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Summary:

As Twitter pushes for more control over the platform in order to monetize the content flowing through it, some prominent critics of this move argue the company is making a big mistake by focusing on the needs of advertisers rather than the needs of users.

Twitter’s emerging business model continues to be a hot topic in social-web circles, including the debate over whether the company is taking the wrong path by trying to control more of the content that flows through the network in order to monetize it through advertising. Entrepreneur Dalton Caldwell is busy trying to create a version of the service that is funded by users, and marketer Seth Godin argued recently that this is by far the best approach for Twitter to take as well — rather than chasing the holy grail of advertising dollars. Blogging pioneer Dave Winer, meanwhile, makes a somewhat different argument: he thinks Twitter should pay certain users for the value they create within the network. The two ideas have more in common than you might think.

In Godin’s post, the author and marketing guru says that the world Twitter is choosing to enter by making advertising revenue its primary concern — over and above the interests of its users — is the same world that TV inhabits. The real customers for a TV network or channel, he says, aren’t the users but the advertisers who pay to produce the content, and this same dynamic is present in the newspaper industry as well (which is one reason why the switch to being funded primarily by readers could be so disruptive for that business, as I argued in a recent post about the Financial Times and the New York Times).

Advertising gets in the way of serving users

The problem with a focus on advertising for someone like Twitter, Godin says, is that making what advertisers want the main priority will tend to distort the things the network does — in ways that could run counter to what readers want. As he puts it:

“If they relentlessly sell the attention of their users, they will have a misalignment as they maximize profit. The advertisers will want ever more attention, and the users will want to avoid those interruptions the advertisers are paying for. Tension will keep rising as users feel trapped by a medium with few substitutes that begins to charge an ever higher tax in the form of attention wasted.”

This is a dilemma that Facebook is having to confront as well: it has become hugely popular as a social network that allows people to connect with their friends, but the vast majority of its monetization strategy consists of trying to interrupt and/or take advantage of those connections to satisfy advertisers — something that could effectively poison the well for many users. Sir Martin Sorrel, chairman of advertising and marketing giant WPP Group, has wondered whether advertising as we know it is even compatible with socially-based networks, and others argue that ad models simply don’t suit what amount to communication platforms.

Godin’s solution is similar to Caldwell’s model for his new venture App.net: while Caldwell wants to make user and developer fees the primary revenue source for his network, Godin suggests that Twitter should charge users for a variety of features that only power users are likely to want — things like advanced analytics, verification (which some users have already been given, but only on a case-by-case basis decided by Twitter) or other enhancements. The core of Godin’s argument is that this would align Twitter’s interests and those of its users, which would turn out better for both:

“Every decision proposed will have to answer just one question: what makes our users happier? Free is a great idea, until free leads to a conflict between those contributing attention and those contributing cash.”

Is it better to have loyal users, or giant scale?

Dave Winer, meanwhile, argued in a recent post that Twitter should do the opposite of what Godin suggests: in other words, that it should seek out those power users or people with some kind of celebrity-style following (not necessarily TV or movie celebrities, but possibly technology thought leaders, he says) and offer them a revenue-sharing relationship. One of Winer’s key points is that much of the value in Twitter comes from those users, and therefore they deserve to benefit from the monetization of the value they are creating, in much the same way that YouTube has preferred partners.

Unless Twitter reaches out to try and retain these kinds of users, Winer argues, it could lose them to competing networks — whether it’s Google+ or other offerings that give them what they want (one would-be Twitter competitor, Status.net, got some mileage out of forming relationships with celebrity users, but it wasn’t enough to give the network much traction). In a Twitter conversation with me, Winer also made the point that his proposal isn’t contradictory to Godin’s, and that the network could both charge some users and pay others as part of a different monetization strategy. As Winer puts it in his post:

“Not all your users are the same. Some see their output stream as a work product. Something they care about, learn from, put love into, and use it as a way to gather ideas from others. For some people this will be considered enough of a product that they want to be paid for it.”

In a recent post on the virtues of being free — a post that was a response in part to Dalton Caldwell’s App.net proposal — Union Square Ventures managing partner Fred Wilson argued that the only way for networks like Twitter to reach the largest number of users, and thereby achieve the kind of scale they need to in order to become valuable businesses, is to be advertising supported. And he is probably right about that. But is scale the most important thing? And could the race to achieve that scale actually ruin the network?

Godin and others have a point when they argue that advertising has the potential to distort the relationship between a service and its users — and we’ve already seen hints of how that might play out, in the turmoil around Guy Adams and the suspension of his account after he criticized one of Twitter’s corporate partners. The benefit of the models proposed by Godin, Caldwell and Winer is that they would be as user-centric as possible, and therefore less likely to become distorted. But they would also sacrifice the scale Wilson refers to. Would the trade-off be worth it?

Post and thumbnail images courtesy of Flickr users Mark Strozier and Rosaura Ochoa

  1. Adam Sofineti Tuesday, August 7, 2012

    Celebrity users already benefit from Twitter, by being able to communicate with their followers.

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    1. That’s true, Adam — I think Dave was talking about how much value that provides for Twitter in a user or even monetary sense, and whether they should maybe share some of that. Thanks for the comment.

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      1. See my longer comment at the end. There’s no “should” to it. People very rarely pay out of a sense of obligation. Talent will be paid because it’s a competitive issue.

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  2. Why can’t Twitter provide a suite of products to it’s users that will help them go out and sell their own content to advertisers. Each user would decide when and how to place ads on their feed, paying a portion to Twitter. This is how broadcast networks work. Perhaps Twitter could become a content producer itself, allowing individual users to syndicate the content.

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    1. (Can you get your comments plug-in to allow users to confirm before posting? I had some typos above I never had a chance to correct.)

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  3. Twitter does not have to charge people, nor do they have to close the APIs. They can actually have a huge advertising business on open APIs, if they simply pump ads through those APIs. Imagine if every 50th or 100th Tweet was an ad from Twitter. Boom. Huge ad network.

    And for those apps who don’t want the ads, they can opt to pay for a premium version of the API with no ads and they can monetize with their own ads or charge their users a subscription.

    Twitter makes money either way. And this approach leverages openness. It’s a winning approach.

    Read more here:
    http://t.co/bf1QYqtO

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    1. Definitely the best approach.

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  4. Twitter should find a way to charge their users with premium services, that really give added value. If you have > 500 million subscribers, it’s seems wise to me to get money from that amount instead of advertisers far beyond < 500 million.

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  5. There is no point in paying power twitter users because they already get rewards in the form of traffic to their own website and brand awareness. Youtube partners do not get traffic to their website, so to keep enourage them to create quality content, youtube has to give them back some reward.

    Advertisement is the best way to monetize twitter.

    I don’t feel being interrupted by facebook ads as long as facebook is showing valuable updates from my friends. The same way, i

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  6. There is no point in paying power twitter users because they already get rewards in the form of
    1. Traffic to their own website
    2. A platform to build their own userbase(Followers)
    3. Build brand awareness.

    Youtube partners do not get traffic to their website, so to enourage them to create quality content, youtube has to give them back some reward in the form of cash. Only fortune 1000 companies care more about brand awareness not the SMBs. So comparing Youtube’s business model i think is not completely appropriate.

    I think Twitter should be a paid service for power users & power listeners.
    As Fred Wilson once mentioned about the Social media rule of thumb – 1% create, 10% curate and rest 89% will consume.

    1. Power Users(creators and curators) – By the above thumb rule, if twitter has 140million total users
    Creators = 1% of 140m = 1.4 million users
    Curators = 10% of 140m = 14million users

    These Creators and Curators have built a solid audience on twitter over years and gain tremendous monetary benefit from the twitter service. These power(if not all but “MANY”) users should be willing to pay a reasonable amount to twitter to continue to use their service. And twitter can give some some additional service like you mentioned advanced analytics etc etc.

    2. Power Listeners – I don’t mind $50 to $100 dollars a month to access my twitter stream. It is immensely valuable to me. And i’m sure there are many many such users who would be willing to pay just to access their twitter stream.

    So, for power creators, curators and listeners, twitter need not show advertisement but charge them for using their service.

    For rest of the mainstream users, twitter can continue to be free and earn revenue by showing Ads. Advertisement is the best way to monetize mainstream users.
    I don’t feel being interrupted by facebook ads as long as facebook is showing valuable updates from my friends. The same way, millions of users who use twitter to gossip with their favorite celebrities and personalities will not mind if twitter show them acceptable number of ads as long as they get the valuable content from the people they are following.

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  7. app.net is a “Company” it is not a non profit org. As a traditional internet “Company” app.net will not be building on top of existing “Open” standards and if they do they will quickly build a wall around them. “Companies” generate large amounts of revenues by creating frameworks of scarcity; the idea that the “Company” is the only owner of X, or that X is in limited supply. app.net will create a framework of scarcity around its services and api. This is their core revenue model and as such they will seek to create a dependence on a “one of a kind” offering.

    Most of what app.net has communicated concerning its proposed feature set exist in “Open” source. There are also quiet a few “Open” source standards that can be used as underpinning for a “Social” “Platform”. app.net and many other before them have chosen not to use or extend “Open” source apps and services because this would not be compatible with revenue models that rely on frameworks of scarcity. Frameworks of scarcity as they are currently enforced by many “Social” platforms create closed data silos as well as user lock in. In my opinion app.net, twitter and others can never be truly user focused companies because the Frameworks of scarcity that they enforce are encroachments on member communities freedom of movement and data ownership.

    app.net is a “Company” that has previously taken investment. There is a list of the investors here https://app.net/about/. I m fairly certain that each of the investors has received equity in app.net in exchange for the capital that they have invested.
    These investors will more than likely want a return on the capital that they have invested into app.net. More than likely they believe that they have invested in app.net at a valuation that will rise over time. I m fairly certain that some of the key metrics to measure the valuation of app.net will include; revenues as well as member count. In the case of app.net, twitter and others the predominate source of value creation will be member communities that will not be remunerated for the value or revenue that they create.

    If app.net is raising “funds” from members the members should be equity holders just as app.net’s other investors and “funders” are. The member community investors should have the same opportunity as institutional investors. The opportunity to have a return on their investment based on the funds that they have an invested and the revenue and value that they have created.

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  8. Twitter will not pay users until they have competitors and they do it first.

    And even then it won’t be Twitter that pays them, any more than movie theater owners pay actors.

    Right now it’s a completely integrated system with one distribution point. Eventually Twitter will have comeptition. They will need users to attract other users. By then it will be apparent that a small number of users are creating the appeal for the others. If someone is spending $1 billion to launch a new network, will they budget some of that money for talent? Imho, they’d be fools not to.

    Only in the very early days do they manage to get everyone to work for free. But ultimately it’ll cost money to attract the people you need to attract everyone else.

    That’s what I was trying to say. There was no “should” to it. It’s not a moral thing, it’s economics.

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    1. Thanks for that clarification, Dave. By using the term “should,” I was mostly suggesting that Twitter would be better off trying to get out in front of that trend — not so much that it was a question of it being ethically right, etc.

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      1. Why is it ethically wrong to return monetary value to the member communities that add value and attract revenue ?
        Why is there no questioning of a company (app.net) that has institutional investors raising funds from users without giving them the same opportunities to own equity ?

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  9. Is there another form of future advertising that doesn’t get in the way of serving users? Something akin to what Buzzfeed is doing? I’m thinking too…..

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    1. There are other ways to generate revenues that will support a company as well as the member “Community”.
      I think if we look at what is in the “Communities” intrest many of these new forms are in plain sight.

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