Twitter - p(l)aying the Game

Many people are exercised on how today's free "Web 2.0" services will actually make money, especially as it finally dawns on people that Advertising won't save the day for everyone, and may just not work for social networks.

There's an interesting discussion on GigaOm today - Om Malik postulated something that a number of people have thought of before, ie make a service Freemium - and he thought about how it may work for Twitter:

This massive database of followers is what Twitter should turn into a business. Twitter should charge Scoble, Leo, Me, Michael Arrington and anyone else who has more than 100 friends & followers. How about something simple: $10 a month for 1000 subscribers. 25,000 subscribers means someone like Scoble should be pay them around $250 a month.

Lets take it a step further. Twitter should limit people to 500 free messages a month. Any more should come in a bucket of say 1000 messages for $10. Businesses like Comcast who want to use the service for commercial reasons should pay for the service, and so should start-ups like Summize who want to build their businesses based on Twitter API.

The game theory of this proposition is absolutely fascinating - who should pay, the follower or the followed. Who exactly is deriving more value from these services? That is who will be most prepared to pay. Initially it seems odd that the followed should pay. The reaction from those with many followers (see the comments) was predictable - Mike Arrington encapsulates the argument:

How do you deal with the fact that the number of “followers” is determined solely by everyone except the person you propose to pay?

Except, as other commentators note, they are getting a significant free benefit right now - the ability to broadcast, for free, to a large number of followers - to grab the attention of many people daily. They probably also know that the minute these followers were asked to pay, many would go away.

Think about the outcome for the average user - they will join a social network like Twitter, and lets say there is a free allocation of 100 "friends". Initially they will plug in to the "A List" broadcast channels, but then they start to add real friends. So what happens as the limit is approached - do they cull the friends, or those broadcasters whom they don't really know?

At this point the Broadcaster hits the "Small God" problem - ie status is defined by number of followers - if you are at all trying to derive a benefit from your followers, losing them has a real cost.

Now think about the Broadcaster's economics - for Mike Arrington to have a user base of say 20,000 people daily hanging on his word has a real financial value, in any marketing speak these are highly engaged people wanting to have a conversation with you - Cluetrain Nirvana. Only $200 pm to reach them all 500 times a month with a CPM equivalent of $0.02 - a complete bargain in current economic terms. Even better, those Aspirants who don't / can't pay up will fall away, leaving the spoils to the standing.

Thus I can easily see the more commercial players stumping up this and more - in effect making their feeds free to user. Of course they will wail and gnash teeth that its no longer free, but the benefits are huge.

I also suspect that the actual free number may be critical - if its 100, then its probably mainly people in their own social network so to add extra people will want to be bribed, not pay. By 200, I suspect most people have already connected to their network with spare (The Dunbar number is 150 remember) so there is ample space left for connecting to the broadcast channels, and thus little incentive for them to to pay.

But for this to work, Twitter cannot unilaterally start charging as everyone will migrate....there is another game in town. What happens if one doesn't need to charge (Jaiku for e.g. bought by Google, could easily be subsidised).

Thus, our suspicion is that the others cannot charge so long as Google, or Microsoft or whoever, can threaten free (ie subsidised) services, so this model probably is not strategically viable unless the one player can drive such value that no one wants to leave it. And I haven't seen a mass market social net yet thats driven that sort of loyalty.

Very interesting ideas nonetheless though.