By Matt Bigliardi, Jon Feldman and Dan Park
The Wharton School of the University of Pennsylvania
MattJonDan Most think Twitter is here to stay but declining trends, low retention r8s and lack of biz model suggest that it’s just another internet fad
10:33 PM May 12th from TwitterBerry
Biz Stone, Co-Founder of Twitter, describes his online social network as “the messaging system that we didn’t know we needed until we had it”. Over the past year, Twitter has grown into a worldwide phenomenon with over 8 million unique users, up from only 1 million just a year ago. The whole world seems to be on Twitter. President Obama has over 750,000 followers, Shaq has half a million and even the PC guy from Apple commercials has 50,000. News agencies ranging from CNN, to MSNBC, to the New York Times are all on Twitter, using it to broadcast current events. However, despite Twitter’s popularity, it can be argued that Twitter is simply a fad whose chances of survival are slim. This paper will discuss Twitter’s inability to retain users, its non-existent value proposition and struggle to achieve a sustainable business model.
The Twitter Phenomenon
In the last year, Twitter has grown exponentially to nearly 19 million unique visitors as of April 2009, up from only 1.5 million unique visitors the previous year (see Figure 1). By now, Twitter is a household name but unlike Google, Wikipedia or YouTube, no one seems to know what purpose it serves.
Figure 1: Twitter.com Unique Visitors
What is Twitter?
Males make up 63% of Twitterers and the largest age demographic being 35-to-44 year olds who make up 25.9% of its users
To find out exactly what Twitter was all about, I signed myself up for Twitter. I customized my page, found followers and started “tweeting”, or to non-“Twitterers”, post 140 character messages to my page. My page, located at twitter.com/parkdan, allows me to post message to my “followers”, or friends that have chosen to receive my messages. Although novel and indeed entertaining for the first few days of use, I failed to see any real benefit from my newly created Twitter page.
Was I not interesting enough to merit more than 5 followers? Or worse, were my 17 friends simply too boring for me to care about their 140-character tweets? To get a better perspective, I asked Sarah, a colleague in my Wharton MBA class why she tweeted. She was female, born in 1986, and on average tweeted 20 times a day so naturally I thought she was the perfect representation of the Twitter demographic. Why was she into Twitter? Was there something I was missing? Could Twitter cure cancer or at least get interesting celebrity gossip? Needless to say I was disappointed that simply told me that she used it to “keep her friends in the loop”.
“Because even basic updates are meaningful to family members, friends, or colleagues – especially when they’re timely”, says the Twitter website. It continues to say that “with Twitter, you can stay hyper-connected to your friends and always know what they’re doing”.
Although Twitter cannot cure cancer or provide celebrity gossip news, Lance Armstrong, 37, uses it to promote his LIVESTRONG organization and Ashton Kutcher, 31, recently posted that “I’m officially making the move back to tap water”.
In April 2008, I would have been correct in assuming that the 18-to-24 age group was the largest user of Twitter. However, this has drastically changed over the last year. A March 2009 update by Hitwise found that males make up 63% of Twitterers and the largest age demographic was 35-to-44 year olds who make up 25.9% of its users.
According to a Time magazine article there are two types of Twitterers. First, “Stable Career” users (14.6% of Twitter visitors) comprise a “collection of young ethnically diverse singles living in big-city metros like Los Angeles, Philadelphia and Miami”. The second largest group is the “Young Cosmopolitans” (12.3% of Twitter visitors), individuals in their 40s who are “likely to drive a hybrid car such as the Toyota Prius, earn household income over $250,000 per year and also identify with very liberal politics.
Individuals fitting these demographics “tend to embrace social media tools and online applications, and spend a lot of time using these tools for life relationships and networking such as job hunting, dating, events, and social interaction”. As a result, Twitter is trying to evolve from a narcissistic medium to broadcast meaningless detail of one’s life to a social networking tool used by an older generation of users.
The hype of mainstream media networks will naturally generate a swarm of traffic, but the gauge of true user utility the ability of these websites to retain users.
Figure 2: Comparison of Audience Retention Rates of Twitter, MySpace and Facebook at Same Stage of Growth (based on audience reach)
According to a recent data released by audience measurement firm Nielsen, Twitter’s retention rate has ranged from 30 to 40% in the past year. What this means is that while Twitter is taking on a massive influx of new users, more than 60% of those that sign up for Twitter fail to return the following month. In comparing these statistics to MySpace and Facebook during a similar period of their growth, when they each had 0.4% to 4.2% U.S. audience reach, they were retaining approximately 60% of their audiences (Figure 2). Both Facebook and MySpace currently retain over 70% of their traffic. Any site that continues to bring in new users, as result of massive awareness, but fails to keep them, clearly is not providing utility to the majority of the audience. With such a high rate of churn, it will eventually have run out of new users to sign up while retaining few. In fact, according to Nielsen, sites with a 40% retention rate typically have not exceeded 10% reach. (Figure 3)
Figure 3: Minimum Audience Retention Rates at Internet Reach Levels
According to research conducted by HubSpot, 9% of registered users of Twitter follow no one. This essentially means that these not using the product. Furthermore, site analytics data from Quantcast shows that only 1% of Twitter’s audience can be considered “addicts” (users that visit the site daily), and this group makes up 35% of its monthly visits. As a result, Twitter has a very small but highly dedicated audience that drives its page views, but also corresponds with the low retention rate statistics.
When compared to Facebook and MySpace, the percentage of addicts is quite low, with the latter sites garnering daily visits from 12% and 18% of their users, respectively, and these users’ visits making up more than two-thirds of the site visits. The data on “passers-by” (visitors who only visit once a month) is even more telling. Twitter has 72% of its visits coming from this category, meaning that only 28 out of every 100 people who come to Twitter in a month come back again that month. Even more startling is that this group makes up one quarter of Twitter’s monthly visits.
By comparison, Facebook and MySpace, have 34% and 22% of their visitors come only once a month, respectively, and this group makes up only 3% of their visits (see Figure 4).
Most Twitter users browse the site, signup but rarely return
This data clearly indicates that Twitter has generated a lot of interest as a result of promotion from celebrities such Oprah as well as media networks like CNN. Despite the hype, Twitter is failing to create a “sticky” user base. Most Twitter users browse the site, signup but rarely return. Twitter will likely continue to appeal to its niche group of 1% addicts, but will have difficulty retain mass audiences, at least in its current form.
Figure 4: Percentage of Visits from “Addicts” (30+ visits per month), “Regulars” (2-29 visits per month) for Twitter, Facebook and MySpace.
Haven’t We Seen This Before?
Twitter’s exponential growth combined with its inability to establish a meaningful and dedicated user base is a key characteristic of a fad. In examining previous fads find close similarities and see that in its current form, Twitter is precariously positioned to become another abandoned website.
ICQ, I Can’t Find You
Twitter’s exponential growth combined with its inability to retain users is very similar to ICQ’s performance in the late 1990s. In an recent article, Wharton professor Peter Fader compares Twitter’s hyped growth to ICQ, the instant messaging service acquire by AOL in 1998 for $407 million. At the time, ICQ had grown to 12 million users in 18 months. Eleven years later, it is clear that both ICQ and AOL’s own AIM instant messaging services continue to be useful features, but failed to become businesses on their own.
No Second Chance for Second Life
Similarly Linden Labs’ virtual reality platform Second Life had similar qualities to the current Twitter. As media darlings, it was the focus of all the “with it” marketers. Millions of people signed up and it was advertised on countless magazine covers. In 2006, it seemed as though every media organization was hyped up about the coming of virtual reality, and there was tremendous buzz surrounding online retailers setting up stores in Second Life. Within a year, the excitement faded as these virtual businesses could only make virtual money, and stores closed without much fanfare.
Can Twitter Survive?
In its current form, Twitter is a fad
In its current form, Twitter is a fad. The population of users is shifting from a primarily younger generation to an older generation looking to leverage Twitter’s social network. Unfortunately, other social networks such as Facebook, LinkedIn, myspace and ASmallWorld perform this function with higher valued-added services. Twitter’s low retention rates, low proportion of “addicts” and high percentage of “passer-bys” paint a bleak picture for Twitter.
Recommendations for a sustainable business model
Real-Time Search Capabilities
“Twitter is clearly hot. The phenomenon of real-time search and the ability to capture this stream of ‘tweet’ discussions is an important development in social media and search because people are trying to mine data for information that might otherwise be sought in a search engine,” said industry analyst Greg Sterling
For the past ten years, companies have been trying to crack the lucrative “search” market. While their approaches and algorithms seem to vary dramatically, the end goal is the same: Google-like billion dollar returns. Twitter is the latest in series of start-ups who has quickly gained the attention of the search world. Every day, new applications are being built to better crawl the “tweet” discussions and garner real-time results from real people. Researchers are starting to study the efficacy and speed of results versus Google and early results show that Twitter can offer a more rich “search” experience for certain topics.
On March 6, Twitter integrated the search feature, which had previously existed at search.twitter.com, onto its main site. Simultaneously, the search function also included a “Trends” menu where users can see what subjects are currently generating the most online traffic among Twitter users. As Twitter continues to add functionality around search, its users can leverage SEO principles when developing their Twitter strategy. Advertising is still relatively new to Twitter, but the potential is there for companies to utilize Twitter search to drive traffic and awareness.
“It’s the only place you can [currently] search for “instant” feedback on twitter-worthy events. The first time I used it was when I wanted to buy an iPhone, and used it to figure out the line situation at all the Apple stores in NYC. I think the search is hands-down the most useful thing about it for me, but it’s not clear to me it will remain quite as useful as it gets more popular and the “noise” increases.”
Kunal Shah, founder Rentjuice.com, former Head of Development for Connected Ventures (CollegeHumor.com, BustedTees.com, Vimeo.com, TodaysBigThing.com)
Improved Social Networking Capabilities
The more people that use Twitter, the more people users have to follow and communicate with. Like social networks, the utility of Twitter continues to grow as the ecosystem of users, applications, and information grows. Currently, Twitter has a built-in function for you to befriend and track the messages of other users. This is an easy way for users to connect with people outside of their usual circle. Twitter also makes an effort to encourage its users to add other active users that they find interesting. A Twitter acquaintance can be developed into a long lasting friendship. Twitter also can be used as a socializing platform to interact with other like-minded people, especially those in the same industry or with similar interests. It can also be used to establish consistent and deeper relationships for future benefits such as testimonials or peer recommendations.
Many-Way Communication: Can It Replace Instant Messaging and Email?
Real-time communication is not new to the web, but Twitter takes many-way communication to the next level. Previously, users could reach the masses through blogs, web forums, and personal status messages. While these mediums are and will continue to be effective, the 140 character or less nature of “tweets” adds a new level of immediacy and “sound bite” factor that allows for easy consumption, creation, and sharing. The immediacy of twitter also translates well to the mobile platform for users on-the-go that need to communicate or get information quickly. For example, in January, when the US Airways flight crashed into the Hudson River, news broke via Twitter before CNN, NYTimes, and FoxNews.
The immediacy and concise nature of Twitter make it perfect for disseminating news. Twitter’s message size limit prevents detailed coverage of events but it can allow you to provide real-time commentary which may help to spark further discussion or interest on the event as other Twitter users spread the message. Very useful for citizen journalism. Twitter users also often link to useful sites or articles and can be a source of scoops and alternative news. You can also subscribe to Twitter feeds for specific websites/conferences, which allows you to receive and view content quickly. This is very useful for active social news participants.
TWITTER AS A MARKETING TOOL
Getting Closer to the Customer
All companies crave more information on their consumers. Twitter is a vehicle businesses can utilize for 2-way communication with new and existing customers, as well as prospective customers.
“Revenue is not key,” says Dell spokesman Richard Binhammer, “What we want most is conversational engagement…Twitter is perhaps the most intimate social media tool yet developed.”
Twitter allow for a deep infiltration into the lifestyles of interested participants, which helps to build brand persistence/loyalty. Comcast, a company whose customer satisfaction ranking has been historically terrible, authorized Frank Eliason, a customer service operative, to create@ComcastCares. Eliason, whose passion for quality service comes through to observers, has posted tens of thousands of public and private “Tweets,” all directed at solving customer problems, since May 2008 . Recently, when Comcast email experienced an outage, @ComcastCares received thousands of responses from the 14,000+ followers within a two hour span.
In addition, companies can use Twitter to “follow the trail” of tweets and learn what others think and feel about their products. By conducting a simple Twitter search on your product, you can quickly see real opinions and benchmarks changes over time. This can be especially valuable when monitoring the success of advertising campaigns to see how buzz, or number of tweets, increases as a result of marketing. As a company, you can do a similar search on competitors to see what users are saying about the competition for ideas on new product innovation and customer service improvements.
Twitter can also be used to communicate to users or customers. Set up a Twitter feed for the specific purpose of notifying customers when new products come in or when promotions are run. Customers can subscribe via mobile or RSS for instant notification. Twitter can also be used to provide mini-updates for one-on-one clients.
A Twitter Marketing Strategy
Companies can also use Twitter to drive traffic to their own website. The placement of links within profiles and conversations can direct visitors to a specific website and is especially powerful if you pitch to early adopters and influencers. The ease of use and ability to “retweet” makes creating a viral campaign simple and fast.
“It’s useful to get an idea of what the key trends each day are. Also it’s great for consumer research about product, services, and brands. You could make money by charging companies a fee to give them consumer information based on the tweets that people create. You could do this over time and monitor the buzz that is created by strategic moves the company makes.”
Adam Small, former Merchandising
Manager for Target
WHAT’S NEXT FOR TWITTER
Twitter’s the user-base has been growing rapidly, but the company is yet to establish a viable business model. Several business models should be explored to ensure Twitter’s long-term viability:
§ Premium Twitter Account - users pay a subscription fee in return for additional features, such as the ability to “follow” a celebrity. Tiered pricing seems to be the trend of these types of services.
§ Increased Advertising - Serve text ads relevant to current “tweets” to garner increased revenue
§ “Enterprise” Accounts - Companies connect with its customers
§ Reverse Auction Tool - For example, if a user is willing to spend $100 on Yankee tickets tonight or at 14th Street and would like a table for four at a particular restaurant
In April, Google and Microsoft were rumored to be in serious talks to buy Twitter, and in May, Twitter’s rumored suitor was Apple. But recently, Twitter co-founder Biz Stone told Barbara Walters, “No. We are not for sale,” when he appeared on her talk show, The View.
But what would Twitter be worth if it were for sale? PaidContent.org tried to determine that out by looking at user-based multiples from sales of other low-revenue web sites, and offered these examples: YouTube was bought by Google for about $16 per user. News Corp. bought MySpace for $21 per user. Bebo was sold to AOL for $35 per user. So, if you applied its user base of about 19 million to that range of numbers, Twitter might fetch $304 million to $665 million. Twitter’s investors have put about $55 million in the business, according to PaidContent, which pointed out that those lower-range numbers would disappoint the venture capitalists who typically look for a 10-fold return.
So it appears the founders and their investors would be wise to follow the advice offered by Wharton faculty in the recent Knowledge@Whaton article, “All That Twitters Isn’t Gold: A Popular Web Application in Search of a Business Plan”. Even though a revenue stream would boost Twitter’s value, they suggested, the site should be patient and let its user base grow and take shape.
At the same time, Twitter is precariously positioned to become a fad. Although it should continue to focus on growing its user base it must also focus on increasing retention rates by delivering valued-added services to its user. Neglecting to take both considerations into account only ensures that Twitter will become another internet fad.
 http://knowledge.wharton.upenn.edu/ 2202