how-does-twitter-make-money

How Does Twitter Make Money? Twitter Business Model In A Nutshell

Twitter is a platform business model, monetizing the attention of its users in two ways: advertising and data licensing. In 2018, advertising represented 86% of its revenue at over $2.6 billion. And data licensing represented over $424 million primarily related to enterprise clients using data for their analyses.

Twitter operating segments

Twitter generates revenues via Advertising and data licensing.

Twitter Advertising Services

Twitter generates most of its advertising revenue by selling Promoted Products that consist of the following:

Labeled as “promoted,” appear within a user’s timeline, search results or profile pages just like an ordinary Tweet regardless of device, whether it be desktop or mobile. Using its proprietary algorithms, Twitter tries to understand the interests of each user and deliver Promoted Tweets that are intended to be relevant to a particular user. Promoted Tweets are pay-for-performance or pay-for-impression, priced through an auction

Promoted Accounts, labeled as “promoted,” provide a way for advertisers to grow a community based on pay-for-performance advertising that is priced through an auction

Promoted Trends, labeled as “promoted,” appear at the top of the list of trending topics or timeline for an entire day in a particular country or on a global basis. Promoted Trends are sold on a fixed-fee-per-day basis

Data Licensing and Other

Data licensing and other revenues comprise:

Data licensing revenue stream

That allows data partners to access, search and analyze historical and real-time data on the platform consisting of public Tweets and their content

Twitter MoPub exchange revenue stream

This is a mobile ad exchange where Twitter receives service fees from transactions completed on the exchange. In short, this is a marketplace where buyers and sellers purchase and sell advertising inventory“>inventory. Thus, it matches buyers and sellers

How big is Twitter advertising business?

twitter-financial-statements-2016-2018

Source: Twitter Annual Reports 2018

In 2018 the company made over $2.6 billion from advertising services alone. And over $424 million primarily on data licensing.

Also, if we compare those numbers with Google and Facebook advertising revenues, we can understand the proportion of Twitter digital advertising cake.

digital-advertising-revenues-amazon-google-facebook-twitter
According to eMarketer, in the US alone, digital advertising spending will be around $129 billion. Within this market the most significant players are companies like Google ($116 billion in 2018 from search advertising), Facebook (over $55 billion in advertising revenues in 2018), Amazon (over $10 billion in 2018 from product advertising), Twitter (with $2.6 billion in advertising in 2018), and Microsoft’s Bing (search advertising for about $7 billion in 2018)

What are the Twitter key metrics? The factors that affect Twitter growth

Each company has a few critical metrics to monitor on a daily, weekly and monthly basis. Those are the metrics Twitter looks at for the success of its business:

Monthly Active Users (MAU) MAUs gets defined as a Twitter user who logged in or was otherwise authenticated and accessed Twitter through our website, mobile website, desktop or mobile applications, SMS or registered third-party applications or websites in the 30-day period ending on the date of measurement. 

twitter-monthly-active-users-worldwide

Changes in Daily Active Users/Daily Active Usage (DAU). Daily active users or daily active usage, as Twitter users who logged in or were otherwise authenticated and accessed Twitter through our website, mobile website or mobile applications on any given day.

daily-active-users-twitter

Changes in Ad Engagements and Cost per Ad Engagement. Defined as an ad engagement as a user interaction with one of the pay-for-performance advertising products. In short, once a user completes an objective set out by an advertiser such as expanding, Retweeting, liking or replying to a Promoted Tweet, viewing an embedded video, downloading or engaging with a promoted mobile application, clicking on a website link, signing up for marketing emails from advertisers, following the account that tweets a Promoted Tweet, or completing a transaction on an external website.

The change in metrics, such as monthly and daily active users and change in ad engagement can cause the business. User growth trends reflected in the MAUs, changes in DAUs and monetization trends reflected in advertising engagements are vital factors that affect Twitter revenues.

How much does Twitter spend on R&D compared to other tech companies?

Research and development expenses consist primarily of personnel-related costs, including salaries, benefits, and stock-based compensation, for engineers and other employees engaged in the research and development of Twitter products and services. 

twitter-r&d-expenses

In 2017 the R&D expense was about 22%. To put things in context, we can look at Microsoft as a comparison:

microsoft-r&d-expenses

If we look at R&D % over revenues, the 22% from Twitter seems to be high. However, for many in the tech space, Microsoft isn’t any more an “innovative” company. Also, if we look at the absolute numbers, Microsoft has spent $13 billion. In 2017, Amazon and Google spent respectively  $22.6 billion and $16.6 billion in R&D.

How much does Twitter spend on Sales & Marketing compared to its revenues?

Selling an ad network at the times of Google and Facebook isn’t an easy endeavor. As specified in its annual report, “sales and marketing expenses consist primarily of personnel-related costs, salaries, commissions, benefits and stock-based compensation for the employees engaged in sales, sales support, business development and media, marketing, corporate communications and customer service functions. In addition, marketing and sales-related expenses also include advertising costs, market research, tradeshows, branding, marketing, public relations costs” and so on.

twitter-sales-marketing-expenses

The sales and marketing effort is quite considerable, and it took 29% of the revenues in 2017.

Interesting fact: in the first quarter of 2018, Twitter posted its first profit, ever

Twitter finally posted a profit in 2018:

twitter-make-profits-2018

As of the three months, ending in June 2018 Twitter posted a hundred million in net profit. This was a critical turning point for the future of the company as it had been running at loss for most of its financial history.

It is crucial also to remark that since 2015 the company has embarked in a drastic change in terms of objectives and business strategy.

Back in 2015, Twitter co-founder and CEO, Jack Dorsey announced with a Tweet what I believe has represented the turning point at business level:

Other hand-picked case studies: 

Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, professionals, and entrepreneurs in 2019 alone | Gennaro is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate and become profitable | Gennaro is an International MBA with emphasis on Corporate Finance | Subscribe to the FourWeekMBA Newsletter | Or Get in touch with Gennaro here

Leave a Reply