This was an interesting week of material that has left me thinking about the seemingly infinite number of different business models that a company can utilize in its online marketing activities. I wanted to focus this week’s blog posting on how the material on the various business models could be applied to the seemingly viral social media sites like Twitter that are currently searching for a revenue generation strategy.
The question about whether Twitter will ever make money is an interesting one. We have all seen in the news the venture capital and other equity investments that have gone into companies like Facebook and Twitter that give implied valuations to those companies of several billion dollars or more. However, what is going to be the business model that these companies will use in order to turn those implied valuations into real cash flow return to the shareholders? It is clear that both Twitter and Facebook have something unique in that they have created a community that not only has millions of followers, but those followers are also willing to part with their personal information (address, email, preferences, etc), which provides these sites with a seemingly invaluable database of information.
Despite the fact that Evan Williams was being tight lipped about Twitter’s revenue model, it seems like either the affiliate or advertising business models that were discussed both in Michael Rappa’s article and in Gil and Frank’s podcast would make the most sense for Twitter. To me the biggest asset that both Facebook and Twitter have is a database of customers who regularly visit the site, which translates into significant traffic on the sites. Using an affiliate model, various advertisements could be targeted to Facebook/Twitter users based on their demographics and preferences, and if a customer clicks through to that advertisement or subscribes to the product or service being sold, the social media site would receive a share of the revenue. This model would work well because Twitter and Facebook have the ability to leverage their database of personal information on customers in order to appropriately tailor the advertisements to specific customers who would be most interested in the product or services the advertisement is pushing. Alternatively, a similar model can be used whereby Facebook/Twitter simply sells advertising space on their site, and again utilizes the database of information they have on their customers to appropriately target the advertisements. Because of the power of Facebook and Twitter, it seems feasible that these companies could use a hybrid model of both affiliate and advertising. That is, the business would pay to advertise on the social media site, AND the social media site would also get paid a revenue share (as an affiliate) if a click through transaction occurs. This type of “double dipping” seems feasible given the power of the databases that these sites possess.
It was also extremely interesting to listen to Evan Williams effectively state that Twitter is most focused currently on making the product better rather than monetizing what they have. This struck me as interesting because this is exactly what Mark Zuckerberg continually has said about Facebook (as well as what was relayed to us via the movie The Social Network). That is, despite the phenomenal success and traffic that these sites draw, the founders believe that they have only scratched the surface of what they can become, and are therefore not yet concerned about how they are going to turn it into big money. However, despite these outward statements it is obvious that both within the company and amongst the company’s equity investors there is some significant thought being put into a revenue generation strategy. Time will tell what these companies will actually do, but I see both Facebook and Twitter being major forces in online marketing because of the followings that they have developed.
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