A series of recent moves by Twitter suggests the micro-blogging service is running into trouble with its business model. As columnist Ben Kunz writes in BusinessWeek, when Twitter launched in Japan in April, users saw a banner ad across their home pages. On Aug. 7, the company limited the number of people a single user in the United States could connect with, to about 2,000. And on Aug. 14, Twitter tried to cut costs further by killing outbound message delivery to mobile phones via short messages, in all countries except the United States, Canada and India.
Investors and marketers have been agog over Twitter’s potential to wring revenue from millions of users, Kunz writes, “But the optimists better brace for disappointment.”
He sees four potential ways for Twitter to generate cash, but each has its limits. The service could ask users to pay — a difficult proposition since it’s already been established as free. Twitter could sell messages as product placements, but users would rebel. The company might mine market-research data from the intimate thoughts millions share through their Twitter “tweets,” but privacy concerns could quickly alienate users. Twitter’s most viable option for making money, Kunz says, is to sell ads around the world as it has in Japan — but even that potential is modest.
“It seems social media users are too busy being social to pay much attention to ads,” he writes. As poor results move ad budgets to other, more responsive media, “The social media value bubble will be pricked by reality.” —
This originally appeared in PRSA's Tactics and The Strategist Online and was written by Greg Beaubien.