The mega-success of social media sites is not news for anyone. Social media companies such as Facebook and Instagram have become global behemoths within a small period of time. These companies also have multi-billion dollar revenues and cash flows which reinforces their position in the market. Twitter is another social media company that is often talked about in the same breath. This means that in terms of popularity and brand value, Twitter is almost equal to companies like Facebook. However, when it comes to revenues and valuation, Twitter lags behind. This is because Twitter is still in the nascent stage.

Twitter has close to 200 million daily active users. On the other hand, companies like Facebook have 1.8 billion daily active users. Even applications like TikTok have a huge user base of 800 million active users. Twitter’s $3.5 billion in revenue is dwarfed by the $71 billion revenue produced by Facebook. It needs to be understood that Twitter has a disproportionate impact on society. Even though Twitter is much less popular as compared to social networking sites, it is used by important personalities.

Even though everyone is aware of Twitter and also uses Twitter, there are very few people who know how Twitter actually makes money. In this article, we will understand the economics behind the business model of Twitter.

The Twitter Mission

Twitter is very clear about its business model. It is also extremely focused on having a lean model. Twitter does not provide users with any tools to aid in content creation. However, Twitter gives users free and unrestricted access to voice their opinions to people across the world. Twitter’s mission is to improve the ways in which a free and global conversation can take place.

Twitter is considered to be the messaging service of the internet. Since the tweets are free for users, a wide variety of discussions happen on the site. Twitter has created the world into a room full of people having conversations. The company keeps a close eye on the subjects which are becoming popular in the conversations through their trend watcher tools. Twitter also amplifies trends by broadcasting tweets to people who have an interest in similar subjects.

Twitter trends can be considered to be a representation of the real-life trends taking place across the world. This is the reason that corporations and political parties all keep a keen eye on the trends published by the website.

How Twitter Makes Money?

As mentioned above, the revenue of Twitter is less as compared to other social media giants. However, Twitter is still in the growing phase and is expected to scale up rapidly in the forthcoming years. Twitter has two main sources of generating revenue viz. advertising and data analytics. The details of both these sources have been mentioned below:

• Like other social media companies, advertising is the biggest source of revenue for Twitter as well. Twitter generates close to 87% of its revenue from advertising.

• Twitter suggests various accounts to users depending upon their previous activity. Now, there are certain people or companies who want to gain followers faster. Hence, these companies pay Twitter to promote their accounts. These accounts appear at the top of the list when Twitter gives suggestions to users. Promoted accounts help Twitter receive money on a pay-per-click basis. Twitter receives money each time someone clicks on these accounts regardless of whether they follow the account or not.

• Twitter trends become very popular on social media. They are followed by millions of people. This is why companies are always on the lookout to take advantage of these trends. Whenever companies witness the rise of a certain trend, they contact Twitter to promote their products by associating them with the trend in some manner.

• Twitter also helps companies and political parties shape opinions. This is because they provide a promoted tweet story wherein Twitter charges money from its users in order to ensure a higher degree of popularity to its users.

• Apart from advertising, data licensing is another important source of revenue for Twitter. Right now, it only accounts for a minuscule portion of the overall revenue. However, it is expected to increase at a rapid speed in the forthcoming years.

• Twitter has more than 200 million active users. Twitter generates data about their daily user activity. Twitter then shares this data with other companies in return for a fee. Twitter sells APIs to other companies which allows them to query Twitter’s database to uncover past and present trends. Subscribers have access to real-time analytics and dashboards created by Twitter. This helps them better take advantage of trends by creating and running campaigns both on and off Twitter.

• Twitter has also decided to enter the mobile applications space. It is creating a platform called MoPub which is still in the early stages. However, Twitter has been able to monetize MoPub to augment its revenues. This platform is expected to be a big source of revenue for Twitter in the forthcoming years.

The bottom line is that the business model of Twitter is quite different as compared to other social media companies. Also, the target market and monetization techniques used by Twitter are very different.