Twitter’s difficult equation for achieving profitability without advertising revenue
The arrival of Elon Musk put Twitter in a critical financial situation. Faced with the exodus of advertisers, the platform is forced to reconsider its economic model.
Elon Musk wants to diversify Twitter’s revenue streams beyond advertising, but no major social network has yet done without advertisers.
Jasmine Enberg of Insider Intelligence notes that “Facebook has completely simplified the economic model”: the free service is paid for by the sale of advertising space.
A situation that turned into a disaster
This model has proven particularly profitable for Meta (Facebook, Instagram) and Google (search engine, YouTube), which can fine-tune ads on a massive scale. But the analyst is annoyed that “it is not the only way”.
Faced with budget cuts for advertisers affected by inflation and increased regulation of personal data collection, “all platforms are exploring other methods.”
The situation was particularly difficult for Twitter, which depends on advertising for 90% of its turnover, but which can make advertisers more easily than its neighbors. It turned disastrous after it was taken over by Tesla’s boss in late October.
According to the NGO Media Matters, half of Twitter’s top 100 advertisers have announced that they have stopped or “appear to have stopped” their spending on the social network. They fear the support of increasingly toxic content as the new owner, a big fan of provocation, advocates more moderation.
Sara Roberts, a social networking expert at UCLA University, notes that Elon Musk “didn’t understand that Twitter was a brand in itself. The platform had cachet. Now companies don’t want to be associated with it anymore.”
A subscription of eight dollars a month
Platforms are testing two types of solutions: uploading users and/or content creators. Reddit, a forum platform, has a hybrid model with tokens that provide access to advertising, paid subscriptions, and perks.
But “asking for money for something that’s free is always complicated,” sums up Creative Strategies’ Carolina Milanesi, “unless you’re bringing something new.”
Twitter has been offering paid subscriptions for additional features since last year. Elon Musk wanted to raise the price to $8 a month—the equivalent of the cheapest deals for Disney+ and Netflix—and include account authentication. But the partial launch was chaotic and caused so many fake accounts that it was delayed indefinitely.
“The idea itself isn’t bad, but it just didn’t hit the right price point,” says Yasemin Enberg.
“The benefits may not be attractive enough to get enough people to sign up. And account verification is to ensure the integrity of conversations, it shouldn’t be a charge.”
He believes that Blue Verified subscribers – arguably the network’s most active users – will account for half of the ad exposure, which will “reduce the quality and size of the audience” for advertisers.
Attract and keep an audience
Newer platforms try to do without advertising at all, with no guarantee of long-term profitability. In Discord, a social network for live discussions, users can subscribe specifically to gain access to more emotes. According to the Financial Times, the highly successful startup BeReal is also hoping to avoid brands with in-app purchases.
As of June, Twitter has 230 million daily active users. Elon Musk continues to congratulate himself on the increase in the number of users since his leadership. But it will not necessarily translate into dollars.
Snapchat, which also launched a paid version of its app in June, has more and more users, and they’re paying less and less.
Faced with this reality, platforms are competing for the benefit of content creators, to attract and retain audiences, and to earn a commission on their revenue or pay them to promote their messages and videos.
“This is a great opportunity for Twitter, which has many celebrities, political figures and journalists, with whom the company can cooperate effectively for both sides,” notes Jasmine Enberg.
The Tweet network already offers promotional tools, but they are “expensive and not very effective,” judges Carolina Milanesi.
Following the same principle as Apple and Google’s smartphone app stores, taking a percentage of revenue, you should be able to justify those commissions by investing in “services that really create value,” he insists.