Here's How Twitter Gets Rich

Color me surprised. Quite a few of you think that Twitter is worth $1 billion. Yesterday's article had been "RT'd" or "retweeted" -- Twitterspeak for "redistributed" -- more than 40 times as of this writing, reaching an estimated 97,000 tweeple, or "Twitter people." Wow.

Some of you responded to me at my Twitter address, @milehighfool. "Good point about Twitter being excellent search engine. I keep an eye on TwitScoop like a mini-CNN for breaking news," wrote reader Catherine Ventura.

She's hardly alone: Twitter has become an immensely popular destination for newsmakers and news seekers. Its user base is up 900% year over year. Traffic is such that monetizing it with ads would be easy. Fortunately, the company's founders have bigger plans.

"We have enough traffic on our website that we could put ads on there and maybe we could make enough to pay our bills, but that's not the most interesting thing we can do," co-founder and CEO Evan Williams told the Associated Press in a recent interview.

More interesting things
I'll say. Twitter can be far more telling and far more precise than your average focus group, and firms tend to pay as much $300 a head to create one. It's also real time, a collection of "thought streams," as TechCrunch's Erick Schonfeld wrote recently.

Twitter, in other words, is the world's most interesting, multilingual zeitgeist. More so than either Google (Nasdaq: GOOG  ) or Time Warner's (NYSE: TWX  ) CNN news channel because of its instantaneousness -- $1 billion may even be too cheap a price to pay for Twitter.

Why? Because instant intelligence is the key to microtargeting. Think about how much better your experience might be if you gave Netflix (Nasdaq: NFLX  ) opt-in access to your tweets via the Twitter API. You'd receive recommendations based on your past rentals, your friends' rentals, and what you and your friends are talking about right now. Amazon (Nasdaq: AMZN  ) , Apple (Nasdaq: AAPL  ) , Williams-Sonoma (NYSE: WSM  ) , Sirius XM (Nasdaq: SIRI  ) -- any company that recommends products, services, or entertainment -- could benefit from access to your tweetstream.

That's the sort of innovation I'm referring to when I say Twitter is like Google for conversations.

Tweet! Tweet! Here, little business model
But I promised you ideas for monetizing this data. Turns out I only have one: Sell access.

Twitter, technically, is a microblogging service but it could make millions as a micro-targeting service, selling access to you and I on our terms. The best part? We've seen this model work before. It has a name. It's called Google.

The Big G makes money two ways:

  1. By placing ads on its own sites. (AdWords.)
  2. By placing ads on sites others own. (AdSense.)

Twitter could make money by selling conversational intelligence to those who would benefit from microtargeting. These businesses would either be:

  1. Operating on its platform. (StockTwits, Xpenser, etc.)
  2. Operating elsewhere. (Netflix, Amazon, etc.)

Twitter would have to be careful about what it sold, of course. Its terms of service make clear that all original content I post to Twitter, I own. My conversations are mine and, to resell them, Twitter would need a license. But, again, there's a model for this: AdSense. Send me a kickback when a marketer accesses my conversations, in aggregate or otherwise.

TwitterSense would take some effort to create, to be sure. The good news? Part of the problem is already solved. Twitter includes a search engine that organizes by topic. What it lacks are algorithms for condensing and indexing conversations and then identifying who is speaking.

Hashtags -- conversational markers that help to identify chats in progress -- would help with topic indexing. Knowing who is speaking would be a harder problem to solve but the AdSense model could help. Want to participate? Tag yourself. Tell us what attributes describe you. Tell us what you want marketers to know about you.

To be fair, a system like this could give rise to cheaters, tweeple out to juice their profits by tagging themselves with "hot" keywords. So be it. Google policies this sort of behavior via its algorithms and Twitter could devise some of its own for comparing my self-selected tags with my tweets. The "real" me that marketers see would live in its database.

And it wouldn't bother me at all. What do you say, Twitter? There are millions to be made. Shall we profit together?

Amazon, Apple, and Netflix are Stock Advisor selection. Google is a Rule Breakers recommendation. Try either of these Foolish services free for 30 days. There's no obligation to subscribe.

Tim had stock and options position in Apple and Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is fast becoming one of the Twitterati, and never thinks twice about using Twitterspeak when it chats with tweeple.


Read/Post Comments (15) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 18, 2009, at 2:50 PM, afewtips wrote:

    It would be like product placement in my conversations.

    The quality of the tweets would go in the garbage.

  • Report this Comment On February 18, 2009, at 4:07 PM, TMFMileHigh wrote:

    Hello afewtips,

    Thanks for commenting but you're misreading the story. I am *not* advocating in-stream pitches. Rather, I believe that Twitter could get rich selling real-time marketing data -- but with our permission. AdSense is a reference to the profit-sharing model only.

    Thanks again and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On February 18, 2009, at 4:22 PM, Madgear wrote:

    Twitter is getting very popular from what I've heard & seen first hand. How does on goes about in making money off it?

  • Report this Comment On February 18, 2009, at 4:46 PM, invsetorduck wrote:

    Tim,

    Wow! You are so wrong and backwards it cracks me up. You sound like that moment my Dad found out about Instant Messaging. Just like the next big phone idea, where we would walk around and buy things on our phone-- never happened other than ring tones and phone related software [see The App Store].

    The web has become an aggregation service, people go to maybe 3-4 sites all day: Facebook, Youtube, their favorite shopping service, etc.

    I have been on Twitter almost since the beginning, and the idea of me buying something through it is laughable. Actually, it comes in through so many 3rd party streams, I don't even know how it would specifically collect for a click-through.

    The only really viable way I see it making money is to feed subscription services if you want to read the entire article, and that does not equate to 1 trilllllion dollars [pinky in mouth]. Twitter will have obvious competition as Google, Facebook, anybody whose server can hold 4 lines of words senses any money can be made.

    Again, welcome back to 1999 and the new fangled Intra-Wide-World-Web where we buy widgets and stuff just because its there, even though no one I know actually does this, and now we have no money... so there's that.

  • Report this Comment On February 18, 2009, at 4:47 PM, invsetorduck wrote:

    Tim,

    Wow! You are so wrong and backwards it cracks me up. You sound like that moment my Dad found out about Instant Messaging. Just like the next big phone idea, where we would walk around and buy things on our phone-- never happened other than ring tones and phone related software [see The App Store].

    The web has become an aggregation service, people go to maybe 3-4 sites all day: Facebook, Youtube, their favorite shopping service, etc.

    I have been on Twitter almost since the beginning, and the idea of me buying something through it is laughable. Actually, it comes in through so many 3rd party streams, I don't even know how it would specifically collect for a click-through.

    The only really viable way I see it making money is to feed subscription services if you want to read the entire article, and that does not equate to 1 trilllllion dollars [pinky in mouth]. Twitter will have obvious competition as Google, Facebook, anybody whose server can hold 4 lines of words senses any money can be made.

    Again, welcome back to 1999 and the new fangled Intra-Wide-World-Web where we buy widgets and stuff just because its there, even though no one I know actually does this, and now we have no money... so there's that.

  • Report this Comment On February 18, 2009, at 5:12 PM, TMFMileHigh wrote:

    Hello invsetorduck,

    Thanks for writing.

    Two things. First, did you misspell your username intentionally? If so, genius. If not ... whoops.

    Second, would you mind calling the good folks at Amazon and Dell? They sell *a lot* of stuff via Twitter:

    http://www.fool.com/investing/high-growth/2008/11/24/the-rec...

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On February 18, 2009, at 5:36 PM, invsetorduck wrote:

    Tim,

    First, no.. I do spell check my Tweets though :)

    As for Amazon and Dell, you just mentioned two highly visible entities that used Twitter the same way I do-- I announce promotions with a delicate balance of self revealing info to keep those who follow interested. But, how does Twitter get paid? With the click through? Really? The depth of the discount needed for this to be a monetizing format is a margin killer, trust me, I have tried it all ways. I still do not see 1 billion dollars.

    My point here is, Twitter is unique and interesting, sort of, but following some ones day, what they had for breakfast, where they are at, whatever, is diluting and glutting the system. Now a Dell goes in there and says "refurbs! Fire Sale!" Ok. Where does the 1 billion come from? I was in Silicon Valley living through the valuations in 99-01/02, you were probably pontificating still that Ask.com and NetScape were the next big thing, then the Blogger ad streams and the Cloud above us which hold all our info.

    The Net is a comparative shopping tool, where we buy what we would have at a brick-and-mortar, that is what drives the revenue, actually having a product and selling it. What is Twitter selling again?

  • Report this Comment On February 18, 2009, at 5:55 PM, TMFMileHigh wrote:

    Hi invsetorduck,

    >>Where does the 1 billion come from?

    As I explain in the article:

    Twitter could make money by selling conversational intelligence to those who would benefit from microtargeting.

    Put differently: I absolutely believe that Netflix and others would pay to know what its customers are talking about. Demographic data, focus groups -- these are massive businesses. Twitter is the disruptor that could revolutionize them.

    >>What is Twitter selling again?

    Can we agree that this is a bogus question? Twitter hasn't announced what its revenue model is. The purpose of my article is to demonstrate that, no matter what management ultimately decides, there is huge potential for this business.

    One last thing: I, too, was in Silicon Valley for those heady days. And no, I wasn't pontificating about Ask.com and Netscape back then.

    Thanks again for your comments and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On February 18, 2009, at 10:42 PM, TMFMileHigh wrote:

    In no way does this prove anything but I find it interesting that search is officially taking center stage at Twitter:

    http://venturebeat.com/2009/02/18/twitter-finally-putting-se...

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On February 19, 2009, at 6:47 AM, TMFMileHigh wrote:

    Another follow-up.Here is where you'll find the Twitter-based businesses mentioned in this article:

    * Xpenser -- http://xpenser.com/

    * StockTwits -- http://www.stocktwits.com/

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On February 19, 2009, at 10:40 AM, dadzerlooch wrote:

    Tim,

    You raise some interesting points but I believe a point of fault in your model is that Twitter has yet to reach a critical mass of usage amongst the general web population. In order for more than a very small group of companies who want access to the "conversational intelligence" of a super slim segment of web users (I think it would be fair to say that most tweeple are very early adopters and pretty tech savvy) to buy into such a service, Twitter would have to experience much broader adoption.

    The other fault I see is that a conversation is a single data point. As a marketer, if you could go to a cocktail party and overhear and record every conversation then analyze those conversation for data to use to market to those individuals, it is still a limited data set.

    In my opinion, your idea to monetize this information is better suited for a site like Facebook or Myspace to execute than Twitter because each of these sites has a more complete picture of a user and their likes/dislikes and you have a much, much broader user base. On FB, you already have tweets but you also have the links people post, notes about themselves, applications they use, etc. You have a much more complete picture than a series of a 140 or less character posts.

    Unless Twitter gains greater exposure to a broader demographic and adds more dimension to the data it offers, I find it hard to believe you would get a critical mass of marketers willing to sign up, at least enough to make offering and selling such a service worthwile.

    dadzer

  • Report this Comment On February 19, 2009, at 3:47 PM, khamuda wrote:

    Forgive me if this is a daft question, but is it possible to invest in twitter yet? I can't find it.

  • Report this Comment On February 19, 2009, at 4:04 PM, TMFMileHigh wrote:

    Hello khamuda,

    Not a daft question at all. Twitter is still private so you can't invest directly unless you are invested in funds managed by its venture investors, such as Benchmark Capital.

    Having said that, Twitter heavily leans on two public companies in order to conduct operations: Amazon (for displaying pages) and Google (for Friend Connect, which extends Twitter relationships to third-party sites).

    I hope this helps and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On February 19, 2009, at 4:13 PM, khamuda wrote:

    Thanks, Tim.

    -Carolyn

  • Report this Comment On February 19, 2009, at 6:02 PM, invsetorduck wrote:

    http://www.stocktwits.com/:

    That's it! Login with your Twitter account and start searching real time discussions from the web's savviest investors. If you are not already following StockTwits, this will happen automatically upon signing in. We promise not to spam you.

    First, I think this is a great conversation.

    The final line where they "promise" is the problem I have now. Its reminds me of putting ads up in the urinal... genius! When people find advertising leaks into their privacy they tend to shift around it, not towards it.

    Under your argument I would think Yahoo! would be worth Trillions on informational intel alone, as it is truly a "sitting" site for email, weather, news, games, personals, etc, with a plethora of personal info. I personally believe there is becoming a separation and adaptation to a more savvy consumer, we want our personal computing time and online purchase time to be different, try to trick the two and I am out. Look at the outcry from Facebook users at the TOS change. As soon as the Twitter community gets a whiff that they are merely advertising guinea pigs feeding information to some CIA type intelligence gathering farm, some might decide to just do something different, after all, Twitter is by no means a necessity, and the reasons to stay or go are whimsical at best.. which to me does not translate to a strong business model.

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