Twitter is the hottest social media platform used by so many professionals including journalists, politicians and bureaucrats, celebrities, and citizens.
So, are you curious as to how Twitter makes money? In this blog, we shall explore the Twitter business model.
How Does Twitter Make Money?
Twitter makes money from two main sources: advertising and data licensing. A major portion of its revenue comes from advertising. Advertisers can display the ads for their products and services on Twitter and in return pay fees to the platform. Twitter also sells its data to companies. The data helps companies to understand consumer trends and their behavior.
Let’s discuss in detail the business model of Twitter.
Twitter Advertising
Advertising accounts for almost 80% of Twitter’s revenue. Twitter allows marketers and companies to advertise their products and services on its platform. It charges the advertisers based on a pay-per-click or per-retweet basis.
The ads are generally placed alongside the text and are displayed to the target audience of the brand. Twitter uses an AI algorithm to show relevant ads to its users based on their interests and activities.
The Promoted ads can be in the form of a sponsored tweet, promoted trend or hosting events on paid twitter spaces, etc.
Promoted Tweets
Promoted Tweets are the same as normal Tweets. The only difference is that advertisers pay to display the content to users who are not already following the advertiser on Twitter. Like any regular tweet, a Promoted tweet can be retweeted and users can also add their comments. Advertisers can also insert an video into them. However, they will be displayed with an ‘ad’ label.
Promoted Accounts
Companies and individuals can promote their whole Twitter account through Promoted Accounts. It will display their account to users who are not following them and can help companies and individuals to boost their Twitter followers.
Promoted accounts show up in the targeted user’s timelines and also in the who-to-follow suggestions and in the search box. They will be labeled as “Promoted”.
Promoted Trends
Twitter has a separate section for trends and popular hashtags being used in the real-time by users. Brands and companies can also create their own Promoted Trend. Twitter charges a fixed fee on a daily basis from the advertiser who wishes to create a Promoted Trend.
A Promoted Trend will appear in the ‘trends for you’ section along with other trends. It will be marked as ‘Promoted’. Users will interact in the same way as they would with any popular trend.
Data Licensing
Twitter sells its public data to various companies and earns revenue on it. It allows companies to access, search and analyze historical and real-time information that is available on their platform. In the year 2021, it earned more than $571.79 million through data licensing, 12% compared to 2020.
Companies or “data partners” have to buy a license to access all or a section of Twitter’s data for a fixed period. This data helps companies and brands understand consumer trends and their behavior. It gives them deeper insights into their potential consumer’s activities, it can reveal their likes, dislikes, content that they consume, etc in a detailed manner.
Funding, Revenue, and Valuation
According to Crunchbase, Twitter has raised a total of $5.7B in funding over 14 rounds. They conducted their latest round of funding in early June from a Post-IPO Equity round. It has a market capitalization of 29.65B.
Twitter is funded by 36 investors including Greenlight Capital, Elon Musk Revocable Trust, Morgan Stanley, State Street Corp, The Vanguard Group, Inc, etc. It went public in 2013, its stock opened at $45.10 and today its share price is trading at $38.62. (as we are writing this article)
(Source: Twitter’s Annual Report 2021)
In the fiscal year 2021, Twitter saw a surge in its revenue. The revenue for 2021 was $551.79 billion, it increased by $1.36 billion, a 37% growth compared to 2020. Advertising revenue increased by $1.30 billion or 40% compared to 2020. It makes up more than 80 per cent of the company’s revenue.
Data Licensing and other revenue also saw an increase of 12% compared to the previous year.
Twitter closed down its operations of MoPub and generated approximately $217.9 million in revenue in 2021, this was the main reason behind this sharp increase in revenue of ‘Data Licensing and Others’.
This year, Twitter also acquired OpenBack. It has also invested in the MIT Media Lab. This grant from the MIT Media Lab was worth $20 million. As of now, it has acquired more than 67 companies.
Competitors of Twitter
Twitter is one of the most trendy social media platforms. Without a doubt, it has got a lot of competitors. Let’s look at them.
TikTok
One of the most rapidly expanding social media networks worldwide is TikTok. Users can make and share quick videos thanks to its powerful features and filter options. It has more than 1 billion active users, which is more than twice the number of Twitter users. It is accessible in 155 countries and 75 languages and is the seventh-largest social networking platform in the world.
Facebook is the biggest social network in the world with more than 2 billion active users. It has introduced so many advanced features like stories, virtual rooms, and messenger that it is giving stiff competition to Twitter. Also, it is considered to be one of the most favourable platforms for digital advertising. Keep in mind, that Twitter’s more than 80 percent of the revenue comes from advertising.
Snapchat
Snapchat is a video and photo messaging app that enables users to share content with their peers. Over the years, it has introduced several features, such as “Stories” with a live feed, and also has a platform for sharing short fun videos called ‘Spotlight’. It has a growth of 47% year-over-year growth and generated revenue of $4.1 billion 2 in 2020, a 47% year-over-year growth.
Professionals from many industries can connect on the networking site LinkedIn. It provides outlets for talent acquisition, marketing solutions, and premium subscription goods. Microsoft increased its financial lead over Twitter when it acquired LinkedIn in 2016. More than 756 million people worldwide were active members of LinkedIn as of May 2021. Revenues for the corporation reached $8.05 billion in 2020, a 19% rise from the previous year. Did you know that every executive in the Fortune 500 has a LinkedIn profile? Twitter’s main rival is LinkedIn for a variety of reasons.
Users can look up information online using Pinterest, a social media marketing tool. In 2020, the company generated $1.69 billion, a 48% increase from the previous year. Pinterest’s revenue climbed 78% year over year in the first three months of 2021, reaching $485 million. Pinterest has slightly more users than Twitter (367 million) and is more popular overall. The platform attracted 92 million new monthly active users in the second half of 2020. Pinterest is a fierce Twitter rival thanks to its consistently increasing profits and user base.
A Brief History of Twitter
Currently, Twitter is a popular site. However, Twitter was born from the remains of another unsuccessful firm. Jack Dorsey inspired the creation of an instant messaging network. And Noah Glass came up with the platform’s name.
The concept of someone using an SMS service to interact with a small group was put out by Jack Dorsey when he was getting his bachelor’s degree at NYU. The idea for the service, according to Noah Glass and inspired by Flickr and the five-character limit of American SMS shortcodes, was originally known as twttr, a variation of the phrase “twitter.”
The decision was partly influenced by the fact that twitter.com was already in use at the time twttr was introduced, and it took the team six months to buy the domain and change the company’s name to Twitter.
An important turning point in Twitter’s development occurred in 2007. Twitter traffic rose from 20,000 to 60,000 tweets each day during the episode. In September and October 2010, Twitter started rolling out “New Twitter,” a completely redesigned version of the website. Today, Twitter has replaced Jack Dorsey with Parag Agrawal as its new CEO.
Twitter’s Recent Developments
On April 4, 2022, Elon Musk, the richest man in the world and a well-known international entrepreneur, announced that he had purchased a 9.1% interest in Twitter for $2.64 billion. As a result, Twitter Inc”s shares increased by as much as 27%, which was the biggest single-day increase since the company’s offering in 2013.
Musk made a surprise offer to buy Twitter on April 14 for $43 billion and take it private, arguing that he supported the importance of free speech for a democratic world. On April 20, Musk received a $46.5 billion bid to purchase Twitter. Twitter’s board of directors formally approved Musk’s offer after hearing reports that it was about to be approved on April 25. Shortly after, on the same day, the deal’s value increased to $44 billion.
However, Twitter share prices had fallen much below Musk’s offering price. Musk also brought up some unresolved problems with debt and spam and fake Twitter accounts, which he doubted made up less than 5% of the monetizable daily active users. On 9th July, Elon Musk decided to give up on the Twitter acquisition. Twitter responded by saying that it will sue Musk.
Moreover, Twitter and Musk agreed that if one party decided to back out of the arrangement, the other would be subject to a fine. This remained true if Musk ultimately decided to end the agreement. He backed out of the agreement, and Twitter eventually filed a lawsuit against him in the Delaware Court of Chancery. The court ruled in the favor of Twitter.
Twitter has proposed holding a shareholder meeting on September 13, 2022, where shareholders could cast votes on billionaire Elon Musk’s proposed $44 billion acquisition of the social media company.
Twitter’s Future Plans
It has introduced new features like Twitter Spaces and Super Follow and it aims to double the number of its active users by 2023. The company also seeks to expand the range of technology and marketing options accessible to both well-known brands and small and medium-sized businesses.
The Twitter team wants the platform to be a secure and safe platform where individuals can freely express their ideas without being concerned about criticism or other negative outcomes. It wants to curb the spread of misinformation and fake news that users can post on its platform.