Already a Bloomberg.com user?
Sign in with the same account.
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 users but the advertisers who pay to produce the content. The 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).
The problem with a focus on advertising for an enterprise such as 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 (FB) 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 bulk of its monetization strategy consists of trying both to interrupt and exploit those connections to satisfy advertisers—something that could effectively poison the well for many users. Martin Sorrel, chairman of advertising and marketing giant WPP Group (WPP:LN), has wondered whether advertising as we know it is even compatible with socially-based networks. 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—such things as 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 with 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.”
Dave Winer, meanwhile, argued in a recent post that Twitter should do the opposite of what Godin suggests: It should seek out power users or people with some kind of celebrity-style following—not necessarily TV or movie celebrities, but possibly known technology innovators, he says—and offer them a revenue-sharing relationship. One of Winer’s key points is that much of the value in Twitter derives from those users, who therefore deserve to benefit from the monetization of the value they are creating, much the way YouTube (GOOG) 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 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 charge some users and pay others as part of a differentiated monetization strategy. As he 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 such as Twitter to reach the largest number of users and thereby achieve the kind of scale needed to become valuable businesses is to be advertising-supported. 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. We’ve already seen hints as to 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?
Also from GigaOM:
Crowdfunding’s Rapid Growth and Future Opportunity (subscription required)