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Analysis of Potential Business Models for Twitter

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Why Twitter Should Have a Freemium API ASAP

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Scenario by Nova Spivack

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http://novaspivack.com

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http://twitter.com/novaspivack

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Contributions by:

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Jeff Sayre

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Related Articles:

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http://techcrunch.com/2011/04/22/twitter-freemium-api/

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http://www.novaspivack.com/uncategorized/why-twitter-should-adopt-a-freemium-api-model-immediately

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License: Creative Commons

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http://creativecommons.org/licenses/by-sa/3.0/

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About this scenario:

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This is a revenue projection, based on anecdotal evidence that Twitter's actual revenues this year are around $75mm.

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The goal of this projection is to explore whether

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the inclusion of a "freemium API" model would help Twitter, and to what degree.

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A freemium API is a combo of a free API that carries ads inserted into the stream

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and an optional paid API where customers pay a nominal fee per tweet but can run their own ads instead.

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NOTES:

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If you have more accurate numbers to plugin in drop me a note and we'll add you to the editors of this model so you can edit, thanks -- nova@novaspivack.com

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For the sake of simplicity we kept CPM pricing growth rates flat.

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For the sake of simplicity we kept things at a very high level and tried to show conservative growth rates.

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Destination Strategy

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(Focus is on eyeballs and ads on Twitter destination and Twitter in-house apps)Y1Y2Y3Y4Y5Y6Y7Y8Y9Y10

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Active Users20,000,00026,000,00033,800,00043,940,00057,122,00074,258,60096,536,180125,497,034163,146,144212,089,987

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User growth rate30%30%30%30%30%30%30%30%30%30%

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Avg Number of tweets recieved per user per day100100100100100100100100100100

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Number of tweet impressions per day2,000,000,0002,600,000,0003,380,000,0004,394,000,0005,712,200,0007,425,860,0009,653,618,00012,549,703,40016,314,614,42021,208,998,746

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Advertising frequency (number of tweets for 1 ad)100100100100100100100100100100

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Number of ads served20,000,00026,000,00033,800,00043,940,00057,122,00074,258,60096,536,180125,497,034163,146,144.2212,089,987.46

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Revenue/1000 ads$10$10$10$10$10$10$10$10$10$10

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Ad revenue per day$200,000$260,000$338,000$439,400$571,220$742,586$965,362$1,254,970$1,631,461$2,120,900

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Annual revenues$73,000,000$94,900,000$123,370,000$160,381,000$208,495,300$271,043,890$352,357,057$458,064,174$595,483,426$774,128,454

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Ad Network Strategy
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(Focus is on free API: Twitter encourages 3rd party apps but they must carry Twitter's in-stream Ads)

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Additional Active Users from free API customer apps (Growth Rate)25%25%25%25%25%25%25%25%25%25%

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Additional Active Users5,000,0006,500,0008,450,00010,985,00014,280,50018,564,65024,134,04531,374,25940,786,53653,022,497

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Avg Number of tweets received per user per day100100100100100100100100100100

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Number of tweet impressions per day500,000,000650,000,000845,000,0001,098,500,0001,428,050,0001,856,465,0002,413,404,5003,137,425,8504,078,653,6055,302,249,687

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Advertising frequency (number of tweets for 1 ad)100100100100100100100100100100

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Number of ads served$5,000,000$6,500,000$8,450,000$10,985,000$14,280,500$18,564,650$24,134,045$31,374,259$40,786,536$53,022,497

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Revenue/1000 ads$10$10$10$10$10$10$10$10$10$10

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Ad revenue per day$50,000$65,000$84,500$109,850$142,805$185,647$241,340$313,743$407,865$530,225

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Annual revenues$18,250,000$23,725,000$30,842,500$40,095,250$52,123,825$67,760,973$88,089,264$114,516,044$148,870,857$193,532,114

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Infrastructure Strategy

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(Focus is on paid API: Option for 3rd party apps to pay for API on a per-tweet volume basis; Twitter does not supply ads; 3rd party apps can run their own ads)

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Additional Active Users from Pro API customer apps (Growth Rate)15%15%15%15%15%15%15%15%15%15%

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Additional Active Users3,000,0003,900,0005,070,0006,591,0008,568,30011,138,79014,480,42718,824,55524,471,92231,813,498

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Avg Number of tweets received per user per day100100100100100100100100100100

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Number of tweet impressions per day300,000,000390,000,000507,000,000659,100,000856,830,0001,113,879,0001,448,042,7001,882,455,5102,447,192,1633,181,349,812

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Cost per tweet$0.00010$0.00010$0.00010$0.00010$0.00010$0.00010$0.00010$0.00010$0.00010$0.00010

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Revenue/1000 tweets$0.10000$0.10000$0.10000$0.10000$0.10000$0.10000$0.10000$0.10000$0.10000$0.10000

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Paid API revs per day$30,000$39,000$50,700$65,910$85,683$111,388$144,804$188,246$244,719$318,135

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Annual revenues$10,950,000$14,235,000$18,505,500$24,057,150$31,274,295$40,656,584$52,853,559$68,709,626$89,322,514$116,119,268

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Additional Active Users by Inclusion of Free + Pro API businesses8,000,00010,400,00013,520,00017,576,00022,848,80029,703,44038,614,47250,198,81465,258,45884,835,995

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Additional Revenues from API business lines$29,200,000$37,960,000$49,348,000$64,152,400$83,398,120$108,417,556$140,942,823$183,225,670$238,193,371$309,651,382

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Combined Strategy

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(Twitter does all of the above and rules the world)

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Combined Active Users (from all sources)28,000,00036,400,00047,320,00061,516,00079,970,800103,962,040135,150,652175,695,848228,404,602296,925,982

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Destination Revenues$73,000,000$94,900,000$123,370,000$160,381,000$208,495,300$271,043,890$352,357,057$458,064,174$595,483,426$774,128,454

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Free API (Ad network) Revenues$18,250,000$23,725,000$30,842,500$40,095,250$52,123,825$67,760,973$88,089,264$114,516,044$148,870,857$193,532,114

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Pro API (Pay per tweet; No Ads or Run your own Ads) Revenues$10,950,000$14,235,000$18,505,500$24,057,150$31,274,295$40,656,584$52,853,559$68,709,626$89,322,514$116,119,268

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Combined annnual revenues$102,200,000$132,860,000$172,718,000$224,533,400$291,893,420$379,461,446$493,299,880$641,289,844$833,676,797$1,083,779,836