The real problem (and opportunity?) for Twitter
The shift to subscription, and the untapped customer segment, creators.
Since it was founded in 2006, Twitter has grown to 330 million monthly active users, around 50% of them opening the app every day for news, entertainment, and social connection. It’s quite the collection too, over 90% of journalists and 83% of world leaders use it, not to mention many of the top thinkers and commentators in every niche you can think of.
Despite creating a huge community, it’s remained a bit of an oddity in the world of tech. Simply put, they haven’t been able to monetise their influence effectively, and since the IPO in 2013 the stock has underperformed the market, growing the share price at just two percent per year.
To make things worse, user and revenue growth have stalled, with many critics believing that Twitter is essentially the perfect example of how the ad model has become ineffective and old school.
Many have argued for a fundamental change in their business model with a move to subscription. Twitter have even opened roles for a subscription product1.
It’s not difficult to understand why. Analysis of their revenue shows they raked in an average of $18.40 per user in 2020.
Recent research shows not only is there a willingness to pay a subscription amongst consumers and businesses, but the willingness to pay is significant2.
Assuming the upper end of a good SaaS conversion rate (5%), and limiting the calculation to MAU’s (monthly active users) a subscription model would net Twitter $1.2 billion in monthly recurring revenue, or $14.4 billion in ARR.
[330 million] x [5%] x $75 = $1.2 billion MRR
[1.2 billion] x [12 months] = $14.4 billion ARR
If you bring that back to a revenue per user per year, it’s $43.64, a 2.3X increase on the advertising model.
[$14.4 billion] ÷ [330 million] = $43.64 per user
Whether you half the conversion rate, or the revenue per user, there’s a strong business case, and that’s aside from considering the impact of recurring revenue of the share price, which could raise funding to fuel future innovations and acquisitions.
Is a move to a subscription mode a silver bullet? No. At the core of the problem is the fact that they’ve failed to evolve their business model in response to the toxicity of the ad model. Shifting revenue streams solves one part of the problem, but not the other. What’s that you ask? Staying relevant into the future.
Aside from a shift in model, the the biggest change they’ve missed is not recognising they now have two distinct users - consumers and creators.
A shift to a subscription model taxes the consumer. It’s reasonable to assume this shift will require some cool new features to differentiate the offering for paying users but I can’t help but see an opportunity to monetise creators with differentiated features. They’ve spend the last number of years monetising their audience on platforms that could easily be Twitter features.
Just look at a sample of the current creator landscape, it’s not hard to see the opportunities, and they’re across many customers segments. Celebrities, Influencers, Thinkers and more.
It’s reported that Cameo generate $25 million in net revenue on $100 million in gross revenue in 20203. A check against the top 10 earnings back in August4. shows they all have active Twitter followings (with Debbie Gibson on 121.8K followers by far the lowest).
According to TheInformation.com and Bloomberg OnlyFans wrapped 2020 with $400 million in revenue5. Taking 20% of gross creator volume, that puts platform revenue around $2 billion for the year.
Substack, Convertkit and many others are capitalising on the growing newsletter trend. Twitter, in many cases, is top of the funnel for those creators. While revenue numbers are light, it’s impossible to ignore the sectors growth.
In all of these cases the players have found market product fit. Now, they’re fighting for distribution, distribution Twitter already owns. The next big opportunity is creating tools for creators to monetise their audiences and communities.
The market exists, the channel exists, the model is shifting, but clear (freemium and subscription). The next challenge is a product one.
Whether they copy what’s already out there or innovate internally (Facebook groups disruptor?), the evolution of the product will dictate the future of the business. Fail to create value for users, and the change in the model will be nothing more than bandaid.