07/31/2020 | News release | Distributed by Public on 07/31/2020 16:32
ByTien Tzuo •July 31, 2020
Are you a Twitter user? Congratulations! Not only are you making the company around $50 a year from its advertising business, but you're also helping to provide much of the content that makes that advertising business possible!
In a just world, social platforms like Twitter and Facebook should be paying us a monthly dividend for all this free labor, but as the old saying goes, if you're not paying for it, you're not the customer - you're the product being sold. The real customer is the advertiser.
Last week Twitter reported that its quarterly revenue was down 23% year-over-year. The reason is screamingly obvious - an advertising industry in free fall due to COVID-19. Forrester predicts that advertising spending will decline by 25% this year, and won't recover until 2023. That's not a surprise. Advertising is the first budget to get axed during tough times.
This probably explains why Jack Dorsey confirmed that the company is investigating a subscription-based product in order to diversify its revenue. Right now the vast majority of Twitter's money comes from advertising, and the rest comes from data licensing (yes, that's your data - remember, you're the product).
Investors love this idea so much that when Twitter posted a vaguely worded job description that mentioned subscriptions a few weeks ago, the stock popped 7%! There's nothing like a pandemic to speak to the stability and predictability of recurring revenue! And a subscription product might make sense for Twitter's hard-core users. As TechCrunch notes:
'The prospect of a paid version of Twitter - free from trackers, annoying ads and irritating algorithms which meddle with the clean chronology of the timeline - has been a holy grail for certain Twitter addicts since (basically) forever.'
But personally, I see two big problems with Twitter's pivot to subscriptions.
First, this is a reaction to plunging advertising revenue. It's not a standalone initiative. It's not a pure subscription play. It's a fallback plan. It's about patching a revenue hole, not creating a great new service for people. That's never a good sign.
Lately, I've noticed some other companies jumping on the subscription bandwagon because of faltering finances, and it never seems to go well. It's a poison pill. Users feel extorted. The whole thing feels desperate.
Second, why would I want to subscribe to a service that is fundamentally based on advertising? I subscribe to news services because I trust them: I feel like they do good work, I want to support their voices, these are journalists that are dedicated to their craft, and I know that they have editorial standards and a reputation to protect. And now Twitter wants me to think that they're The New York Times? It doesn't make sense.
Social media may have won the advertising war, but they won't win the subscription war. Why? Because subscriptions only work when there's trust involved. And people don't trust advertising platforms.
Successful subscription-based media companies focus on their users, not their advertisers. They invest in a relationship with them. Every day they ask themselves: How can I improve my subscriber experience? What else can I do for them? How do I continue to earn their trust?
Right now, Twitter doesn't have my trust.
For more insights from Zuora CEO Tien Tzuo, sign up to receive the Subscribed Weekly here. The opinions expressed in the Subscribed Weekly are his own, not those of the company. The companies mentioned in this newsletter are not necessarily Zuora customers.
And check out his book SUBSCRIBED: Why the Subscription Model Will be Your Company's Future - and What to Do About It.