Twitter’s Innovative Business Model

April 30, 2010 § 2 Comments

Originating from chirping birds, ‘tweet’s,  a social networking system composed of  thoughts, feelings, and opinions have a great deal of money making. Twitter, has become one of the leading business models after four years initiating from a “daylong brainstorming session” (Twitter, 2010). The tweets have character limits of up till 140-letters; significance of it is to emphasize the fact they should be short, concise, and intuitive.  How does this Twitter develop into a incredibly popular hobby for thousands of users?

Well here is the answer: Advertisements and the abundant number of subscribers. This is ironic. You may be thinking, “Hey, there aren’t any banner ads across the top of Twitter’s website” (Smith, 20o9). This true to some extent, and very useful. Who would want to use a site with freaky advertisements and nobody wants annoying cursors nor screen-savers.   Yet, the co-producer of Twitter, Evan Williams ” has said that applications will be featured on Twitter, and an adwords-type feature currently shows one application at a time on the results page. Applications are the graphical ad unit of the future and if done correctly, will be accepted by the Twitterati” (Smith, 2009).

I’m sure most of us has seen electronic news articles with “Birds of feathers” somewhere in the page. In fact, this is the part of what it makes Twitter so special. As explained earlier, Twitter does not advertise themselves on other pages. However, they utilize massive websites, hoping many people would see, which will eventually “identify a group of people with a common interest and then expand that target by finding others with similar interests.” (Smith, 2010).

Using this method, not only Twitter would be ‘advertised’, but also companies and institutions would get a grasp of what people are interested at the moment. If people “tweet” a lot about a certain article or event, then obviously  that event or article is certainly a matter of concern. A vogue even.

In this sense, the “Birds of feathers” accumulated by Twitter is a positive externality of production. ” An externality (or transaction spillover) is a cost or benefit, not transmitted through prices, resulting from the actions of one party that are incurred by another party that did not agree to that action. A benefit in this case is called a positive externality or external benefit ” (Externality, 2010). Twitter is producing a positive externality because it is giving benefit not only to themselves but also other institutions as well.

Thus, Twitter’s innovative business model comes from the idea of dispersing the work with the rest. “Instead of trying to do everything itself, the company threw open its doors and let other people build little applications that make it more useful” (Newsweek, 2010).  As a result, not only has Twitter become one of the most popular social networking site along with Facebook or Myspace,  but also a positive externality of production.

Read more here and here; Definition of Externality

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§ 2 Responses to Twitter’s Innovative Business Model

  • Peter Anthony says:

    Like the idea of including a diagram here, but you have the wrong one! Remember if you focus on production either negative or positive you focus on the Social and Private COSTS.

  • Harbinger of Truth says:

    ^^ Interesting blog post. First time reading an Econ blog post about Twitter and its externalities. It’s very original, and the writing overall is very comprehensive and cogent, too. “Birds of feathers”… it reminds me how small changes make the small wonders that transform, cumulatively, the world for the better. Positive externalities of Twitter in action… ^^
    – Hyun

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