As I've been using Twitter more and more over the last few months I find myself thinking through their monetization strategy as a thought exercise. I've concluded that the approach which they seem to be pursuing -- selling display ads and sponsored tweets to advertisers -- isn't the approach that I would take. At least not at this stage of the company's life cycle.
Instead, I would charge the network's most active users for the service rather than pursuing an advertising sales strategy. Companies and celebrities would certainly pay for this. In fact, they already pay other intermediaries to help them communicate with their fans and customers; that's what PR agencies do. Companies like the Gap now have big twitter followings; individuals like Lady Gaga (6.5 million) and Ashton Kutcher (5.8 million) do too; and there are hybrid approaches where CEOs represent their company's brand (Tony Hsieh of Zappos has 1.7 million followers). All of those parties would pay twitter for the right to continue communicating with their customers. After all, it's no different than paying the email vendors who run their email marketing seven-figures a year to communicate with their customers.
How much money is there in this? Here's a list of twitter users with the most followers.There are over 1000 users with more than 170,000 followers each (Regis & Kelly are #1000 with 173,131 followers). There are 100 users with 1.6 million or more users. Twitter could easily charge the top 100 users each $10,000 per month ($1M revenue per month), and the next 900 users $5000 per month ($4.5M per month) and they've got a $66M annual revenue business with hardly any sales effort required. There's at least another $50 million in revenue in the next tier of active tweeters, and so on. Don't charge all the users, but charge anyone with more than 100,000 followers. Anyone with that many followers is getting enormous business value out of twitter because they can broadcast their message to a huge number of people. They'll pay.
Little old me, with a mere 2433 followers -- don't charge me please.
The vibrancy of the twitter ecosystem wouldn't be affected at all by this type of monetization strategy. Is Lady Gaga going to take her 6.5 million fans somewhere else? No. Is she going to stop using the twitter megaphone because of a measly $10,000 per month? No way. Just think about the massive ROI she gets from Twitter -- $120,000 per year is nothing compared to the benefit she gets from being able to easily communicate to that many of her fans. And remember the viral component too: when she tweets to 6.5M followers, it starts a tidal wave of tweets throughout her followers' network, spreading her words and her brand. That's worth a lot more than $120,000 per year to her. Make her pay!