Category: business

Twitternomics, the Twitter currency, and the monetization of Twitter

In my previous post, I argued that the ReTweet (RT) is the currency of Twitter. The rationale goes: When you RT, you extend or donate some of your reputation to the Twitter user who originally tweeted, and you should earn something for it, say some RT credits or possibly even some hard dollars. The service ReTweetRank, which ranks people according to how much their tweets are re-tweeted seems to follow the same line of thought:

Retweets are great indication of the originator’s topical influence and the audience’s interest.

There is a major issue with my argument though:  it’s not because I donate something to you, that it necessarily has value to you. It only does if you acknowledge so. We can assume it does since you are following the person, but that’s a quite rough estimate.

So, things are a little more complex and we have to dig a little deeper. It’s good to start with some Twitter economics or Twitternomics:

When you tweet (or re-tweet), you essentially donate to your audience a piece of information that you think has value to them. But only when your audience acknowledges your tweet’s value, you should earn something from them.

What are these acknowledgments:

  • The simplest form of acknowledgment is to spend the time to read the Tweet, but unfortunately that’s not trackable. The closest thing is to know which unique Tweets in the authenticated user’s friend timeline has been retrieved from Twitter, which is not easily trackable across all Twitter clients (except by Twitter themselves).
  • The next form of acknowledgment is to click on the link provided in the Tweet, if any. Normally these clicks would be hard to track, but since most Twitter users use URL shortening services like Tr.im, the URL indirection provides a point of tracking how many did visit the URL. One problem is that it is difficult to track who actually clicked, but this could be easily resolved if Twitter or a Twitter intermediary was rewriting all the URLs to include the username of the authenticated user.
  • The next form of acknowledgment is the ReTweet.
  • The ultimate acknowledge is to make the Tweet a favorite. I put this one at the top because it is a persistent acknowledgment, not a transient acknowledgment like the RT or the URL click. But my guess is that it is also not as used as a RT simply because they don’t drive as much traffic (who tracks your favorite Tweets? not many people).

To come back to when you earn or when you spend Twitter credits or Tweetbucks or RT$:

  • you earn a credit when someone acknowledges your Tweet. Say, 1 Twitter cent for a view, 3 Twitter cents for a click, 5 Twitter cents for a RT and 8 Twitter cents for a fave. This isn’t too far from what I mentioned in last year post How to measure someone’s Whuffie.
  • conversely, you pay 1 Twitter cent for a view, 3 Twitter cents for a click, 5 Twitter cents for a RT and 8 Twitter cents for a fave. In other words, it costs you to be nice to others (giving attention or clicking buttons and writing things takes some of your valuable time indeed).
  • The ReTweet is a special case. If @a retweets @b (“RT @b check out this link http://tr.im/3kbs”), it would make sense that any click on the link or further RT (“RT @a RT @b …”) should earn both @a and @b something. @a acts as a distribution channel and should take a share of the credits earned, say 50%.

So far, this is a zero sum game with funny money and no-one loses anything.

Just like RetweetRank, a list of the richest (in Twitter $) Twitter users could be compiled and people may start to compete for a better rank.

A simple business model might consist in providing a foreign exchange mechanism between Twitter $ and real U.S. dollars. Twitter users with positive balances would be able to offer their Twitter $ for sale, and Twitter users with negative balances would be able to offer to buy in U.S. dollars. Twitter would simply take a commission on the fee.

Of course, this isn’t incompatible with Twitter offering the possibility for users to pay for RTs rather than charge for them, as a way to provide additional incentives for users to RT.

“Please ReTweet”: RT as currency and Twitter social ad business model

There have been various discussions in 2008 about what business model Twitter should use to monetize its user base. I’m not aware of any that have considered how the Retweets (user’s re-posts of existing posts of users’ they follow) could be leveraged into a social ad platform.

Retweets are a powerful way for people to broaden the audience of their tweets beyond their immediate followers. Some people spontaneously retweet interesting tweets posted by others, but some users actually request others to retweet their posts. Every minute or so, there are several Twitter users asking their followers to “Please RT” a link they tweetted about, whether it is to promote an event, an widget, some marketing offer, or to find someone. Here are some recent examples:

DuongSheahan: It’s tonight! Christian Women Tweet Up 9pm EST Go here to register: http://bit.ly/N1uv (expand) #cwtu Please RT

RefugeesIntl: RT @deborah909 Please help me spread the word about this new widget for advocacy groups: http://tinyurl.com/9jfm96

micaela6955: Win a $50 Pet GC at http://www.consumerqueen.com/?cat=15 Please RT!

RT @shefinds: We need a NYC intern – please RT to anyone you know http://newyork.craigslist.org/mnh/wri/985342234.html

Currently, when users kindly retweet these posts as requested by their sender, they do not earn anything, soft or hard dollar. A Retweet is essentially a favor you make to someone because you can and you want. This favor might be worth a lot, considering that many Twitter users have 1000s or 10,000s of followers.

One way that Twitter users could earn something would be through a favor  bank, or in this case a Retweet bank or Tweetbank for short. The concept of favor bank is not new (I love this one in particular). Paulo Coehlo even mentioned the concept in his book The Zahir.

Here is how it would work:

  • When you retweet, you are making a favor, and you earn Tweet credits in the amount of the number of followers you have.
  • When you are retweetted, you are using a favor, and you lose Tweet credits as were earned by those retwitting your post.
  • You can’t really go bankrupt here, although you could go deeply negative if you are highly retweetted, which should encourage you to pay back by retweetting others.
  • If you are retweetted a lot, this should prompt others to follow you, which would make your RTs more valuable and make it easier for you to track your “debt”.
  • If you are in debt, and don’t want to be anymore (although it has no real consequences for you), you might be tempted to spam your followers with a lot of RTs. That would be a very bad idea actually, since it would certainly tire your followers who will surely decide to not follow you anymore, making your RTs in turn less valuable and your debt harder to repay.

This would be a nice little game with no real financial consequence for either one. But it could be pushed a step further with some users actually deciding to incentivize RTs with actual U.S. dollars.

When you consider that an ad by The Deck displayed in a Twitterific client costs roughly 5 cents (based on their December 2008 statistics/pricing), some may think they deserve a share of the advertising they provide: after all, they generally retweet if they consider that the tweet is relevant to their audience. With a 5 cent per RT, if you only have 20 followers, your RT is worth $1, $100 for 2,000 followers and $500 for 10,000. Not pocket change for many.

The way it would work is that a user willing to pay for RTs would set a max $ budget for RTs payment. Other users retweetting would earn the same credits as above but redeemed in dollars for the exchange rate of say a few cents, with Twitter taking its share as well.

A really nice plus of this model is that it would allow Twitter to monetize its user activity on any client, whether Web, Desktop, Mobile, SMS, etc.

Creating valued content people buy in a world of free

A few days ago, I bought The Future of Reputation book from Daniel Solove. I had already downloaded it for free in PDF on my computer but bought it nonetheless for $9.99 on Amazon.com

The reason, according to Kevin Kelly most excellent article Better than Free: embodiment. Embodying the book in the form of a lightweight, low-power long-lasting reading device is something I value more than the content itself.

Kevin lists 8 other qualities that makes something better than its free counterpart, and although I list them below I encourage you to read the entire article:

  • Immediacy
  • Personalization
  • Interpretation
  • Authenticity
  • Accessibility
  • Embodiment
  • Patronage
  • Findability

Financial services pay the most for prospective customers’ attention

I was encouraged this WE to look into the cost-per-click of some financial services keywords in the U.S. using Google Adwords Keyword Tool.

As of the time of this writing:

  • “video cameras” costs you an estimated $3.14 per click,
  • “buy car” costs you $4.81,
  • “wireless” and related: ~$5.00,
  • “dsl” and related: ~$6.00
  • “real estate investments”: $5.47
  • “buy computer”: ~$8.

Now get this:

  • “buying mutual funds”: $12.66, “online stock trading: $18.06
  •  “best credit card deals”: $25.94, “balance transfer credit cards”, $18.23
  • “auto insurance quotes”: $34.58, “insurance quotes: “$29.77″
  • “high yield checking account”: $17.81, “checking account rates”: $20.44
  • “mortgage refinancing”: $32.58, “home equity loans: $23.74

I know this is a very superficial research study, but there seems to be a pattern here: financial services firms are paying significantly higher than firms from consumer sectors for prospective customers’ attention.

What can we learn from it? IMO the cost per click is a function of

  • profitability of the related service offered over the average customer relationship duration, and
  • likelihood that the prospective customer who has clicked will subsequently actually buy the service online,

then my quick conclusion is that there is probably good business opportunities in online comparison services for financial services products, as well as in new financial services that leverage the Web and social networks to be cheaper and mass-market. Peer to peer lending is probably one of them.

A store for products that don’t exist yet

How do you let Apple know that you want the next release of the Mini to include a Blu Ray player and how much you’d be ready to pay for it?

What about an online store that includes some of the many product concepts designed by Apple fans such as the MacCube concept below? or a product configurator of existing products that includes features not yet available from the manufacturer but that exist as technologies or as third-party add-ons?

Seems like something identified by the VRM promoters.

Only problem: would Apple care?

Apple cube computer concept

The archetypal business platform on the Web

Having both a background in the business and engineering of software, a topic of particular interest to me is the archetype or pattern of successful Web businesses. By “business platform”, I mean the software that powers a business and what I want to talk about is what the business platform typically does at highly successful Web businesses.

Archetypes or patterns are not synonymous with recipes. Knowing the typical structure of a symphony does not make you a composer, or in the present case, knowing the archetypal business platform does not make you a billionaire. They do nonetheless help you in thinking and exchanging ideas about particular instances.

Ok, I won’t make you salivate longer. Here’s my attempt at formulating the archetypal business platform on the Web:

“Web companies make it easy for people to post information on the Web in a format that makes it easy for other interested people to discover, search and browse what is relevant to them, but more importantly in a way that they retain control over who gets to see the information and how. All that of course, 24/7, real-time and globally.”.

Let’s take a few examples:

  • YouTube made it easy for people to post videos on the Web in a format that makes it easy for other interested people to discover, search and browse what is relevant to them, but more importantly in a way that they can add commercials to the videos being watched.
  • Facebook made it easy for people to post status, pictures, messages, review, etc. in a format that makes it easy for other people to discover, search and browse those that are relevant to them (their friends’), but more importantly in a way that they can track who is interested in what and add relevant “social ads” next to the information they consume.
  • Amazon started as an online bookstore, but is quickly evolving into making it easy for book writers, audio book producers and possibly in the near future vendors of other types of digital or potentially digital goods to publish their work on the Web, in a way that makes it easy for other interested people to discover, search and browse (Kindle), and buy, but more importantly in a way that they can take a commission on the resulting purchase transaction.
  • Apple started as a hardware vendor, but it has quickly become a company involved in making easy and safe for music and movies producers (soon game producers) to market their digital goods online in a way that other people can easily listen to or watch (iPod, AppleTV, etc.), but more importantly in a way that they can take a commission on the resulting purchase transaction (iTunes).
  • etc.

Ok, I am assuming that by now I’ve convinced you, or that I got the benefit of the doubt, or at least that I formulated correctly something that has long been obvious for you (and that you can now share easily). If not, I’m happy to learn about your viewpoint and discuss.

What is now interesting to think about, is how we can take this simple tool in thinking about the future of business on the Web. I think we can make a few easy predictions:

  • Autonomous publishing software/hardware that publish information about you on their own are quite exciting, as enablers of new businesses. Example includes your location as detected by your cell phone provider, temperature/humidity data loggers (ex. temperature, humidity) used to complement existing weather sytems, 2-way navigation systems used for real-time traffic data sharing, camera that directly push pictures on the Web, etc. I think we will see more of these autonomous data publishers.
  • Publishing tools that will make it easier for people to write content in a format that can be indexed, searched, browsed by others. Here, we may finally start to move away from the online form and start to see semantic extraction technologies or semantic content editors that add unambiguous meaning (microformats in the case of text) to your content as you create it.
  • Consumption interfaces that will make it easier and entertaining for people to express what they are looking for in a way that a software can understand and find relevant items from an ever growing and diverse collection of digital goods.
  • Consumption devices that will provide the best way possible to experience a content in a given environment. That would include screen walls for digital painting, 3D printers, etc.

(Please use the comment form to submit your ideas)

Of course, last, we will see more and more of companies trying to own the whole chain on a particular type of digital good or a particular community of people, via acquisitions or partnerships. And to mirror this, more and more communities that will try to prevent companies from doing so too much and/or for too long.

Again, this archetype is not a recipe for success. In my view, the most significant pattern of success but also the most difficult to craft is community. Another one is legal innovation. More on both, hopefully, later.