Ad Revenues Not Sufficient In Monetizing Twitter

Twitter is expected to hit between $140 million and $165 million revenue in 2011, more than three times its revenue of $45 million in 2010. The company began to sharpen its focus on monetization only last year with its ad services: Promoted Trends, Promoted Tweets, and Promoted Accounts. It recently raised $800 million in an investment round that valued Twitter at $8.4 billion. Let’s take a closer look.

Apart from its three “Promoted” ad services, Twitter is also looking at political advertising as a source of revenue. It opened an ad sales office in Washington, DC, to cater to political advertising over the next 13 months in the run-up to the 2012 elections. Last month, it expanded Promoted Tweets by rolling out to all user accounts even if the users don’t follow the advertiser’s account. However, the kind of advertising that is pushed would be related to the kind of content that the user is interested in as ads would be based on the interest graph of the accounts that the user follows.

Jolie O’Dell on VentureBeat reports that Twitter is projected to reach annual revenue of $400 million to $500 million by 2013. According to eMarketer, a digital intelligence firm, Twitter’s ad revenue will have grown to around $400 million annually by 2013.

Another secondary research firm, SharesPost, estimates revenue of $329 million by next year, $500 million by 2013, and $1 billion by 2016. It adds that Twitter’s revenue efforts are in a nascent stage and that it is still a year or two away from fully monetizing all aspects of its platform. Its researchers say:

“We believe that most revenue generation options available to the company have the potential to alienate at least some of Twitter’s user base. The company may not have adequate time to revise its models before it loses its critical mass and reputation…. Promoted Tweets and Trends offer additional monetization options, but … is likely to turn off some users if the advertising gets too intrusive.”

Twitter says it sees nearly 250 million Tweets per day, up from about 100 million early in the year. It has more than 200 million registered users and 100 million active users. At revenue of $150 million, it is only getting $0.75 per account or $1.5 per active account. Compare that to Facebook, another social networking company, which is projected to reach annual revenue of $2.2 billion this year with 750 million subscribers. That indicates about $3 per subscriber. There is still a serious gap in its monetization, and even the figure of $500 million annual revenue by 2013 is not impressive if you consider that Twitter’s user base should also increase. Rather than depend on just advertising revenue, Twitter should look at revenue sharing with merchants and explore innovative models therein.

In 2008, Twitter was valued at about $150 million, and by the end of 2009, its valuation reached $1 billion. At the end of 2010, it was valued at $3.7 billion and it has now more than doubled to $8.4 billion. Twitter needs to fill in the gaps in its monetization model to justify its valuation. Twitter CEO Dick Costollo says Twitter doesn’t need money for a long time and will go public only when it is ready. That’s good, because the topic of monetization within Twitter still seems fuzzy.