Twitter's Long-Term Viability

Beyond all the hype, is Twitter really a great advertising opportunity?

I hate to say, “I told you so,” but I kinda did in December when I compared the hype over Twitter with the previous hype over SecondLife. And, yes, I received my share of angry comments from dedicated users of both services when I pointed out the gap between the reported usage numbers and the number of users who actually continue to use the services for longer than a month. According to this much publicized article from Nielsen about the “Twitter Quitters,” it turns out that diehard-fan love aside, I wasn’t so far off the mark.

But I’m not writing this to gloat. That would be easy (and fairly satisfying!). It would also be pointless.

Looking at Twitter, the associated hype, and its lack of a viable business model makes a great lens for examining future technologies and their usefulness for marketers. Twitter makes a great case study for how “eyeballs” don’t always equal “great advertising opportunity.” It also makes a great example of how hype doesn’t always equal dollars, especially if the technology that’s being hyped isn’t set up from the beginning to be monetized.

According to the Nielsen study, 60 percent of registered Twitter users don’t return after the second month. For the last 12 months of the study, Twitter’s retention rate was closer to 30 percent. This kind of attrition means that at some point there just won’t be enough new users to replace the ones who are leaving.

Compare this to Facebook and MySpace. Even though both services had a fairly high attrition rate, according to this social network loyalty chart, user loyalty was still twice as high as Twitter’s. And as they grew, retention skyrocketed up to 70 percent.

Bottom line? They’re sustainable.

But what about the services that feed into Twitter, you may be asking. Nielsen went back and added those services to its study. The results were the same: 60 percent of people stopped using Twitter after the first month.

Does this mean the service is doomed? No. Obviously, a lot of people still get a lot out of the service. But what are they getting?

Let’s step back from the hype for a minute. What is Twitter exactly?

At heart, it’s really just a way to send quick text messages out to a group of people who are interested in receiving updates about you (and by “you” I mean “whoever is sending out those messages,” including the Mars Rover). The Twitter user demographics tend to skew toward the young (18-24) and male (about 10 percent higher than the Internet average gender mix).

Who else matches this profile? According to Scarborough Research, heavy texters match up pretty well. There are more of them, but they also tend to be 18-24 and male. They also spend a lot of time online and like to spend their money on technology. Not all that surprising, I’m sure.

It’s not surprising because heavy Twitter users and heavy texters are doing the same thing. They tend to be young people on the go who use short text messages to keep in touch with their extended networks. And therein lies the main problem with Twitter’s business model and, by extension, its ultimate usefulness to marketers.

Think about it: who’s really making money from text messaging? The mobile carriers. They control the means of message distribution and get paid every time someone sends one (or, with an “unlimited plan,” get paid by those who want to send text messages).

Poor Twitter doesn’t make a dime from the messages sent over the service. By opening up its service via an API (define), it’s more or less eliminated any chance it could. And the format means that advertising can’t be sent through the service, though there’s plenty of advertising on some of the sites (and apps) that interface with the service.

Couldn’t Twitter charge for messages? I suppose, but as newspapers found out, once the paid-content horse has left the barn, it’s too late to shut the door.

And even if it decided to charge for premium content, chances are that someone else could provide it for free. Unless everyone plays the pay-for-access game, nobody can play (unless you have truly unique content that can’t be found anywhere else).

I’m not arguing that Twitter can’t be useful for keeping your friends and clients (and other followers) up to date about our activities or as a channel for disseminating nifty links and other tidbits of information. Nor am I arguing that it’s not useful to use Twitter in real-time applications, such as commenting on TV shows together or passing virtual notes during speeches at conferences. It’s great for those things.

But is it a viable model for a sustainable business? As the Magic 8-Ball likes to say, “All signs point to No.”

What does the future hold for Twitter? Perhaps Twitter will end up becoming something like IRC, moving to more of a protocol that’s maintained by volunteers in a decentralized fashion.

After all, with all the Twitter hype, nobody mentions the fact that IRC regularly serves hundreds of thousands of users at a time. Or perhaps Twitter will be purchased by an entity like Facebook, which could then work to close the barn door and make the service available only to Facebook users. Considering that Twitter has received over $57 million in venture funding from the likes of Union Square Ventures, Digital Garage, Spark Capital, and Bezos Expeditions, it seems that at some point those guys will want to make some money back.

Unlike a lot of dot-bomb ideas from the late 1990s and early 2000s, Twitter is undoubtedly a useful idea. However, like a lot of the ventures that came out of that period, Twitter is also a case-in-point that eyeballs don’t necessarily equal dollars, or even necessarily long-term viability. It may be cool right now, but its high attrition rate and difficult-to-fathom business model means that its future might be a lot different than the hype today.

I’m sure plenty of you will be tweeting about it.

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