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Twitter's Dilemma Wed 10 Jun 09

Has the popular microblogging service become a victim of its own success?

Fail_whalestarted using Twitter five months ago with some reluctance. I wasn't sure if I'd like it or if I'd be willing to put up with the inane commentary. Since then, I've learned that Twitter is really about conversation that you can make as trivial or serious as you desire. I've even suggested that Twitter has a place in the corporate world.

Although I still see the value in Twitter, I am beginning to wonder about its long-term viability. Twitter is growing exponentially and has reported an astounding 1,382% year-over-year growth. This growth has, however, apparently caused scalability issues and may also cover up some disturbing trends that could adversely impact its long-term user base and possibilities for monetization.

Scaling up operations with that kind of growth is difficult, and Twitter is clearly struggling. Twitter's Fail Whale error page with its message: "Twitter is over capacity. Too many tweets! Please wait a moment and try again" is so common it's developed its own Fail Whale fan followers and merchandising opportunities.

Another problem involves users having difficulty uploading their profile background image. This has been going on for at least four months, according to the support tickets, although they indicate it was recently resolved. Other common difficulties include the "Find People" search not finding valid accounts, people you are following not appearing in your profile, and people you have stopped following continuing to appear. These are all clear indications of scalability problems.

As Twitter struggles with scalability, other groups are jumping into the mix, providing applications with additional functionality and allowing users to tweet without even visiting Twitter.com, except to set up their accounts. This may limit Twitter's opportunities for monetizing the program as others grab market share. Based on a Google search, I found the following statistics for the percentage of users who use the Twitter Web client to post their tweets:

  • April, 2008:  56% according to ReadWriteWeb.
  • February, 2009:  30% according to Mashable, and 32% according to TechCrunch 
  • June, 2009:  24% according to Twitstat

Not an encouraging trend for Twitter. In addition to Twitter client competitors, Facebook offers a credible alternative way to stay connected to your community. Twitter, said to have turned down a $500 million buyout offer from Facebook, may find it a formidable competitor instead.

At the same time, I've seen frustration with Twitter's lack of new functionality. For example, the popular game "Spymaster" automatically tweets your activities to all your followers. However, many consider this spam. While the game reportedly allows you to turn this feature off, many users do not, inadvertently generating spam. I've heard a number of people lamenting the lack of a filtering option, leaving them to choose between getting spam or un-following otherwise interesting conversations.

Coupled with--or as a result of--all this is an audience retention problem. Many people start using Twitter but then quickly abandon it.  Nielsen reports that more than 60% of U.S. Twitter users fail to return the following month.  TechCrunch reports statistics indicating that 80% of Twitter accounts have fewer than 10 followers and that only 22% of the accounts have made 10 or more tweets.

Twitter's strategy so far has been that of building an audience and then monetizing it. However, monetization becomes an issue if you already have problems with usability and audience retention. It will be interesting to see how Twitter monetizes and how successful it is.

Last year, Twitter launched a Japanese version that included advertising on the Web site but has yet to do so on the U.S. version. A recent post on the Twitter blog states: "The idea of taking money to run traditional banner ads on Twitter.com has always been low on our list of interesting ways to generate revenue. However, facilitating connections between businesses and individuals in meaningful and relevant ways is compelling. We're going to leave the door open for exploration in this area."

A few days earlier, Reuters reported that Twitter co-founder Biz Stone indicated that providing revenue-generating services for businesses may be the company's approach. Reuters said Twitter is "developing various add-on tools and services" that could be in place by year's end. Twitter doesn't appear to be looking at advertising as a revenue generator.

At this point, it is not clear if offering premium services rather than advertising is a deliberate strategy or an implicit recognition that surrendering the client application share to third parties has blunted the potential for ad revenue. Businesses are beginning to understand the marketing potential of Twitter, but many may still need a lot of convincing and coaching to jump on board, and this could limit the premium services potential.

To recap, Twitter is battling scalability problems, churn in its user community, formidable competition and no revenue base. While Twitter clearly needs to monetize, the question is, has it waited too long? Time will tell.

This article is also posted on Forbes.com.  Feel free to join in the discussion either on this site or at Forbes.com

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» Responsible Twittering from Beyond Blinking Lights and Acronyms
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