Twitter Inc. is building a subscription product as a way to ease its dependence on advertising – a plan the social network has considered for years, and one that has taken on a heightened priority given the pandemic and pressure from activist investors to accelerate growth.
The majority of Twitter’s revenue comes from targeted advertising, which serves up promoted posts aimed at specific groups of users. That business has grown in recent years at a slower pace than competitors like Facebook Inc. and Snap Inc., and Twitter’s slice of the digital ad market globally remains at a lackluster 0.8%, according to EMarketer.
Twitter, the thinking goes, would benefit from a separate revenue stream that isn’t as reliant on brand advertising. The company’s user base in the U.S., its most valuable market, has also started to plateau, meaning it can’t rely on simply adding users to juice revenue.
To explore potential options outside ad sales, a number of Twitter teams are researching subscription offerings, including one using the code name “Rogue One,” according to people familiar with the effort. At least one idea being considered is related to “tipping,” or the ability for users to pay the people they follow for exclusive content said the people, who asked not to be named because the discussions are internal. Other possible ways to generate recurring revenue include charging for the use of services like Tweetdeck or advanced user features like “undo send” or profile-customization options.
Subscriptions have always offered a tantalizing alternative to advertising, but social networks have traditionally stayed free as a way to encourage user growth and engagement, which is then subsidized with paid marketing posts. Still, Twitter Chief Financial Officer Ned Segal said on a call with investors last year that a subscription option of some kind would offer sales “durability,” and recurring revenue is more consistent than advertising spending. Segal cautioned in July that Twitter was not only “very, very early” in exploring a subscription service, but also planned to be picky about how it goes forward. “We have a really high bar for when we would ask consumers to pay for aspects of Twitter,” he said.
The San Francisco-based company may update investors on its thinking when it reports earnings on Tuesday. It has mentioned the idea of subscriptions on the past two quarterly calls — but the company has historically been slow in making product decisions. For the fourth quarter, analysts project revenue rose 18% from a year earlier to $1.19 billion, with profit estimated to come in at 30 cents a share, according to data compiled by Bloomberg.
“Increasing revenue durability is our top company objective,” Bruce Falck, Twitter’s head of revenue products, said in a statement, adding that this “may include” subscriptions. “While we’re excited about this potential, it’s important to note we are still in the very early exploration and we do not expect any meaningful revenue attributable to these opportunities in 2021.”
Some possibilities for this kind of recurring revenue have emerged based on user surveys, executive comments, or past product moves. Twitter tested the idea of user “tips” in the past with its soon-to-be-defunct live video service Periscope, and it’s become a popular business model for companies hoping to help creators make money from their fans or followers. Twitter would take a cut of the transactions.
The company is also considering charging some power users for a suite of services, which might include Tweetdeck, a sort of dashboard useful for viewing multiple feeds and overseeing different accounts. The service is typically used by Twitter’s more advanced users and lets them follow multiple streams of tweets at one time. Tweetdeck is currently free and doesn’t have ads, which makes it appealing to some users as an alternative to the main feed.
A recent survey from July, discovered by journalist Andrew Roth, also shows that Twitter is weighing whether consumers would pay for special features, like an “undo send” option or custom colors for their profiles. It is still unclear which products will eventually reach Twitter consumers.
Analysts have different ideas about which choices might work best. “A subscription offering that either offers more content or removes ads would be well-received among Twitter’s more loyal users,” Ron Josey, an analyst at JMP Securities, wrote last summer.
Michael Levine, a senior analyst at Pivotal Research Group, doesn’t think people will pay for ad-free Twitter but agrees that the company’s best option is to start selling some type of exclusive content.