Hey Elon! Here’s How to (Finally) Make Twitter Profitable
And Solve the Political & Content Moderation Issues Too!
This is an idea I’ve borrowed from Ben Thompson at Stratechery, but it’s such a good one that it bears repeating, in the hopes that it might spread.
Twitter on Deathwatch
Even before Elon’s ill-fated buyout offer, Twitter was besieged on all sides. From its inability to stop losing money to perennial content moderation issues to finally becoming embroiled in politics with the Donald Trump debacle and accusations of bias in their sorting algorithm.
In the short time since going private under Musk, things have only grown worse, suffering staffing chaos, an advertiser exodus, data breaches, and an uptick in hate speech. This has led some to declare a Twitter deathwatch. Indeed the situation seems pretty hopeless. Is there a way out?
Own the Pipes
Despite its recent tribulations, Twitter still occupies a central role in the information ecosystem. Companies, celebrities, and politicians will use it to communicate directly with followers, often bypassing the traditional press release. Journalists turn to Twitter for breaking stories and primary research. If a story or topic is trending on Twitter, chances are it will soon be trending everywhere.
With such an enviable position atop the social-data pyramid, why is Twitter unable to cruise its way to robust profits, quarter after quarter?
Because, in addition to being a “distributor” (operating the means for tweets to propagate) it has also taken on the role of “retailer”: trying to attract and retain audiences in the war for attention, tune its sorting algorithm for maximal engagement, and police content, waging war on trolls and bots and spam and EULA violators. These tasks are tremendously difficult, and belong to an entirely different business model.
So…make them a separate business!
Twitter should:
- Get out of the app (hence ad) business altogether.
- Allow third-party clients access to its API and plug into its tweet servers.
- Charge a fee for access.
- Sell or licence its anonymized data (breaking stories, virality, engagement trends, social graph analysis, etc.) to third-parties for research and forecasting purposes.*
Basically, Twitter should narrow its focus to building and operating the technology which parses and distributes tweets. They would own the tweet protocols, the servers where the raw tweets and user actions are stored, and the API which allows third-party clients to interact with said tweets.
How end users then view and interact with said tweets would be left entirely up to whatever various apps choose to plug into the Twitter API.
This way, the whole challenge of how to grow, retain, and monetize an audience is crowdsourced to an ecosystem of startups.
The problem of content moderation and political bias is also outsourced, and effectively solved through diversification: There can be right-leaning twitter apps; left-leaning twitter apps; apps with strict content moderation; free-for-all apps with zero content moderation; apps which cater to specific languages; apps which comply with particular governmental regimes, and so on. Instead of one sorting algorithm, one app interface, there would be many; yet they would all feed back into the central (big-T) Twitter servers - both data and access fees.
Twitter Inc. would be off the hook.
Furthermore, functions of twitter might even become embedded or integrated with other large social platforms, only further expanding its network externalities and social graph, thus further increasing the value of its data.
Twitter would, in essence, become a utility, operating behind the scenes. Though instead of water or electricity, its commodity would be tweets (and socially-graphed data); its infrastructure: the servers and and the API.
Twitter would, in essence, become a utility.
In fact, it is arguably this social graph which is their biggest asset, as this is the moat around their business which is the most difficult for a direct competitor to replicate. It is also the thing which can be mined for valuable analytics, which Twitter can then sell to third-parties for research and forecasting purposes, *as they already presently do. However, the value of this data will increase as Twitter’s “pipes” become even more ubiquitous, reach new audiences, and capture more online interactions.
True, a utility version of Twitter would be smaller than the current consumer-facing version. 2021 advertising revenue was $4.5B versus $570M from data licensing. But its costs would be much lower, and it would free itself from the political and public-relations quagmire to become, once again, a tech company focused on technology.
Moreover, no value would be lost from a shareholder perspective as Twitter the app would be spun out into a new entity, with shareholders receiving equity in the new company.
In fact, over the long term, total ad revenue may eventually be bigger than today as the Twitter utility would be collecting a cut of ad revenue from a multitude of competing or specialized apps, rather than just one.
Back to the Future
Those old enough to remember will note that Twitter actually did operate this way, allowing third-party clients to plug into the twitterverse, fostering diversity and innovation in twitter user-interfaces, until they started choking off access in 2018 to make the official Twitter app the one app to rule them all.
All this means for our thesis however, is that our proposed solution is technically feasible and possible to implement.
The Sad Truth
The business model proposed here is tried and true. Complete vertical integration is hard to get right, and the vast majority of businesses are either suppliers, distributors, or retailers; not all three. Web services providers like Azure or AWS make more money than any of their hosted websites. Shopify makes more money than any of its merchants. PayPal made more money than any single Ebayer. As the old axiom says: the riches in the gold rush were found not in the prospecting, but in selling the shovels.
Interestingly however, Twitter under Elon seems to be taking the exact opposite tack. Maybe we should resume that deathwatch…
UPDATE: Yep. It’s official.
