(Updated) Relentless biz-blogger Kara Swisher is pushing again for Facebook to acquire Twitter. Twitter will never IPO on its own, she says, and Facebook is Twitter’s most natural fit as a parent company.
But there’s an important number missing from Swisher’s post and all other Twitter punditry: How much does it actually cost to run Twitter, and how will that number grow ever more rapidly as more customers sign up?
Twitter’s PR team hasn’t responded to my email, so I’m stuck with guesses. First, how many employees does Twitter have? Co-founder and creative director Biz Stone emailed to say there are currently 27. Using a West Coast average of $125,000 per year in salary, benefits and overhead for staff, that’s under $4 million per year for staff.
More importantly, how many tweets per month is Twitter sending to customers, and how much does it cost them? Stone says the company has never revealed those numbers.
Twitter doesn’t charge its users anything. The company pays for all messages sent to cellphones through Twitter. That’s the burn that no one’s been able to estimate with any certainty.
Last year, the company’s blog claimed costs of $1,000 per user per year to send SMS messages to Europe -- which is why Twitter stopped sending them. But there are no numbers for what its U.S. customers cost. To calculate that, we’d need to know the total number of tweets sent through the system in, say, a month, plus the per-message price that Twitter has (hopefully) negotiated with cellphone carriers. I can’t even find a good guess anywhere on either of those.
Finally, the biggest problem of all is the network effect of Twitter’s popularity. As the number of people using a network goes up, the number of connections between them rises much, much faster. Most Twitter users now have several times more followers than they did a year ago. As a result, every update sent to all of a user's followers costs the company more to send to everyone who’s subscribed by phone.
It’s an exponential function: The more people use Twitter, the faster the number of messages grows. Twitter’s SMS bill is not only climbing, it’s accelerating, and each new customer costs more than the last one. Any company looking to acquire Twitter has done calculations to estimate the future cost of the service, which could grow from a reasonable expense to a profit-destroying nightmare if Twitter's acquirer were successful at marketing the service without charging for it.
Too bad none of those estimates have yet been leaked onto the Internet. Anyone?
Updated with Twitter staff numbers
Comments
It probably costs Twitter something like .06 or less per SMS message they send to a cell phone. Personally, I only enable the SMS mobile feature during an event (e.g. SXSW) to find out which bars to hit at night. Otherwise, it's too much "noise".
I think the vast majority of Twitter users don't use SMS to receive updates from their friends. They are more apt to use it to send. I think that's particularly true of newer users, so Twitter's SMS load is probably not as heavy as most analysts think.
If this is indeed how much it costs, they will never even be close to profitable.
As a point of comparison, the major email services cost somewhere in the single digit dollars per yer per user. At the end of the day, they are going to have to charge for SMS updates, or at least cut some sort of deal with the phone providers so they don't have to pay (the phone companies should be happy to do it since their users are paying a lot in aggregate to recieve those messages).
Twitter definitely should be getting money from the cell phone companies. I signed up for unlimited text messaging only after starting to use Twitter.
I love "The Standard" 's standard on fact-finding. If you dig a little deeper, you'll find it's public information that Twitter pays a fixed cost to the US wireless carriers, which is why their "burn rate" for that portion in the US is tenable.
Don't get me wrong. I in no way think Twitter has a valid business model (yet), or will ever have one. It's just annoying when reporters write about things they don't know about, or haven't thoroughly researched, and then try to spread that as fact.
Twitter, +1
The Standard: FAIL.
RE: SMS costs
In the US, a short code costs $500-1000/month depending on whether it is randomly assigned or pre-selected. To connect the short code to the carriers, companies pay $1500-2500 give or take per month for the aggregation connection (aggregators provide connection to the carriers, the carriers have little interest in connecting directly with companies because of the cost/benefit in doing so), and approximately $0.025 per message sent. You have to assume they get a volume discount, so it's probably close to $0.01 per message.
Quite a high estimated burn rate, how will the business model evolve and leverage on the user base
In the long run I think this problem will become obsolete because charging for mobile messages is an out-dated business model of the carriers in general. While still a cash cow today (look at the money the carriers make from SMS services in the West), it will become a flat-rate commodity service in the next few years to come, very similar to mobile web and voice in the long run. (Yes even in the US and Europe)
In many parts of Asia this is already a reality and for example in Japan there are no extra costs for Twitter Japan to deliver or receive messages via mobile phones.
Maybe FaceBook buys Yammer.
I don't think that's such a big worry!
SMS can be a great source of revenue and I'm sure twitter already knows this. There are so many sms based services which run a successful model.
Google SMS channels (India only) is trying hard to garner a good sms subscriber base while twitter doesn't have to do anything to gain sms subscribers.
Once twitter starts monetizing itself, I guess users will start seeing ads at the end of their sms messages and I bet no one would complain! Ads at the end of your messages aren't really that obtrusive :)
$125,000 a year average salary? Ha ha! That's ridiculous. If they are paying people $125k a year, they are insane.
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