Start-ups & Advertising

Twitter first began selling advertising on its site in earnest in 2010 four years after being established. According to Wikipedia at that point, Twitter had 70,000 registered applications and as of June 2010, there were approximately 65 million tweets were posted each day, equaling about 750 tweets sent each second.

With Twitters filling its IPO documents last week analysts could see that the Company posted revenue of $316.9 million in 2012 and revenue of $253.6 million in the first 6 months of 2013. This is with a user base of 200 million users sending over 400 million tweets daily. If we do the basic math for 2013 (doubling the initial revenue) this suggests that a revenue of $2.5 per user.

This is the problem which many digital start-ups face if they are not selling a product – how to create revenue. The realization for many start-ups is that relying on advertising to create revenue or even cover costs is practically impossible. Twitter (and other comparable companies) waited years before having advertisements knowing that users get annoyed and feel uncomfortable by online advertising.  

In digital marketing the rough estimate is that for 100,000 unique visitors a month amounts to $1000; 10m unique visitors to get 100,000. This does not bode well for start-ups attracted to the social network sphere, or any other area which does not have a traditional revenue model. However, for niche social networks the number of active users needed before advertisers will start to pay attention to the site can be significantly lower due to an already targeted user base. However, to attract capital to launch a start-up, VCs or any other investor is going to require revenue of some sort, and quickly. The question for those launching start-ups is what the trade of is between getting advertising dollars and having a site which users, or potential users, are not detracted by or put off by the advertising. As users of social networking sites we are used to not having to pay anything to be on these sites and often refuse to join or upgrade onto sites which do have a fee. The question is, how much this will have to change with the new generation of sites as investors demand different revenue models and the price per advertisement reduces.