For the first few months I did my best to avoid writing a business model. Having limited time, I had to choose between writing presentations to writing code and code is much more fun (I am a geek). But eventually I spent a few weeks coming up with a model using a very fancy Excel spreadsheet. More than anything else, the model showed that making money from a micro-blogging platform is not a trivial task. Unlike most new Web 2.0 services, micro-blogging (when successful) does not scale like a web site. It is a messaging platform and as such is a very different beast. I have since transitioned to a very different model, but the original plan was a valuable exercise.
There are 2 main consumer-facing business models: membership fees and advertisements. Fees are nice if you can pull it off, but I doubt anyone is going to see a revenue stream from micro-blogging service fees anytime soon (Pownce offers bigger files for a fee). If one does it, the others will give it for free. This might change when the competitors have many users to afford giving something for free but then again, you can always count on Google to step in and offer even more for much less. The problem with advertisements is simple – micro-blogging is not web-centric. Most of the time, people use it on other connected devices such as mobile phones, PDA’s, or their instant messaging client.
Looking at the slow decline in Twitter’s Alexa rating might imply that the initial excitement is fading but I disagree. I think Twitter is seeing more activity every day but not the kind Alexa can measure. Not only that it’s being used on devices Alexa does not have an add-on for, it is being used through other web sites and tools. There is a lot Twitter can do to bring more hits to their site, but eventually it’s not the idea behind micro-blogging. Real-time content has to be delivered to you where you are, not just on the web.
Looking at the spreadsheet shows how big a liability SMS is. While many vendors have some form of unlimited plans for companies to text users, it is still expensive (in the range of $10,000-20,000 a month for US carriers alone). T-Mobile used to offer plans where you pay for the first 3 million messages, and then they start paying you back, but that is not the norm. For most startup using SMS gateways, the cost is about 0.5-1c a message. This is why most use the free email gateways instead (if you go to a site that asks you to choose from a short list of mobile operators, they are most likely using the free email approach) – even Microsoft for their Live Alerts service.
What is missing, and something the bright minds at Google are sure to be hard at work on, is an ad model for micro-blogging. Free web email services such as Yahoo and Hotmail have been adding a 1-2 line banner to the bottom of every email sent, but this is still not a real model. The fact that they only advertise their own services is proof to its limits success. There is no reason why every other instant message can’t contain a small link to a potentially relevant advertisement. Same with email and SMS. The trick is to do it in a way that is not too annoying – many people like Google’s text ads and most don’t mind them.
Mobile devices and SMS are the (current) holy grail of advertisement revenues, but given the limited technology SMS is based on, it is hard to adapt the click-through model. Without clear statistics about how many users click on an ad, it is hard to build a valuable service. Email (on most platforms) and IM should be much easier and can offer a lot of different approaches. My prediction is that sometime in the near future, Google will come out with a product that will allow micro-blogging sites to become overnight money-makers: an AdSense solution for real-time content delivery that can fit on a text message.
But for now, we wait.