A Twitter Market Sizing

I wrote about my hypothetical Twitter customer segmentation recently, and I thought I’d follow up with a rough stab at a market sizing for Twitter advertising.  The exercise is helpful one for thinking about Twitter’s business model and potential revenue, even if some of the numbers are placeholders.

First, here’s the market sizing file in Excel.

As it turns out, the relative sizes of the customer segments in my previous post were a bit off.  They still feel right from the perspective of how often I actually come across different types of account usage on Twitter, but clearly that’s a biased sample.  Once I started reviewing the published figures for Twitter usage, I made some revisions to bring my segments in line with what’s actually going on.  That’s the risk of pulling stuff out of thin air – it’s usually wrong.  In this case, however, I’m more interested in thinking through the problem than coming up with the best estimate.

I encourage you to look at the Excel version of the market sizing, but here are some highlights in my opinion:

  • Out of 105 million registered users, at least 50% are inactive.  Better user activation is a more important lever for Twitter to pull right now than customer acquisition.
  • The segment I refer to as Chatters, who might make up just a couple of percent of active users, are the heavy-duty tweeters who use Twitter like SMS.  If you look at any of the trending topics, you’ll likely end up on a Chatter’s tweetstream.  These users often send 100-200 tweets a day and make up a large share of usage.  Slight changes in this segment can skew Twitter’s growth numbers significantly, but it’s not clear that the segment can really drive revenue.
  • It’s interesting that Twitter has 105 million users but only 55 million tweets per day.  Considering the high tweet volume of some segments like Chatters, the rule of thumb that 1% of users contribute most user-generated content appears to hold fairly true, even for something as simple as status updates.

I just plugged in some placeholder numbers for promoted tweet ad rates, but of course there’s significant revenue potential – $1 billion a year based on my current model.  In Twitter’s model, there’s no categorical distinction between a display ad and a click-through ad, which I find interesting.  They’re both just tweets.  Of course, one tweet may have a link and get clicked on.  I’m sure Twitter will be factoring that behavior into how it prices promoted tweets going forward.

Of course, there are a whole host of factors that could move that number up or down.  Usage patterns could differ, CPMs might be different based on the segment and demographics, and so on.  One of the biggest, which I’ve ignored for now, is differences between US and international Twitter users.

If you were Twitter, which estimates in this model would you be the most focused on?


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