Facebook and Twitter do not have subscription pricing, but could these social media giants benefit from the subscription revenue model? We collected data from over 18k users which suggests that subscriptions could help resolve some of the current problems pitting users against advertisers.Read More
A Twitter subscription?
Patrick Campbell Jan 7 2021
This week we're talking about the good, the bad, and the ugly of social network, Twitter. I think it's been great for the world and democracy in many aspects. But it's also been absolutely terrible for mental health. But the way that Twitter makes money, because it never reached Facebook's or YouTube's level of engagement and size, has been the ad model. And unfortunately the ad model is toxic in a number of ways when you don't have that large of a following.
So, on this episode we're going to be going through a ton of data and a bunch of lessons on what Twitter is doing really, really well and some of the things they're doing really, really poorly right now. We're going to wrap that all into a nice little case study so that you can get your software monetization strategy right.
Pricing field notes
The subscription business model has never been more popular, and more and more industries are turning to subscriptions for their monetization strategies. One particular company that is set up to benefit substantially from the subscription model is Twitter. So, we're going to be exploring an alternative revenue model for Twitter, that being the world of subscriptions, doing some sort of recurring revenue bundle, especially in reference to the privacy concerns and ads, and still keep the free-for-all that it's had within the context of other social media websites.
Below are some valuable takeaways you can implement in your own business.
- Willingness to pay helps determine feasibility.
- Gather data, analyze it, and understand it to determine if you should explore something further. (In this case, the subscription model.)
- Segment willingness to pay based on value props to analyze viability.
- Segment from an audience and feature preference perspective.
- Value propositions should be tight, focused, and ultimately, customer based.
- Look for the value prop with the highest willingness to pay—differentiate yourself so people understand how to compare you to other companies in your space.
- Dig deep on feature matrices to build bundles.
- Add-ons are one of the most underutilized instruments for monetization in a recurring revenue business. Know how to monetize them through better bundling analysis.
- Reconsider what you're bundling into your tiers vs. what should be sold to the entire user base.
- The proper feature add-ons will increase expansion revenue.
- Willingness to pay helps determine feasibility.
Watch the full episode
Founded in 2006, Twitter made micro-blogging mainstream and now boasts 330 million monthly active users, half of which are active daily. Twitter’s influence goes far beyond numbers though as it’s been used to disseminate and start revolutions, as well as entertain with dank memes. And, you likely don’t know the true Twitter founding story though.
Twitter actually started with an entrepreneur named Noah Glass, who’s name is noticeably absent from the company’s history. Glass initially started a product called Odeo where you could call a phone number and turn your message into an MP3 file hosted on the internet, which morphed into a podcasting platform.
The project would later move into Ev William’s apartment who was an early investor in Odeo and later became the company’s CEO. When Apple launched iTunes in 2005 though, Odeo’s growth basically halted, so the group looked for another project.
This is where Jack Dorsey enters the story with an idea for a social network made up only of a person’s status. Glass jumped on board - including coming up with the name Twitter - and developed the concept further along with developer Florian Webber. Williams was skeptical about the idea, but let Glass keep going leading the project.
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In 2006 everything shifted quickly with Williams buying out a controlling stake in Odeo, firing Glass for reasons that seem to vary and are unclear, and then spinning Twitter out into it’s own company with Dorsey as CEO, which led to the Twitter we all know and love.
Glass’s name essentially vanished from Twitter lore, even though his twitter bio cheekily references his involvement. To be fair, Williams has also acknowledged on Twitter that Glass never got enough credit for twitter (show tweet, “it’s true that @Noah never got enough credit for his early role at Twitter.”)
Twitter's success stems from influence and accessibility. Businesses and consumers find it easier to chat and spread information through Twitter vs. traditional channels and with 330 million monthly users, half of which are active daily, Twitter's a lucrative platform. Especially when you consider over 90% of journalists and 83% of world leaders use Twitter—yes, including President Trump.
Twitter hasn't been able to monetize this influence and accessibility though. They didn't turn a profit until 2017, 12 years after its founding. To add insult to injury, user and revenue growth has stalled even though Twitter has never been more relevant in our society. Critics believe that Twitter is essentially the perfect example of how the ad model has become ineffective and old school.
Oh, and did we mention that Jack Dorsey is still CEO while also being the CEO of another public company—Square. It's impressive, but considering Twitter is struggling, this move has opened up Dorsey and Twitter to even more criticism.
The question becomes: Can Twitter use innovation to get beyond the ad model and take advantage of their relevance in our world, especially when Facebook and other social media platforms are able to monetize their traffic at almost triple the rate of Twitter? It seems it’s time for a revolution when it comes to Twitter, so we’re going to answer this question by collecting data from 10, 542 current and prospective Twitter customers who would be interested in a Twitter subscription. Read on to get the data and answers to all these questions.
The wrong revenue model
I know everyone thinks the Trump/Twitter thing is terrible, but I think there's a lot of value to be had on Twitter. What's really been troubling for me, and this is purely from a business perspective and it's a little bit crude to think about, is that one of Twitter's real crimes here is that their stock price really hasn't done much even though they have inundated the entire world of culture and media so much since Trump started running for office. Revenue has definitely been in a decent place once Trump actually became president, but the revenue model is so ad-driven that the focus that they're getting in terms of Trump, is not really monetizing traffic as much.
You saw this with YouTube and Facebook where they had not so kid-friendly and not so brand-friendly content. They couldn't really monetize it because the big brands that were spending a lot of the money and they wanted to make sure that their stuff wasn't being shown next to crude content or those types of things. And I was surprised at how much money Twitter actually makes per user, per year. It's about $25 per user, per year—basically nothing. Facebook is making, I think, $7.50 per user per quarter, but they have so many more users than Twitter. So it's one of those things where Twitter is literally using the wrong revenue model, but it's one of the worst revenue models when it comes to what they're trying to do and ultimately, what people actually get out of Twitter.
So, we're going to walk through how we would actually build a subscription for Twitter and validate just an idea in general. I think a lot of times, especially in B2B businesses, people want to go up market, or downmarket, or everything in between, but don't know where to start. So I think this is a good example to not only show that Twitter has a viable option for a subscription, but also what some of the things that should be in it are.
Where does our data come from?
Here at ProfitWell, our Price Intelligently software combines proprietary algorithms and methodologies with a team of pricing experts who think about this stuff more than anyone else to help companies optimize their monetization strategy. We do this by going out into the market and collecting data from current and prospective customers, having the ability to collect data from everyone, from a soccer mom or dad in the middle of Kansas, all the way to a fortune 500 CIO in South Africa. We then take that data and run it through our algorithms and analyze it in every direction to determine a company's ideal customer profiles, as well as which segments value, which features and which segments are willing to pay more, all in the spirit of determining how a company can use monetization for growth.
Twitter's data and analysis
Willingness to pay helps determine feasibility
We collected data on what the willingness to pay for a Twitter subscription would be. We did this in a very general or vague sense. Let's say Twitter all of a sudden had a subscription with a bunch of cool features and premiums. We just wanted a baseline of what that willingness to pay would look like, and then we want to understand what that data is so that we can see if this something to even consider depending how many users want to sign up for it. And we collected this both on a personal level, but also on a business level because a business could have a really interesting premium account that could tap into kind of the Sprout Social or the Buffer world. But on the personal side, this is where it was kind of out of control.
For a personal Twitter subscription with a household income less than $75,000 a year, the willingness to pay is still around $40. Not everyone is going to sign up for that, as that's not going to be the need for a subscription business, but when you have over 300 million users and you get a million people to sign up for something, that's potentially a $100 million-plus business line that is not only guaranteed and compounds, but also allows Twitter to have some optionality in the context of the ad model, which isn't bad necessarily, but has some misaligned incentives and some tweaking could make Twitter a better business. Now, it gets really interesting when you get into the $75k folks up to $150k and those making over $150k as a household. All of a sudden, you're basically looking at the $75k to $150k folks, they're upper echelon here is $100—and this is not per year, this is per month. And for the over $150k folks, it's also $100.
So you're noticing that there's this little bit of movement here, right around that $100 per month range. And I think that Twitter is kind of the Apple of the social media networks. On the personal side here, you have an interesting range where you could charge $99 per month at the high end of this range. And with 330 million users, a million of them sign up and things are great.
It also gets interesting when we look at the data on the business side. And to be super clear, we're just measuring feasibility. We didn't describe specifics. But folks making less than a million a year are willing to pay about $50 a month for a premium type of product.
And then those folks making over a million, you're looking at a range of one to 1,000 bucks, and there's a high variance here. Folks in the DTC space making over a million to 10 million, their willingness to pay was definitely much, much higher. And then all of a sudden you get over 10 million where you have legit marketing teams, and you're more than willing to pay for premium tiers, especially Twitter.
Segment willingness to pay based on value props
Next up, segment willingness to pay based on value props in order to analyze viability. In general, there is definitely an opportunity here for a Twitter subscription, one hundred percent. Sometimes we test this for products that are on ad-driven models and it's like $1 to $5 per month. That's just not going to move the needle unless you have a ton of users. And if you have that many users, maybe you just do an ad model. You probably should just do both.
But what we want to do now is we want to look at like is the value proposition or the feature that someone is looking for, and how it correlates with willingness to pay. This whole concept of automated follower boosting was basically really high variance. And they already have the subscription. I believe it's like a hundred bucks per month. And I believe what they do is they basically take your tweets and then they just kind of use remnant inventory. So, the inventory they can't sell, they basically will fill it with your tweets. Then that hopefully gets enough use, which then gets enough people to follow. I have not looked into whether this is working at all, I just know that occasionally I'll tweet something and then someone will be like, "Why is this a promoted tweet," and someone who doesn't follow me will respond.
What you'll notice though, is that there's enough batch of those folks who are willing to pay much, much more. And these are the folks definitely willing to pay $100 per month, kind of like the subscription that they already have, but really it's an ad subscription more than anything. Something else that's really interesting is this whole concept of ad-free or privacy. I don't think Twitter wants to position itself as a privacy-like platform. I think Twitter wants to shy away from that because they don't want to be like, "Oh, if you're not on this, the rest of the platform isn't private." Although I think that they could really boldly go out and say, "Hey, if you want your data locked up and everything, you're going to have to pay us, $50 a month, $100 a month." But they could say an ad-free experience, which is kind of a proxy. And some of their value props into that ad-free experience could be around privacy.
I don't know if I would pay for that personally, but people are willing to pay more for verification, which is like just Hypebeast, Checknote type stuff. I don't think Twitter has an excuse. I think that they're just so ad-brained out because that's the environment that they grew up in, that this whole recurring revenue concept was just for B2B companies. And I think that they've seen time and time again, especially with dating apps, that you can have a premium subscription in addition to the ad-driven model to be successful and to hedge your growth.
The value matrix
You're about to see something called a value matrix. Here, we collected data from the group comparing feature preferences and plotted those on the horizontal axis. More valued features on the right ,less valued on the left. We then collected willingness to pay for the overall product and plotted that based on their number-one feature preference on the y-axis. Analyzing data in this manner allows us to determine which features are differentiable ad-ons, core, or commoditized for each segment.
Dig deep on feature matrices
Next up, dig deep on feature matrices to build bundles. We're back on the B2B side looking at some of the features that actually moved the needle for this proposed subscription. And you can see automated audience building, again, something that's really resonating with potential users here. It makes a ton of sense—people get on Twitter and want to build their audience. They want to utilize that audience.
I was really heartened by the audience curation piece of this. So it's not just building more audience. Think of Wendy's or some of these brands that just do really, really well on Twitter. These brands are probably the ones you don't need this for, but then the next brands down who want to be the Wendy's, there's no reason you can't put a paywall up there and be a community aspect. Page customization, branding, these types of things, they showed up basically in what we call "trash land," or at least we call that from a marketing perspective. When people work with us, we call it something else. But these things just don't move the needle for folks. It's just one of those things I really think about.
I think the thing you have to take away for your business is that you have so many features and functionalities that you can offer, so you have to make sure that you're understanding which features are going to be value drivers and which features should probably be out, in order to understand how you should monetize. Ad-ons are one of the most underutilized aspects. And when you have a fragmented user base like Twitter, they might not go after the B2B play here, they might go after the consumer play, or they can do these parallel paths to kind of hedge that ad revenue that they have. It's just breaks my heart because they absolutely should be thinking this way and it would make their stock price just so much better.
- Willingness to pay data helps determine feasibility.
It's really easy to collect, you know, generic feedback, kind of Monday morning quarterbacking of what Twitter should do or what a company should do. Get some data, go send it out, get that data back, crunch it, and it'll tell you, if it's something you should pursue.
- Segment willingness to pay based on value propositions to analyze viability.
Once you know it's feasible, then it's like, well, how do I make sure that I take advantage of this feasibility? And that's where you need to segment things out, not only from an audience perspective, but also from a feature preference perspective
- Dig deep on feature matrices to build value.
Add-ons are one of the most underutilized instruments for monetization in any subscription or recurring revenue business. You should be reconsidering what you're bundling into your tiers versus what should be brought out and sold to the entire user base as an actual album.
Who's up next?
Next week we have a fun one. We have a business that essentially took advantage of the entire downfall of an industry to be successful. And I don't know if they did that intentionally, but I definitely hit the rave at the right time, and that is Spotify. We're going to be exploring how Spotify took advantage of the Napster generation to do some things very, very well with their pricing, and then very, very poorly with their pricing. And we're going to wrap all that up into a nice little case study so that everyone can learn about their monetization and get their monetization path moving in the right direction.
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If you want help with this type of pricing research for your company, feel free to email me at firstname.lastname@example.org or email@example.com, and we'll make sure you get hooked up with the right people to make sure you're focused getting your monetization right.
This is a ProfitWell Recur production—the first media network dedicated entirely to the SaaS and subscription space.
By Patrick Campbell
Founder & CEO of ProfitWell, the software for helping subscription companies with their monetization and retention strategies, as well as providing free turnkey subscription financial metrics for over 20,000 companies. Prior to ProfitWell Patrick led Strategic Initiatives for Boston-based Gemvara and was an Economist at Google and the US Intelligence community.
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