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The three business models that make Twitter a billion-dollar business in 12-24 months.

1/2/2008

Allen wrote a blog post today about Twitter focusing on a business model. Allen, my friend, you’re thinking small. Get out of Brooklyn and spend more time in the Valley. Business models!?!?! The business model comes AFTER you get to scale.

When Twitter gets to scale here are the very obvious, and wildly lucrative, business models:

1. In feed advertising
Imagine if every 10th, 20th, or 100th tweet was an advertisement. Would that be so horrible? No, not at all. “your free Twitter account is brought to you by Apple’s iPhone” would be perfectly acceptable to users and advertisers on the web. These ads will get solid click through if targeted well…. also they could be display/visual ads that really “pop” off the page since Twitter pages are text based (as opposed to say Flickr where the graphical ads would compete with the photos).

2. SMS Advertising
Users would be perfectly fine if every 100-200 or so SMS Tweets they got an advertisement. If/when Twitter turns on SMS advertising they will have the largest independent inventory of SMS advertising in the world. You think Google or a carrier mighty be interested in that?

3. Subscriptions
I’ve been asking Ev to pay for a reliable Twitter professional service fro over a year. I would estimate 1-5% of Twitter users would pay for a professional version that had 99.9999% up time, as well as special features like file storage for MP3 files, photos and videos (i.e. like Pownce’s pro account). This might “only” be a ten to fifty million a year opportunity, so I wouldn’t focus on it.

Bottom line? Ev shouldn’t worry about a business model for another two years. Just build the service to *massive* critical mass. Get to 100M users–which is where the service is headed. If the service gets to 100M monthly users it will be worth a couple of billion.

That’s what I learned at AOL: Once you have critical mass you can’t help but make a fortune. An absolute idiot with 10-20M users can make a ton of money. So, get to tens of millions of users and forget about money.

Game over.

Done.

Running a startup is NOT about revenue anymore–it’s about critical mass. It’s about scale. When you’re playing in the big leagues with unlimited access to capital you shouldn’t worry about revenue BEFORE you have critical mass.*

* Note: if you’re not a player like Ev, and you don’t have unlimited access to capital do not take this advice and focus on building revenue streams.

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  • http://www.twitAD.com Andy

    Jason,

    We should be launching in a few weeks… then you can see if
    our idea was on track.

    -Andy
    Founder
    twitAD.com

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  • PJ

    “In feed advertising”

    No. Never ever. Not even if its every 1000th its an abomination to see that.
    You’d start setting sites like “twitterproxy” which would filter them out before
    sending them on to people. And jumping out of the page? Where have you been?
    Thats what has killed many other clueless advertisers, people DON’T WANT to see
    things jumping of the page. That’s why google got the success it has with its
    small non annoying, non obtrusive adds.

    “SMS Advertising”

    No, that’s even worse. Try it just once and you’d see a slew of lawsuits.

    “Subscriptions”

    That’s possible if done ethically, ie, don’t add buttons all over the place and when
    you click on them you get “sorry you can’t use that feature” thats unethically.
    You can have a “become pro” link on your homepage thats fine, but don’t harass.

    If it became a pay only I would be long gone.

    I don’t NEED this, its an occasional amusing diversion – piss me of just once and I’m off.

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  • http://whizbangzoom.com Erik

    Jason,

    The wait-and-see approach by Twitter has allowed them to stumbled upon an accidental business model. There are many start-ups making money today using twitter as the part of their back-end. I personnally have launched a number of twitter-centric products that either generate revenue or drive users to our revenue generating applications. Our products are getting more useful with each new release, our two newest products http://TweetAccess.com allows anyone with a protected Twitter account to charge a subscription fee for access to their tweets (as well as video, audio, ebooks and pictures) and http://TwitReferral.com allows users to rate, review and refer other Twitter users.

    With so many bright young startups building money making services Twitter can simply acquire the ones that make the most sense as well as charge a network access fee to the startups that actually make money.

    Best,
    Erik
    Founder
    Whiz Bang Zoom Labs

  • http://octoberdan.com Octoberdan

    I don’t feel that 2 would be a longterm strategy given the increasing prevalence of smart phones. Why bother getting SMS updates when there’s an application for your phone that delivers updates without ads?

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  • http://www.nopcnocry.com NoPCNoCry

    “It’s about scale. When you’re playing in the big leagues with unlimited access to capital you shouldn’t worry about revenue BEFORE you have critical mass.*”

    What’s wrong with worrying about both. Unlimited access to capital should not equal laziness in planning, but unfortunately that often seems to be the case. It makes sense to know what you are going to do to generate revenue with your tens of millions of users before you get them. Not being able to lose with that kind of following can still happen. Look at AOL. Otherwise it is like telling Rover to chase the car and figure out what to do with it after he catches it.

  • http://www.howtomakeabilliondollars.com Billion Dollar Brain

    Even if Twitter already had 100 million users, how are they supposed to make $10 from
    each and every user. I think the valuation of a billion dollars is way off.

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English Bulldog

Hello, my name is Jason. Welcome to my blog on the interwebs. You can reach me on twitter @jason and by email at jason@inside.com. My Skype is jasoncalacanis, and my mobile phone is 310-456-4900.

I only pick up numbers I recognize, and in terms of emailing me, the best strategy is to write short, blunt and to the point requests. I can quickly respond to short messages, and many times I simply don't have the time to read five page pitches. In terms of taking meetings, I only do that after reviewing an actual product (not a business plan). So, the best time to ping me is when you have mockups or an alpha site. I don't read business plans, and I've never written one.

Other twitter accounts you can follow: Inside.com, Ticker, This Week in Startups and LAUNCH Festival

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