Twitter: how does this social network become so profitable?

Twitter began as a humble microblogging platform where users were limited to simple 140-character updates. Since then, it has become one of the leading social media platforms. The company is valued at more than $20 billion, but because registration and use of the service is free, many wondered how Twitter made money in the first place. Twitter's revenue streams are basically divided into two main categories: on-site advertising and data licensing.

Advertising to make money

More and more companies are recognizing the value of Twitter as a marketing tool. Twitter, in kind, provides three forms of advertising through the social network's website and mobile applications.

Promoted Tweets

Normally, the only tweets that appear in a user's timeline are from the Twitter profiles they follow. The notable exception to this rule is promotional tweets. For a fee, Twitter will insert a brand's promoted tweet into the news feed of targeted people. These users can be targeted based on demographics, location, profiles they follow and device used. Promoted tweets are designated as such within the time frame given to users. For example, Samsung might have a tweet advertising one of its new smartphones. For this campaign, it might target users who already follow other similar technology companies and view the tweets on an iPhone. Typically, companies don't pay a flat fee to Twitter for this service. Instead, they can pay based on the number of "clicks" or "retweets" the promoted tweet receives. This system is similar to many other forms of online advertising that are based on user actions.

Promoted accounts

Companies can also pay Twitter to promote their Twitter profiles to gain more followers. Users who log into their Twitter account will usually be presented with a few profiles they might want to follow. These suggestions are usually generated by an algorithm that takes into account common demographics or whether the profiles follow the same people. When a company makes an offer to promote their profile, their Twitter profile will appear as one of these suggestions to targeted users.

Promoted Trends

The sidebar of the Twitter site contains a list of trending topics. These may or may not take the form of a hashtag. These trending topics can give users a good idea of what articles and news are currently generating on the web. A company can pay to have a trend promoted for a certain period of time.

Twitter: Firehose data to make money

In addition to promoting tweets, profiles and trends, Twitter also makes money by licensing the publicly available data it is able to collect from its more than 230 million users. This data is known as "firehose". Companies that have access to Firehose data include DataSift, BuzzFinder and Gnip. These companies use unobtrusive analytics to glean relevant information for their customers, who want to discern consumer trends or gain insight into brand image.

Is Twitter a profitable business?

While revenues continue to grow and the microblogging platform continues to explore other monetization opportunities, Twitter is not really a profitable business yet. That could change in the coming years.
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