Twitter’s Ecosystem Revenue Conundrum

Here’s the funny thing about Twitter’s spectacular growth over the past four years: As much as the service has attracted millions of people around the world, Twitter’s popularity has been fuelled by the thousands of third-party applications that have made it more useful, user-friendly, valuable and entertaining.

The upside is Twitter has a huge ecosystem of partners, many of whom have built businesses leveraging Twitter’s API. This group includes high-profile players such as TweetDeck and HootSuite that have been able to raise venture capital.

As Twitter moves to embrace an advertising-based revenue model, one of the challenges it faces is whether it should support the ecosystem in the process, or whether Twitter needs to start generating more revenue from the ecosystem through things such as API fees.

Take the introduction of in-stream ads that will provide companies with opportunities to promote their products and services in ways that are contextual and relevant. Rather than roll it out on, Twitter decided to test it on HootSuite (coverage on Silicon Valley Insider). This is after Twitter said third party clients¬†couldn’t run ads in the streams.

So why the change of heart?

In many respects, Twitter needs its ecosystem as much as the ecosystem needs Twitter. As the advertising business grows, Twitter needs to think of ways to share the wealth. In many respects, it needs to create an advertising system akin to what Google does with third-party Web sites, albeit at terms that are more generous.

The bizarre part of Twitter’s advertising dreams is how long it took for them to materialize and how long it is taking Twitter to throw itself into the advertising arena.

Note: Twitterrati has been inactive for a couple of weeks as my consulting business has been very busy. My apologies, and I will double down on posting on a regular basis.

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