Will Twitter's New Promoted Accounts Make Their Business Model Work?
Twitter CEO Dick Costolo caused a stir this week at the IAB Mixx Ad Industory conference in New York when he described "Promoted Accounts," a sponsored placement in the To Follow list that will put businesses at the top of a user's recommended follows list -- for a price.
Of course, just like Google Ad words, customized Facebook ads and Promoted Tweets and trends, all the Promoted Accounts that appear in a user's To Follow list will be algorithmically determined.
This summer, Twitter introduced its first coupon feed @earlybird, (which has 224,758 followers); that feed hasn't been updated in a week, and according to Costolo, will be phased out as Twitter puts this new ad platform in place (along with the @newtwitter redesign).
What's interesting about this is that Twitter is basically placing a high value on introducing brands into the network of social media relationships that have become so core to all of us. Rather than deliver specific offers, as @earlybird did, Promoted Accounts will offer brands the chance to buy access to potential customers and "friends."
So, here's the question? Is this a business model? And can it scale? According to an article in the Wall Street Journal, Twitter's Promoted Tweets are selling for over $100,000 per placement -- and more than 30 big name brands -- including Coca-Cola Co., Virgin America and Starbucks Corp -- are testing the service.
Let's pretend that there were 100 advertisers worldwide who were willing to pay $100,000 rate card per month for Promoted Tweets. This service would be appealing for sports franchises, big budget movies and other short-term, big splash marketing campaigns that needed to blanket a message. With those clients, Twitter could make $10M on that service per month. Though, truth is, they'd probably make more like $5.7M because of discounts off the card. That could be a nice $68.7M per year -- enough to pay salaries and server costs with more left over -- but not a Google or even Yahoo!-sized revenue pie.
How about if you add in this new Promoted Accounts feature? This service, one presumes, would be appealing to a different set of businesses -- brands that were trying to build relationships that would keep customers purchasing and using their good and services. Say, consumer packaged goods, cars, airlines, pharma, etc.
A much bigger playing field. And say, just to be fair, that the tariff on these accounts, since there can be so many more promoted, is based on a charge per user -- you pay for the users that your service is displayed to, based on the algorithm. In other words, pretend each user is worth, oh, $25, and a brand can buy exposure to 10,000 users for $25,000.
Is that a good ad model? Is it an ad model that can wean people away from Google AdWords and big brand campaigns? Maybe. Maybe not.
Best case, 5,000 brands in the US want to reach consumers every month, and Twitter is raking in $1.25M at any given moment, giving them annual revenues from this program upwards of $68M a year, maybe even $125M.
But… will those business cases work?
Will businesses pay now -- and continue to pay later -- for Twitter to be the intermediary in relationship development between customers and brands? Twitter is clearly under intense pressure to create some whiz-bang ways to make money and build a business model -- but is this it?
I am not convinced. Nevertheless, it's going to be fun to watch and find out.
Photo Credit: Rosaura Ochoa.