How Twitter Could Monetize

Although Twitter has overcome challenges regarding scaling and continues to thrive, the company still has no clear revenue model. Most ideas on how to monetize Twitter seem restricted to adapting conventional online ad models to tweet. Where the money train might be for Twitter, however, is as an SMS service provider.

The Problem with Conventional Ads

Conventional display advertising has never really been an option for Twitter. Aside from the usual challenges such as banner-blindness, display ads would fail to capitalize on the mobile/SMS opportunity that Twitter represents. This leads, in turn, to the idea of Tweet Ads: 140 character text ads.

Of course, even a Tweet Ad model poses some problems for the integrity of the micro-blogging network:

1. On what basis are users targeted to receive ads?
2. Will users be able to opt-out the same way they can choose not follow someone and can they receive mobile updates from someone they do follow?
3. Will ads be targeted according to content, replies, or in the case of an SMS,  location?

If Twitter doesn’t handle it just right, they could risk having either their users or their advertisers walking out on them.

An SMS Service Provider

Since Twitter’s true marketing potential is tied in with its SMS functionality, perhaps its revenue potential is tied in not with its community or content, but with its software. In other words, perhaps Twitter’s go-to-market strategy shouldn’t be as a marketing channel, but as a solutions provider for brands that need to their own turn-key SMS channel.

As mobile proliferates on both the web and SMS fronts, businesses of all sizes   will begin to reach out to customers using SMS delivery solutions. Partly because it already has most of the infrastructure in place, but especially because it’s entered the mainstream, Twitter is in an excellent position to fill that role.

Imagine that you’re on the site for your favorite bar and grill and there’s a button to receive SMS updates about their specials, promotions, and upcoming events. You click on it and land on a co-branded Twitter page. If you’re already a Twitter user you sign in and automatically start following your favorite clubs, restaurants and night spots with mobile updates activated. If you’re not already a user, on that same co-branded landing page you register and soon you’re following your favorite spot  with mobile updates activated.

Because Twitter has entered the mainstream, consumers are familiar with the brand and are more likely to trust it.  That puts Twitter in an excelling position to provide this kind of service. Pricing for this kind of service could be based on the number of subscribers making it affordable for businesses of all sizes.

For enterprise level clients with multiple franchises, there could even be the opportunity to geo-target users when they travel. By integrating location-based service (LBS) technology with the Twitter API, users could receive updates from the nearest franchise. This enterprise level of custom functionality would allow Twitter to develop tiered pricing customized for each customer’s needs and budget.

Tweet, Tweet, Bling, Bling…

Shortly after Twitter launched, it had to suspend SMS service while it wrestled with scaling issues. Although SMS service has been restored in major English speaking markets such the US and UK, it remains suspended in some regions, such as Canada. This focus on prioritizing SMS markets (e.g. the US and UK) reflects that the company is very conscious of its SMS potential. That being said, they have been focused on providing this level of SMS service since their inception. Of course, we’ll just have to wait and see how things pan-out for the top-tier micro-blogging service.