First of all, it’s worth saying that Twitter has never turned a profit, mainly due to stock-based compensation offered to staff and investors, and has lost around $2 billion since it launched a decade ago, though most of the losses have happened since the company’s IPO in 2013. The platform also lost 2 million customers in the last three months of 2015.
Shares in the company have fallen by 77% since they reached their all-time high on Boxing Day 2013. But that’s not to say the company will never make a profit. Revenues are increasing albeit slowly, and it’s this pace of increase that has investors worried. Having said that, the company recently released figures for the second quarter of 2016, up until the end of June, with a revenue of $602 million in that one quarter. Now of that, $535m was revenue from advertising which is still Twitter’s main source of income.
There are two essential things that Twitter does to make money. The first is selling access to its firehose - essentially every tweet that is posted on the platform. Big organisations want access to this data to help them develop targeted and effective marketing strategies. They gain access via a third party called Gnip that offers tools to analyse the data, but essentially the companies are gaining access to every tweet posted on the platform. Only big organisations tend to pay for this though, as with 500 million tweets sent every day, you need a lot of servers to analyse the data. Dashboard companies that provide analytics tools also pay for this data.
"What many people don’t realise is that when a product is free, we - the consumers - are the commodity."
The other way Twitter makes money is through promoted content. So if you go onto the platform you’ll see promoted tweets, promoted trends and promoted accounts. These are adverts paid for by companies or individuals who want to increase their engagement and following. For example you can pay to be associated with keywords or trending words to increase your reach - if you search for Black Friday you’ll find big retailers running an ad associated with that search phrase. It’s done in a similar way to Google Ads where instead of paying for people to see your ads, you only pay when someone engages with them (reply, retweet, like). The advertiser get charged in a similar way to Google Adwords, where companies and individuals essentially bid on keywords. Twitter will charge huge amounts, hundreds of thousands of dollars, for the most popular keywords, but small businesses may also be able to create adverts as little as $50.
Twitter has also announced a live-video strategy, which it hopes will increase advertising revenue, and is promising to crack down on trolls and abusive content which the company hopes will help increase the platform’s user base. What many people don’t realise is that when a product is free, we - the consumers - are the commodity. It has to be quid pro quo. We publicly share information about ourselves, and we post selected content, which allows advertisers to target us with their products and services. However, to remain successful and make a profit, Twitter needs to tread a fine line to ensure customers get a balance of appropriate ads and don’t feel overwhelmed and bombarded.