Here’s How Twitter Can Benefit From Launching A Premium Product
As it struggles to grow its user base, and in turn ad revenues, Twitter (NYSE:TWTR) is exploring another steady source of revenues. The company is reportedly considering a premium version of TweetDeck, which will offer additional features and an ad-free experience to its users at a subscription cost. TweetDeck is offered by the company to professionals who actively use the platform and manage several Twitter accounts. The company is currently conducting a survey to assess interest in a paid version of TweetDeck with enhanced features. Professionals using TweetDeck are generally the most active users on Twitter, and by charging a subscription fee to these users, the company could generate steady revenues and hedge ad revenue uncertainty. Though it remains to be seen whether Twitter actually pursues such an offering, we believe that many active users would be willing to pay a subscription fee for additional features through which they can effectively manage multiple Twitter accounts.
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Twitter acquired TweetDeck in 2011 for $40 million, but has not done much with the product in terms of driving revenues. Advertising revenues (domestic and international) account for nearly 90% of the company’s total revenues, and we expect this trend to continue over our forecast period.
Twitter has more than 300 million users globally. While user growth has been extremely slow in recent months (especially in the U.S.), charging professional users could generate a fairly steady revenue stream for the company and mitigate the effects of slowing user growth. For example, if 1% of users pay a monthly charge of $20 (likely an aggressive figure, but one of the numbers mentioned in Twitter’s survey) to use the premium service, it could generate $720 million in annual revenues, which amounts to nearly 30% of its total advertising revenues. While the $20 per month figure might not be realistic, even a lower fee for a smaller section of customers would generate significant revenues for the company.
While Twitter is struggling to grow users, its loyal professional user base of media players, journalists and governments are using the platform effectively. Providing them with advanced features in an ad-free environment for a small subscription charge could be a win-win for the company and these users. While we don’t expect that a premium service would generate meaningful revenues in the short term, over the long run it could help offset the company’s user growth trends.
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