As of this writing, Twitter is worth a little under $23 billion now that it’s trading on the NYSE. Crazy? Maybe. Time will only tell. What concerns me is that the trading that is happening is all based on speculation that the service can turn a healthy profit in the next 5-7 years. Keep in mind, they lost $69 million in the first half of the year, on only $250+ million in revenue. And while revenue is up year over year, I see their current approach as risky.
Twitter has two main pipes for revenue. The first is the obvious one: advertising. But Twitter doesn’t have the engine for marketing that people like Linkedin and Facebook do. Not by a long shot. They lack enormous amounts of user insight and profiling that allows for very good, targeted advertising (aka valuable advertising) on other platforms. That means for a lot of companies, Twitter might not even be a top 5 contender for advertising funds in a budget (My list would be AdWords, Facebook, Linkedin, YouTube, Bing, and then maybe Twitter, depending on the company). To try and heuristically build accurate user profiles and sentiment fingerprints based on tweets would be a computing feat that I don’t really believe they are capable of (unless they’ve been quietly doing it all along, which maybe they have, I don’t know). This means the ceiling for advertising revenue isn’t nearly as high as some think, in my opinion. I actually think most folks are way over-estimating what Twitter can bring in on the advertising line in the coming years. I’ll explain why in a few moments.
The other stream of revenue comes from licensing access to user data to firms for any number of reasons, such as market or academic research. This would prove viable as long as user engagement remains high, but would pale in comparison to advertising money at the moment. It also requires balance, because if they make changes that drive users away (aka making changes to keep stockholders happy in the short term), then that data slowly becomes less valuable.
Here’s where Circa comes in. It has rapidly risen to the top of the ranks as my, and many others’, favorite news app. It’s curated, bite-sized, clean, and useful. Twitter needs Circa far more than the other way around. Circa provides new angles on both of Twitter’s main revenue streams, and would add a third. Circa’s strength as a news reader app comes from pulling articles on a topic together from multiple sources, mixing in meta data, pulling out the common, valuable bulletpoints, and blending them into a great experience. Like Twitter, it finds great value in brevity.
So how would that pairing look? Consider what Circa does well: news. Now, every time something major breaks in the news, consider how that reflects on Twitter. The number of people that get news for social networks is steadily growing (1/3 of people under 30 now). People constantly gripe when they see news breaking on Twitter, and the mainstream media doesn’t even get so much as a banner up for 30 minutes. By absorbing Circa and layering it with some of Twitter’s technology, they could create a profoundly powerful news engine – one that is nimble enough to reflect Twitter’s strength, but combines it with Circa’s curated nature to minimize noise (see also CrowdMap as another service that uses realtime reporting and monitoring of social channels to collect and vet the validity of things being reported). Then they license the hell out of it to news services. Either for standalone services, or for helping them pipe in social metrics into their news. Personally, I would steer away from allowing them to pay to control where they show up with respect to a news story, for issues of impartiality and the appearance of candor. There are plenty of angles one could take though.
While Twitter might not know what movies and sports you like how other sites do, one thing they know a hell of a lot about is what you are sharing, link-wise. That feeds their second channel, which likewise could feed Circa’s matching of articles to topics. It’s very much win-win. Throw in some killer analytics and you could even eat up a little value currently being serviced by other third parties. I think Twitter’s real future is in news, from a revenue stream standpoint.
At the end of the day, Twitter might not be designed to be as ephemeral as SnapChat, but it was never meant to be a robust system either, feature-wise. And that was its strength. I predict that it will be very hard for them to augment the base service beyond injecting promoted tweets into feeds without risking serious damage to the overall user experience that folks want and expect. That’s what I mentioned above about the feeling that they have a lower ceiling than some estimates show. Too many changes, and they risk damaging the DNA of what makes Twitter, Twitter. Keep in mind, the reason Facebook gets away with this better is because you need Facebook to use Facebook, captive audience. Twitter has plenty of ways to be used out of band, which makes it difficult for them to enforce too many ways of modifying the experience. They need Circa because they need a bigger engine that can mate with their existing functionality that they can ride to the bank. They’re the peanut butter to Twitter’s jelly.
So, how long before they crack open the wallet?