The Twitter Case
Final for Advanced Business Structures
Ivana Paraca April 30, 2013

Table of Contents List of Figures 3 List of Tables 3 Introduction 4 Business Background and Specifications 4 Product and service lines by revenues and profit margin 4 Twitter’s Rise in Revenue 5 Twitter’s products and services 6 Twitter Business Model 7 Geographical distribution of Twitter services 7 Competitor analysis (sales, products and geographical distribution of services) 9 Size of the Marketing and Communication budget of Twitter and that of its competitors 10 Twitter’s Business Strategies 10 Define and characterize the type of control strategy Twitter uses 11 Company Policies 12 Define and characterize the type of change 12 Identify the growth and differentiation policies of the company 13 Twitter and Virtual Teams 15 Innovation and Improvements 16 Wholefoods and Twitter 16 Improvements for stakeholders 17 Conclusion 17 References 19

List of Figures Figure 1: Twitter Ad Revenues Worldwide, 2011-2015 (In millions USD and % change) 6 Figure 2: Global Distribution of Twitter Users 8 Figure 3: Twitter Users Created, 2006-2010 9 Figure 4: Porter's Generic Strategies 11 Figure 5: Twitter's Product Differentiation 14

List of Tables Table 1: Twitters Financials 5 Table 2: Facebook's Marketing and Sales Costs 10

Introduction
Without a doubt social media has greatly altered the way people, companies and even countries communicate. With the arrival of Twitter in 2006, the age of instant communication that one could broadcast to a global audience was born. In short, “Twitter is a real-time information network that connects you to the latest stories, ideas, opinions and news about what you find interesting” (Twitter.com, 2013). What was so revolutionary about Twitter was that rather than having a conversation with one person, it was possible to engage with a large group of people in real time regardless of physical location. Also a hashtag could generate “followers” who were made of individuals interested in the person or personality with the tweet handle. A variety of media is shared through this channel and Twitter states, “Each Tweet is 140 characters long, but don’t let the small size fool you—you can discover a lot in a little space. You can see photos, videos and conversations directly in Tweets to get the whole story at a glance, and all in one place” (Twitter.com, 2013). For individuals who want to communicate and be communicated with, Twitter proved incredibly popular. According to Barnett, the Social Media site, “has actively transformed the way that people communicate both on and offline” (2010). This paper will outline some of the basic principles of the company and discuss how its incorporation into peoples’ daily lives have altered communication and business patterns.
Business Background and Specifications
This section will discuss the major business structures and organization of the Twitter Company.
Product and service lines by revenues and profit margin
In 2010 and 2011 Twitter was actually financially insolvent. According to Lynley “in the first quarter of 2011, Twitter brought in $23.8 million in revenue and lost $49.2 million — with a net loss of $25.8 million for the quarter” (2012). While these figures are company wide and not broken down by product or service line, its clear to see that prior to changing it business model to ads based Twitter was in financial trouble; in fact there was no profit margin in 2010 or 2011. Although it may have generated nearly 24 million USD in revenue in 2011, its costs were nearly 50M. Yet since the company has a lot of positive feedback in the market as well as credibility with many banks, the investors are willing to take a chance on the company and continue to invest.
Table 1: Twitters Financials Source: Gawker
Twitter’s Rise in Revenue
In order to generate income, Twitter’s major source of revenue is via advertising, which is connected to the tweets, trends and brand pages that users create on the social media site. According company financial data, “Twitter brought in $350 million in revenue in 2012. And we’re hearing that the revenue team, while not cash flow positive just yet, beat their Q2 2012 goals in Q1 2012” (Tsotsis, 2012).

Figure 1: Twitter Ad Revenues Worldwide, 2011-2015 (In millions USD and % change)
With the change in business model, which will be discussed below, it is clear that the revenue and profit margin of the company has been affected. As Bercovici states, “with an IPO likely slated for next year or sooner, other sources have been even more bullish about the company’s monetization prospects” (2013). With greater and greater capital investment, we might see Twitter traded on a stock exchange in the near future.
Twitter’s products and services
Twitter has a wide distribution of services and are as followed: Search, Ecommerce, B2B Consumer Help, Twitter 101, Applications and Network marketing (Smith, 2009). As we can see there is a wide range of services that the Twitter Company has developed in order to address the needs of the market. According to Bloomberg BusinessWeek, “The company also provides an enterprise-level Twitter integration solution for email marketing. Twitter, Inc. has a strategic alliance with salesforce.com, Inc.” (2013). Twitter has not just decided to address the social media market, it also recognizes that its services can be used to promote businesses.

Twitter Business Model
As we know, a business model is, “The plan implemented by a company to generate revenue and make a profit from operations. The model includes the components and functions of the business, as well as the revenues it generates and the expenses it incurs” (investopedia.com, 2013). So in short, how a company makes money. Whether Twitter has a business model or not is debatable because it was not until 2010 that the company began to offer ads that generated revenue. Yet the company has developed the idea of “promoted Tweets” which are “ordinary tweets that businesses and organizations want to highlight to a wider group of users” (Barnett, 2013). Tweets are at no cost to the individual but as a premium service, the tweet can be promoted and “seen” by a number of registered Twitter users. Depending on the reach of the Tweet, the company has designed a pricing schedule. So at it very basic level this is paid advertising; the main difference between this type of social media advertising and print advertising for example is the wider customer reach that the former type has.

The other major aspect of Twitter’s business model is, “search partnerships with Google, Microsoft and Bing which allow each search engine to index all of Twitter’s data and pull it into the main body of search results” (Barnett, 2013). By coming to an agreement such as this, Twitter can also use the data it has collected from Twitter users, who have agreed to this in the terms of the user agreement, to essentially “sell” to major search engine. Twitter and the search engine determine a set price for the value of the data being accessed.
Geographical distribution of Twitter services
Although the website does not state the exact number, according to Twitter, “Twitter is used in nearly every country in the world and is available in more than 33 languages” (2013). In fact the topic of geographic distribution can be difficult to understand because of the physical distribution and the virtual distribution of users. Some users’ profile may have been created in the UK but they currently reside in the US. Also, not every user has elected to answer the location question on their Twitter profile. Another issue with geographic distribution and Twitter usage is the idea that Twitter is everywhere can be misleading because not every countries’ Twitter users participate equally. According to Kulshrestha, “The top 10 countries alone account for 84.9% of the whole Twitter population, while the bottom 80% of countries only account for 2.3%” (2012). The following figure is accurate as of October 2013 and shows the number of Twitter users in each country based on shading (Beevolve.com, 2012).

Figure 2: Global Distribution of Twitter Users
We can also understand how the users are distributed with a look at the countries that have the highest use percentages. As can be understood the US by far has the highest number of users follower by the UK.

Figure 3: Twitter Users Created, 2006-2010
Competitor analysis (sales, products and geographical distribution of services)
In truth it would seem that Twitter doesn’t really have competition because there is not an exact service like it but this statement is not entirely true. Twitter does have a few different sources of competition, primarily in the form of Facebook. According to Isaac, “Facebook is Twitter’s competition for ad sales, plain and simple” (2012). So while perhaps the interface is not exactly the same, Facebook has a similar SM vibe as Twitter and attempts to use tools such as “promote event” to reach Facebook users. One issue that should be mentioned is that Facebook also is a bit older than Twitter and has had a bit more time to generate revenue. According to Benoit, “Facebook’s revenue hit $3.7 billion last year, growing from $1.97 billion in 2010 and $777 million in 2009.On the bottom line, Facebook made $1 billion in net income, up from $606 million in 2010 and $229 million in 2009” (2012).

But in terms of interfaces that resemble Twitter, Mead states, “The truth is, Twitter has had – and continues to have – a number of lower-profile competitors such as Plurk (big in Taiwan), Jaiku (owned by Google), identi.ca and many others” (2011). But none of these sites has been able to take over the market in the way that Twitter has. One of the reasons for the tremendous success of Twitter can be attribute to its simplicity. Mead mentions, “Twitter’s simplicity is why it has the dedicated microblogging market sewn up – it spotted a niche in the social media market and got things right from the start” (2011).

Size of the Marketing and Communication budget of Twitter and that of its competitors
As we say in the table 1 above the size of Twitter’s marketing and sales budget was 5.4 million in 2011. The total for Facebook’s marketing budget it was difficult because it is broken down as “marketing and sales” but the following table 2 demonstrates the size:
Table 2: Facebook's Marketing and Sales Costs | 2009 | 2010 | 2011 | Cost of Marketing and Sales (in millions USD) | 115 | 184 | 427 |

Source: US Security and Exchange Commission

Additionally, “Among the biggest drags on Facebook’s profitability has been how much the company is paying for its growth. Its marketing costs more than doubled, to $159 million in the first quarter on 2012” (De la Merced, 2012).
Twitter’s Business Strategies
As we know, Porter’s generic strategies are in the figure below. Depending on the industry and the product, these strategies can vary because they can be applied to products or services in all industries, and to organizations of all sizes. If we compare Twitters business strategy based on Porter’s Generic Strategies we can see that its scope is narrow and it has identified with a differential focus. Because it offers unique services, it has been able to capture this aspect of the social media market.

Figure 4: Porter's Generic Strategies
The uniqueness of Promoted tweets, trends and brand pages has allowed it to basically build a consumer base for itself. Capturing the market early has helped lead to its competitive advantage.
Define and characterize the type of control strategy Twitter uses
We can say that Twitter uses some blend of bureaucratic and clan control in its control strategy. It would appear that Twitter does not use market control because this involves, “prices, competition, profit centers, and exchange relationships" to establish control, and it works well where "tangible output can be identified and market can be established between parties” (Bateman and Snell, 2009). Twitter in face is not really “selling a product” it is offering a communication service and allows companies to have their products seen by Twitter users. So in a sense Twitter is like the middleman between companies and consumers. Twitter is not overly concerned with prices, this can be supported by the idea that its revenue has just recently become profitable.

In the Twitter organization there is a clear hierarchy that can be seen in the company’s organization structure. Individuals like Jack Dorsey, Biz Stone and Fred Wilson are obviously at the top because they created the idea of Twitter. But the company is not a rigid hierarchical structure where only one person is the decision maker. The nature of twitter and its innovativeness lends itself more to the idea of clan control. As we understand, Clan control “involves shared culture, beliefs, standards, and trust. This control system works best where no one is strictly the decision maker and employees are encouraged to provide input, make choices, and act independently” (Bateman and Snell, 2009). In the Twitter organization, we can see that Social Media is constantly developing new products and services. Twitter, with its innovative products cannot afford to be a strictly bureaucratic system that does not allow for individuals at all levels to have input.

According to Bateman and Snell, clan control is new and “is starting to become popular with the increased need for innovation” (2009). Since Twitter is a very innovative company it would make sense for its management to adopt this control strategy. Twitter does need a clear leader and hierarchical structure. This is why it would appear that the company is some blend of the two with a closer leaning to the clan structure.
Company Policies
As is common in the lifecycle of all businesses, Twitter has undergone both internal and external changes. This section will outline some of the major developments as well as discuss innovation and improvements. Define and characterize the type of change
There are three changes that most closely characterizes Twitter’s evolution as a company. Firstly there has been a major strategic change as well as two smaller changes, which are more like alterations or expansions in scope; one technical with respect to the updating of the Twitter algorithm and the other in products and services with respect to promoted tweets and trending.

In terms of the strategic change, Twitter has gone from a non-revenue generating company to one that is estimated to generate 950 million USD in 2014. The company began in 2006 but it wasn’t until 2010, with the implementation of a true revenue generating business model that it began to turn a profit. In order to establish the company a great deal of venture capital was acquired yet as of 2010 with the implementation of “promoted tweets” and “promoted trends”. AS promoted tweets have already been defined in another section we will just explain promoted trends which are, “an extension of our Promoted Tweets platform, and are now a full-fledged product in their own right. With Promoted Trends, users see time-, context-, and event-sensitive trends promoted by our advertising partners (Twitter.com, 2013). At the beginning the creators of Twitter seemed unsure if the product would develop successfully which is perhaps why the strategy has changed. By waiting for the Twitter phenomena to explode, which it did between 2009-2010, a need and want was created in the market. Because Twitter now connected so many people and was integral to communication and trends, the company was able to roll out its new concept of allowing promoted tweets, which is a pure advertising channel.

Secondly, there have been some technical changes at Twitter. Due ti the popularity of certain events, which have seem as many as 3,000+ tweets a second, Twitter has had to update its technological infrastructure. that most closely characterizes company (technology, products/services, strategy and structure and culture). Furthermore there has been the unveiling of API (Application Programing interface). This new feature allows,
Using the Twitter Ads API, developers can integrate Twitter advertising functionality into their applications and platforms so that users can build and manage real time Twitter advertising campaigns, purchase and deploy promoted Tweets, and much more” (Wagner, 2013).

Thirdly, the changes in products and services are also linked to the change in strategy. Twitter offers promoted tweets, trends and brand pages, which it did not when it was initially started. By changing its strategic focus it was clear that the products have evolved as well.
Identify the growth and differentiation policies of the company
Twitter in itself is revolutionary and it was developed out of a brainstorming session in which the creators tried to create something that would allow real-time conversations and feedback. Nothing of the sort had previously existed and it is this innovation that first differentiated it from the other products in the market.

In terms of corporate policies that state its differentiation, these are a bit difficult to locate. What I have found is that Twitter has established a “Best Practices” section on its website. The dedication to differentiation comes purely from the commitment to best practices, a system which has been step up for Twitter users and the company, outlining the appropriate usage of the site. Under this idea, Twitter has established some basic rules that are guidelines for the company as well as individuals; these rules try to keep products differentiated as well as keep their integrity. Also, its main products, which generate revenue, promoted tweets, trends and brand pages are “targeted” to reach a certain audience.

Figure 5: Twitter's Product Differentiation Source: Twitter.com

As we can see from figure 5, Twitter has a range of “certified” products that it uses to distinguish itself as a company. Although I was unable to find a “differentiation policy” these products try to demonstrate show how it from competitors such as Facebook.

In terms of guaranteeing growth in a policy statement this, was even more difficult to locate. The closest statement to this idea was a statement by CEO, Dick Costolo in March 2013, stating, “the company is focused on driving user growth” (Yeung). While this statement does not necessarily guarantee growth, it is an affirmation of a policy to grow. Furthermore, Costolo said, “the company is focused on building out this global concept and that while it’s not thinking about an IPO (at least publicly), it thinks all the benefits and rewards of its focus will help Twitter in the long-run (Yeung, 2013). So Twitter’s policy of basic expansion into new fields and products is an indication of the company’s policy on growth and an attempt to guarantee it.
Twitter and Virtual Teams
As we know a virtual team is, “a group of individuals who work across time, space and organizational boundaries with links strengthened by webs of communication technology” (Lipnack, 2000). Due to the nature of Twitter as a global instant communications network it is not necessary that all the individuals working on the project need be in the same place at the same time. Also since Twitter deals with the instant transfer to messages on a global scale, virtual teams are necessary. For example while half of the globe is sleeping, the other half is awake and wanting to tweet; therefore there needs to be teams to manage this.

As Williams mentions, there are examples of virtual teams working at Twitter. In response to a computer’s inability to understand certain topics such as #bindersfullofwomen, a comment made by US Presidential candidate Mitt Romney, Twitter “hired its new “human computation engine” via Mechanical Turk, that links employers with home workers willing to do typically mundane tasks that computers remain incapable of; such as accurately transcribing speech” (Williams, 2013). In these teams the individuals are already working in different parts of the globe. Williams states, “they're geographically distributed, so our tasks complete quickly at all hours” (2013). So Twitter lends itself to virtual teams and is an organization that could operative to a high level of effectiveness with them.
Innovation and Improvements
Most companies, in order to remain competitive, need to innovate and continue to improve on their technology; otherwise another company will do it in place of them. Twitter has certainly been at the forefront of both processes. When we consider innovation, we know that basically it is taking a product and using it in a new or alternative way. Twitter certainly has the monopoly on innovation with its brand pages, promoted trends and promoted tweets. This section will look at Twitter’s innovation as well as problem areas.
Wholefoods and Twitter
Twitter users certain have taken the tweeting idea to the next level and this can clearly be seen in the case of the Whole Foods Company, which has over 150 Twitter Accounts and uses the social media site in a unique way to get its message across. (Stelzner, 2010). Essentially, what has been established is a question and answer service. According to Maria Erwin, Interactive Art Director of Whole Foods
On Facebook, unlike Twitter, everyone can see each other’s comments, so it becomes much more of a group conversation. Probably 90% of our output on Twitter, if you go to Twitter.com/wholefoods, is directly responding to people who have questions (Stelzner, 2010).
Therefore Twitter is a bit like a customer service tool in which customer can get specific questions answered. Whole Foods can have constant contact with their consumers and the consumer can respond and make suggestions. Erwin states, “We do promote our blog content and we may mention, “We’re having specials for the holidays,” and that sort of thing. But our number-one focus on Twitter is customer service” (Stelzner, 2010). The Twitter users of While Foods are helping to promote products such as new offerings but also getting something personal in return, their questions answered.

Improvements for stakeholders
In terms of the company organization it would see that there is one major improvement that it could make. The first has to do with growth. Since the company rapidly went from 60 people in 2007 to 175 in 2010 we can see that there is a tripling effect going on at the company. This may not continue from year to year but Twitter, due to its popularity is likely to continue to grow. Perhaps this growth factor would imply that Twitter needs more regional or geographic managers such as in different countries. Although there are offices in the UK and US, it is obvious that there needs to be Twitter managers that can cope with the traffic in other countries and be able to trouble shoot in the case of a problem such as the French student case that erupted in March of this year. By employing individuals who speak many languages as well as know the culture, the company can make the product and service more targeted to the population. For example if a certain offensive speech or language gets published at least the Twitter will be aware that something is occurring so that he can devise.
Conclusion
In conclusion there are many lessons we can learn from an analysis of the Twitter Case. Firstly, Twitter is a company that currently offers a service in high demand to both individuals and businesses. With a unique business model, waiting nearly 4 years to generate a profit, and then using advertising as the primary source of revenue, Twitter seems to be taking advantage of a need in the market as well as an opportunity in technology. Although there is no guarantee that the company will be able to maintain a constant income, other companies such as Facebook show the possibility of sustainable growth and income. Also due to the uniqueness of the Twitter services and products it has a significant competitive advantage over others similar social media networks. Its business strategy, which is a mix between clan and bureaucratic control, seems to allow flexibly yet offer just enough structure so that it can be labelled an innovative company. Due to the company’s evolution in terms of strategic and technical changes, it has been able to highlight a specific policy on growth, which is targeted at increasing the number of users. A greater user base means the ability to offer those who advertise on Twitter more access and better targeted access. While we cannot be certain of its success, companies such as Whole Foods have used the updated Twitter technology to increase their customer service and reach to consumers. With its constant eye on improvement and innovation, Twitter seems prime to lead the Social Media market for years to come.

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