Dick Costolo’s recent departure as Twitter’s CEO was not surprising.
Twitter’s revenue growth is failing to meet expectations, which is a problem exacerbated by its status as a publicly traded company. Twitter needs to meet the expectations of investors and Wall St. analysts.
One of the biggest lessons from the company’s financial struggles is the challenge of evolving a free service into a revenue-generating business.
Free is a wonderful concept when you are looking to attract lots of users, but there is no guarantee these people will turn into customers. Unless a company comes up with attractive options that generate revenue, most people are content to stay with the free service.
There are many ways to analyze Twitter’s financial struggles, but it fundamentally comes down to a lack of creativity.
As one of the world’s largest social media networks, Twitter had many opportunities to develop premium services and features.
It could have become a powerful recruiting tool. It could have offered analytics packages to companies, sold an ad-free version for a few dollars a month, or provided tools to empower users.
Instead, Twitter has mostly relied on promoted tweets (aka advertising). One of the problems is the inclusion of advertising takes away from Twitter’s appeal. Many users view advertising as an intrusion, not as content that adds value, which explains why Twitter posts large losses.
The challenge for Jack Dorsey, Twitter’s new CEO, is developing new revenue sources that capitalize on Twitter’s popularity and the vast amounts of data being generated. This data has significant revenue potential if it can be packaged and sold in the right ways to different kinds of customers.
There is no lack of business models that Twitter can embrace to drive more revenue. Many businesses have evolved from free to fee by gradually rolling out new services that deliver value to customers.
Dropbox is a good example of how a business can unfold. Dropbox started a free service, which capped users at 2GB of data storage. If people wanted more or exceeded their data limit, they could upgrade. Dropbox has expanded its portfolio to include Dropbox Pro and Dropbox for Business. These services offer more storage and handle more users.
Freshbooks is another example of B2B startup that evolving its fee-based services over time. When it started, Freshbooks had a free service that let you send a limited number of invoices. Now, it offers different tiers based on the number of invoices and add-ons such as unbranded emails, automatic export imports, and team expense reporting.
In many ways, the evolution to fee from free is about delivering value and options. There will be consumers willing to pay for more: more features, more data and more access. These are people who believe in your product and are willing to pay to get more out of it.
For all of Twitter’s success, it has been a service that has stayed the same since it started in 2005. While it has attracted more than 270 million users, it is a still a one-trick pony when it comes to making money.
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