Newfangled #29: Does Twitter have the Dreaded Shrinks?
This title will only make sense if you've read Roald Dahl's The Twits. On what Musk can teach us about product development.
It’s only a few months since I wrote about why Elon Musk was like my Dad (sorry, Dad) on the topic of working from home.
Today’s newsletter was prompted by Ewen’s post on LinkedIn about Twitter, reminding us
‘If you’re not paying for it, you are the product, not the customer.’
I am going to attempt to pick apart the new owner of Twitter’s actions through the lens of received wisdom about testing product-market fit and product-led growth.
What are Twitter’s Sources of Revenue?
Twitter generates approx. $5 billion in revenue in 20211
Selling advertising - $4.5bn
Data licensing - $0.5bn
The advertising revenue is heavily skewed towards the US (56%), even though the US accounts for only 17% of the user base.
The advertising takes the form of promoted tweets, promoted accounts, or promoted trending topics (and no I don’t have stats on how much of that is #crypto).
What strategies might there be?
Let’s pretend we are interviewing for a strategy consultancy, and prod the following:
Grow ad revenue
Grow other sources of revenue
Let’s set aside cost-cutting as a route to profitability, as you won’t know what to cut unless you have a strategy, although there are suggestions that the company’s cost base is too high.
Growing Ad Revenue
Is further growth in the user base possible? Maybe, maybe not.
Twitter is certainly catering to a smaller niche than other social media platforms and to an extent has tended to be interest-led rather than social-led. The people you follow on Twitter are not your ‘friends’ in the way they might be on Facebook. Would a bigger audience of users increase the desirability to advertisers? Or tap into a bigger market of small-enterprise advertisers (product-led growth)?
Outside the USA, it looks like the ad market is under-served compared to the user base. Why is that?
One headwind to ad revenue is that would-be advertisers perceive a reputational risk to their brands. No one wants their shampoo ad to show up next to some hate speech or misinformation.
The answer: content moderation and/or changing the way that posts are given ‘reach’ and virality. Or to paraphrase - make Twitter a less ugly place:
“A person who has good thoughts cannot ever be ugly. You can have a wonky nose and a crooked mouth and a double chin and stick-out teeth, but if you have good thoughts they will shine out of your face like sunbeams and you will always look lovely.”
― Roald Dahl, The Twits2
Musk has vowed to install a content moderation board similar to the one at Meta, although some commentators suggest that outsourcing this isn’t working so well for Zuck. 3 And some of Musk's own tweets have been sharing conspiracy theories.
Understanding customer needs is key. The customers here are advertisers. But Elon has an unconventional approach to user research, using Twitter as his primary tool.
Note: I’m posting as an image, in case the original tweet disappears!
This poll doesn’t meet the criteria of a well-constructed questionnaire - the user research/ UX communities I have worked with would have a fit if this was proposed as an experiment.
‘Advertisers should support’ is such a strange sentence starter. And it isn’t targeted at the audience of advertisers for whom conventional marketing wisdom is ‘Advertisers should support channels with the best return on their spend.’
Perhaps this is a pitch to some new sources of ad revenue? But it does seem to threaten that $4.5bn of existing revenue.
Since Musk’s acquisition, a global media network has suggested its clients (CocaCola, Spotify, J&J, Amex …) temporarily pause media on Twitter.
Hmm. Where is that ‘customer success’ team when you need them?
Growing Other Sources of Revenue
Data licensing - so far no conversation at all about growing this - let’s leave that aside as it is complex, technical and has lots of data privacy questions wrapped up in it.
Instead, let’s turn to new sources of revenue, which so far seem to be concentrated around building a revenue stream from the users.
Musk has been testing the idea of ‘verified’ users paying for the privilege. There has been a lot of talk of blue ticks. I’ll refer to it as a blue tick but if you look closely, it’s a white tick on a blue background!
This was introduced to combat misinformation and accounts claiming to be someone else, although it has a clunky workflow behind it.
Musk floated the idea at $20 a month and then reduced it to $8 a month after this ‘negotitation’ with author Stephen King.
Conventional wisdom would say to do an A/B test. But no, why not negotiate over $12 per month with someone with an estimated net worth of $500 million? Makes total sense!
There are 300 - 400 thousand users with blue ticks. Let’s say 400 000 to be generous. This is a revenue stream of just under $40 million. So, less than 1% of current revenues.
Is the juice worth the squeeze? Most business leaders would say not. Especially as there is a hint that some of this money would be passed on to creators on the platform.
So, even if you are paying your $8, it’s dwarfed by the ad revenue and the user is still the product.
That’s not to say that membership or subscription isn’t a valid opportunity to pursue. But in product-led growth (think companies like Slack or Dropbox), the product needs to provide value before capturing value. And there is very little proposed that provides more value to the user here.
What next?
Who knows? But users don’t always behave the way you want or expect them to, even if you are a billionaire.
The Round-Up
What we’ve been watching?
Aftershock - a documentary about the 2015 Nepal Earthquake - sensitively done and moving.
What we’ve been reading?
The first time I met Katy Brent was on a video call during the pandemic, she had just secured her publishing contract. And here’s her book: How to Kill Men and Get Away With It. Dark and funny and strangely categorised by Amazon under Self-Help.
What we’ve been enjoying?
Rita MacGrath’s Discovery Driven leadership course on LinkedIn Learning. Worth an hour of your time. It should be mandatory for senior leaders sponsoring innovation programmes!
Until next time!
I had to shoehorn this quote in somewhere!
"I’ll refer to it as a blue tick but if you look closely, it’s a white tick on a blue background" - Interestingly it depends on whether you've got Dark Mode enabled or not - without dark mode, it's a white tick in a blue shape; with dark mode, it's a blue tick in a white shape (on the iOS app anyway).
Nothing to add to the actual content other than I like it and thanks for the credit 👍