Why Twitter should charge per tweetFebruary 21, 2014: 5:00 AM ET
The microblogging service has built a successful following, but it needs to rethink its longer-term strategy.
By Sanjay Sanghoee
FORTUNE -- Twitter (TWTR) was initially derided for its strange and non-intuitive format, but as most of us have seen, the micro-blogging service confounded expectations; it has become a wildly popular medium for sharing information and creating buzz, and its 140-character limit is perfect for the short attention span of modern society.
Yet, despite strong earnings and a monthly average of 241 million active users at the end of last year, investors are concerned about the company's ability to keep growing its user base, timeline views (which measures how engaged users are with Twitter), and advertising revenue per user. As you can see in the chart below, Twitter's growth rate is slowing down.
To address this, the company should reexamine its business model. Twitter (TWTR), due to its short format, only enables users to deliver a single thought, idea, or piece of information in a tweet, and 76% of users access it via mobile. This makes it a brutally fast medium where both relevance and timing are important. Still, users frequently share the most random (and borderline annoying) thoughts: (i.e. I'm having steak for dinner #meateater, I have the cutest cat), including users who at other times tweet intelligently.
The problem is that the more users' timelines gets cluttered with frivolous tweets, Twitter's potential as a serious medium for the interchange of important ideas gets compromised. Accordingly, the company needs to create an incentive for users to tweet more thoughtfully and meaningfully, such as a charge per tweet. This would encourage users to minimize white noise and tweet only what they are willing to pay for. That isn't to say that some users would not pay to tweet rants, spam, or other types of nonesense, but charging for tweets should help reduce the volume.
The numbers could be promising. Say that Twitter charged its users a penny a tweet, and let's also assume that charging for tweets reduces the volume (currently, about 500 million tweets per day) by 50%. That would generate an additional $900 million for Twitter, on top of its currently projected revenues of $1.1 billion in 2014. This also does not include the bump that Twitter could get in advertising revenues as more relevant tweets could lead to higher engagement by users and enable the company to increase its advertising rates.
As an avid Twitter user myself, I'd check my timeline more regularly if my twitter feed were more relevant and of a higher quality. I would also be willing to pay to tweet if the system decreased the volume of frivolous tweets, thereby saving me valuable time and energy.
Sanjay Sanghoee is a political and business commentator. He has worked at investment banks Lazard Freres and Dresdner Kleinwort Wasserstein, as well as at hedge fund Ramius. Sanghoee sits on the Board of Davidson Media Group, a mid-market radio station operator. He has an MBA from Columbia Business School and is also the author of two thriller novels. Follow him @sanghoee.