All I hear about is what the value of Twitter is (hopefully) to investors. What is Twitter’s business model? How will it make money? As a business person, I really don’t care about how much Twitter’s founders and investors will make (which is no doubt a heck of a lot more than I ever will). I care about my favorite radio station – WIFM – better known as What’s in It For Me? The two questions are not unrelated. For Twitter to make money, it will almost certainly need a base of advertisers who want access to it’s audience. There may be other revenue streams that the creative minds at Twitter will conceive over time, including some form of CPM, CPC, CPA or CPL. That advertising opportunity, however, does not exist on today’s Twitter. Yet, advertisers are trying to leverage Twitter now to increase sales.
Is there a way to model the ROI from investing in a presence on Twitter as it exists today? Let me suggest that there is and provide the approach and calculations below.
First, we need to understand what Twitter is and how its audience uses it. I view Twitter as multithreaded Internet chat. It’s like being in a coffee house with conversations going on all around you and choosing which ones you want to participate in. Moreover, the form of communication – 140 characters – lends itself mainly to status updates and quick bursts of timely information. Twitter is at its best when it is used to communicate information whose value deteriorates at a rapid rate. It particularly does because the information is streamed – and the stream flys by so fast that anything much older than a few hours is effectively lost unless you actively search for it in historical tweets – which is a change in consumer behavior that few have associated with Twitter yet. Thus, Twitter in its near real-time form is perfect for businesses and business models whose information quality degrades quickly – e.g. stock prices, airline ticket prices and availability, exploding special offers/deals (an offer that has a specified end date), employment opportunities, immediate local expiring opportunities (e.g. ticket availability at the stadium just before a big game), among others.
So let’s say you are an online travel agency that sets up and maintains a Twitter account. Do you care? Is it worth the effort to put specials out through that mechanism? Let’s look at some numbers. Here are the number of followers of various travel agency Twitter accounts:
- Expedia – 13,281
- Orbitz – 14,087
- Travelocity – 16,133
- Cheapoair – 1,925
- Vayama – 1,193
- Travelzoo – 8,020
- Priceline – 16,212
- Hotwire – 3,769
Assume that you have a Twitter account with 15,000 followers (the average of the big sites) where you post daily specials on travel. They are obviously interested in the opportunities – so we have an audience that, relatively speaking, is highly motivated to purchase if they can find the deal they want. As active participants, they are likely to forward information to friends and family who have a similar interest – so they retweet or they forward via direct message. I call this the amplification effect.
The key question to consider in this is what percentage of people pass the information along and then, subsequently, what percentage of people subsequently retweet to the next level? We actually have good data on this from word-of-mouth marketing campaigns we have run for some of our travel industry clients and from Twitter follower data. There is also research (see Norman, A. T., and Russell, C. A. (2006). The pass-along effect: Investigating word-of-mouth effects on online survey procedures. Journal of Computer-Mediated Communication, 11(4), article 10. http://jcmc.indiana.edu/vol11/issue4/norman.html) that aligns well with our experience.
More in the next post.