A Paid Product Won’t Matter for Twitter

  1. The market is not that big: There’s a distinction between heavy users and power users. Heavy consumers of media don’t generally spend a lot on tools to make their media consumption easier; it took TiVo four and a half years to hit a million subscribers. Power users do spend money on better tools, but they’re a small market: there were roughly 83,000 journalists in the US as of a few years ago. There are more marketers, but Twitter is already getting revenue from marketers:
  2. The incumbents are Twitter customers: Here are the paid features Twitter is discussing: “[V]iewing, posting, and signaling tools like alerts, trends and activity analysis, advanced analytics, and composing and posting tools all in one customizable dashboard.” This is, more or less, a description of Hootsuite. And for Hootsuite to provide this service, they need to buy access to the Twitter Firehouse. Selling data is not a huge business for Twitter, but it’s 11% of their 2016 revenue and growing faster than the rest of the business. Competing with buyers of Twitter’s data means replacing a growing, high-margin, low-risk business (it only dies if Twitter dies) with low-margin, high-risk business. How big a business can this be? We’ll know if Hootsuite files to go public, as it’s rumored to be considering. Their last round was at a rumored $1bn valuation, but probably $700–750m. So the value of a company that devotes all of its effort to this product, and offers it on multiple platforms, is under 10% of Twitter’s market value.
  3. Twitter will have higher costs than incumbents: One thing paying users expect is customer service. And Twitter is full of complaints about Twitter; users may pay just to find out how to get some anonymous account to stop harassing them. Products at a $10 or $20 monthly price point don’t generally come with great customer service, except in the degenerate case where the product is worthless and customer service’s job is to stave off user churn one call at a time. Twitter is stuck between “I’m a paying user and I can’t even get help” and “I can’t believe they’re charging $50 a month to help people deal with trolls.”
  4. More Twitter engagement from power users is more valuable: Suppose Twitter develops some new analytics features designed to help their best users — celebrities, Twitter comedians, journalists — make their tweets even more popular. Is the best way to monetize this through charging them for tools, or giving away the tools so they write better tweets? Is there any way Twitter’s monthly revenue attributable to Ellen Degeneres (66m followers) is so low that charging her another $10–20 monthly fee would be meaningful? Google learned this lesson early: commoditize the complement. Identify the products that, if they were cheaper or better, would cause materially higher consumption of your product. If you have a government-granted monopoly on selling right-handed gloves, anything you do to make left-handed gloves cheaper or more fashionable produces revenue.
  5. Twitter’s product launch track record is poor: The original Twitter was a really impressive product. You could call it Twitter 1.0, except that 1.0 usually doesn’t refer to something that crashes all the time. Since 2009 or so, when they got their scaling issues under control, Twitter’s record on executing product launches has been lackluster. Moments were mediocre. Vine (technically a pre-launch acqui-hire) shut down. Twitter’s incremental launches have been better; direct messages have gradually improved, and Twitter’s timeline has slowly moved from purely chronological to customized. More than a decade after its launch, the most successful Twitter product is still the core Twitter product. It’s not a good bet that they can reverse the trend and launch something entirely new.

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Byrne Hobart

Byrne Hobart

I write about technology (more logos than techne) and economics. Newsletter: https://diff.substack.com/