch as keyword-based search products. However, users have reacted negatively to the platform.

In July, Twitter launched its @earlybird service, a Twitter feed that will send followers deals and coupons from different brands on a daily basis, jumping on the bandwagon of Groupon, LivingSocial, and other hot companies trying to cash in on the daily deals trend. Disney, Virgin America, and Moxie were some of the companies that launched successful promotions. However, Twitter has now closed the service to rework it.

Last year, Twitter also launched a name search service, which opens up monetization possibilities. The company says there are no current plans to monetize the name search but hasn’t ruled it out for the future.

Twitter’s Acquisitions
Twitter has been making acquisitions to improve its features or add new ones. In April of last year, Twitter acquired atebits, the company that makes popular Tweetie applications for the iPhone and Mac OS X. Tweetie is a popular Twitter client for the iPhone, and after the acquisition, it was renamed “Twitter for iPhone” and made free.

In April, it also acquired Cloudhopper, a software startup that powers SMS and MMS campaigns. In June, it acquired Web analytics company Smallthought Systems, which provides the Trendly service used to track real-time changes and user trends for website owners.

Earlier, Twitter bought Summize, a real-time search engine that has been turned into search.twitter.com, and Values of n, the maker of the Sandy application that helps users keep track of their appointments and to-dos via SMS, e-mail, and the Web. It also acquired Mixer labs, the maker of GeoAPI, a reverse look-up service that helps application makers to locate users. The Mixer Labs acquisition will complement Twitter’s already launched geo-tagging API, which it has made available to developers to allow users to specify their current tweeting coordinates.

Alex Wilhelm on NextWeb reports that:

“Twitter has two main plans: expand the number of advertisers in their system, and to grow the number of products that they can drop change on. Twitter has worked with more than 40 advertisers so far, and plans to have engaged with more than 100 by the end of the year (2010).

While their current strategy revolves around growing promoted tweets and trends, Twitter also has a known ace up [its] sleeve that will be played shortly: promoted accounts. Twitter plans to take content that is “organic,” and then promote it for monetary recompense. The company hopes that this different form of advertising will rewrite the script on ad-supported companies.”

Twitter is now looking to bring in more users and is sharpening its focus on international markets – it recently released Twitter in Korean. As users become accustomed to a new Twitter keen on making money from its business model, its monetization strategy will likely work itself out.

In 2011, I would like to see the company start focusing on monetization as a goal. Being a fiscal conservative, I get nervous about sustained living beyond one’s means!