The Entrepreneurs at Twitter - an Analysis

The Entrepreneurs at Twitter

- A Case Analysis

1. Critical Issues

Twitter has gained incredible traction as one of the hottest new technologies of this decade just behind Google and Facebook. It has played a substantial role in socio-political events such as the 2008 presidential campaign and Iran's political protests. For a relatively new entrant, Twitter was growing at a massive rate, but in early 2010, the management team at Twitter is at a critical point in terms of the next steps for the company to become a lasting success.

a. From a net income perspective, Twitter is not making any money. They do not have consistent revenue generating business model.

b. Despite initial momentum, the user base seems to have already peaked and is now steadily declining. They are also experiencing a high rate of attrition among new users..

Entrepreneur and founder of Twitter, Evan Williams, believes that the investors who have thus far funded his venture with $155 million have been patient in awaiting a return on their investment. Given the fiduciary obligation of Venture Capitalists, this may be an overly optimistic stance for the Twitter management team. While the Twitter management team has an ambitious goal of one billion users and $1 billion net income by 2013, that gives them only 48 months to create a revenue stream and reignite user growth.

2. Analysis

a. Marketing Mix

Twitter's marketing mix at this point is very limited because of the artificial boundaries that the company has set for itself.

i. Product - Twitter (application), data (user generated content, access to data)

ii. Price - Funding from investors, search engine partnerships for real time tweets

iii. Place - network based, global reach/access

iv. Promotion - Word of Mouth publicity, media coverage

By expanding in each of these parameters and redefining Twitter's strategy, the company can alleviate some of its worries about sustainability and can build a realistic plan to become profitable. For example, generating a broader business model, creating a robust revenue generation and sustainment chain, promotional campaigns to attract new users and providing features and content that are interesting to keep the existing users in Twitter are some of the options that should be considered.

b. 5C Analysis

i. Customer Needs - rapid and concise dissemination of real-time, useful information.

ii. Competitors - Google Buzz, Facebook, Present.ly, Identi.ca, Friendfeed, Flickr.

iii. Company Skills - Real time information, most varied global network, technological innovation, entrepreneurial drive.

iv. Context - geographical, political, lingual, age restrictions; Twitter's management team needs to be restructured.

v. Collaborators - Third Party app developers (API users), businesses, venture capitalists (investors), the tech community, cell phone companies.

c. Five Product Levels Diagram

Based on our analysis, we found that Twitter's user interest from a 'Customer Pull' approach has peaked, going from 8 million in Q1 2009 to 29 million in mid-2009 and declining to 24 million at the end of the year. To achieve a wider user base, Twitter needs to take a 'Push' approach to new markets, new demographics etc. besides delivering features and content to the application that is self-sustaining and collaborative.

3. Recommendation

a. Increasing Net Income

Our recommendation for Twitter is to begin to sell advertising space on its site and to open up its network and platform to independent API developers.

There are multiple ways and channels to deliver Twitter promoted ads. Twitter can use their web pages and mobile application spaces for promoting:

1. Ads targeted towards a specific audience based on user content relevance.

2. General ads promoted by Twitter for money.

3. With increased user-base (analysis on increasing user base to follow shortly), businesses will reach a larger and broader audience with ads/products.

Twitter can also engage in partnerships with third party application developers.

1. Create a revenue sharing model that provides a portion of ad revenue to developers who serve Twitter's ads through their application.

2. Application developers would pay a flat-rate fee for API license from Twitter for use of Twitter feeds in their applications. We would offer the following options:

a. Ad promoted APIs - Developers can choose this option if they would like to provide the app free to their end-users with non-intrusive ads promoted by Twitter. Revenue for for the devleoper would be a percentage of the ad-based revenue that is generated from the application (using a legacy e-Commerce model).

b. Ad-free APIs - Developers can choose this option to provide an ad-free app for which the users pay a fee to purchase the app. Twitter would receive a percentage of the upfront charge that the developer receives, for the license of third party application.

3. Creating an app-store that would provide incentives to developers of third party apps to come up with innovative ideas to develop applications based on twitter user base and user generated content.

a. This would in turn drive user interest, which is one of Twitter's core problems.

4. Create a package-based model for these relationships with application developers. Developers can buy these packages that would include statistics on user behavior and demographic information so they can focus and refine new application development based on the data.

The most critical part of this approach is the relationship that Twitter needs to develop with businesses.

1. Twitter will sell 'Promoted' tweets to businesses, for advertising their product to all users as tweets.

2. Use context-based ads based on user tweets and other user demographic information.

3. Deliver