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In context: Social media platforms predominantly make their money off targeted advertising, however that doesn't seem to be a sustainable business model for Twitter. To increase its earnings potential, the company is reportedly considering a variety of revenue streams including paid subscriptions and charging for popular client, Tweetdeck.
Twitter has been researching steps to reduce dependence on advertising revenue per reporting from Bloomberg. This includes offering paid subscriptions to services like Tweetdeck, a popular Twitter client that allows users to manage multiple profiles at once. The company's reliance on targeted advertising has not proved to be as profitable as competing social networks like Facebook and thus faces pressure from investors to increase its revenue stream.
Twitter's current business model relies on companies purchasing ad space on the platform to target users. However, advertising revenue from the United States, Twitter's largest user base, is starting to plateau. One option mentioned is called "tipping" and would allow users to pay Twitter accounts they follow for exclusive content. Other options included charging for exclusive features like more profile customizations or the ability to "undo send." Enacting a subscription fee for Tweetdeck is also being considered and could be a sizable revenue stream for Twitter considering how popular that is.
The subscription model is an enticing model for most companies. The broadcast entertainment market has exploded with streaming subscription services for almost every network out there.
Gaming companies such as Ubisoft, Electronic Arts, and Microsoft are betting big on game subscription models that promise a compelling library of games for a monthly price. Twitter CFO Ned Segal also commented on an investor call last year that offering a subscription promotes "durability" with the recurring revenue model proving more reliable than advertising.
Twitter's head of revenue products, Bruce Falck, said in a statement: "Increasing revenue durability is our top company objective," Falck said. "While we're excited about this potential, it's important to note we are still in very early exploration and we do not expect any meaningful revenue attributable to these opportunities in 2021."
While the earnings potential is there, there is worry that Twitter may not be able to lure many people to sign up. After all, both Tweetdeck and Twitter itself are free. Introducing any kind of paid barrier could have the opposite effect and drive consumers away to free options. The very idea of a social network precludes people signing up and then getting their friends to sign up as well. A free service is more amenable to this kind of growth because there's no monetary barrier to entry. On the other hand, becoming less dependent on advertising data could allow Twitter to also be less reliant on selling customer data and intrude on users' privacy.
Twitter has reportedly been discussing internally about subscriptions for years. According to Bloomberg, the company seriously looked at the idea in 2017 and put together an internal team to research ways to charge for Tweetdeck. The team asked some users if they were willing to pay for certain features in order to keep Tweetdeck ad-free. Another option such as a more enterprise-focused tool to manage multiple Twitter accounts was also discussed. However, the effort eventually fizzled out and the team gave up.
There are a host of options Twitter could use to boost its earnings potential. Whether its through subscription services, exclusive content, or more user-facing features, Twitter will have to decide what's the right path for them to grow beyond the traditional advertising model and appease its shareholders.