Twitter’s Business Model in 8 Charts

BY ANDREW SHEEHY, CHIEF ANALYST - 15 Oct 2013 Comments

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International Users Accounted for 78% of Twitters Active User Base in 2Q13

Twitter is a mainly international platform.

For the last three years international users have accounted for a growing percentage of Twitter’s worldwide user base: 67% in 1Q10 and 78% in 2Q13:

Title:Twiter Worldwide Monthly Active Users 2010 2012
Sub Title:Average MAUs for the Quarter, Millions
Companies:Twitter
Years:2010, 2011, 2012, 2013

93% of Twitter’s User Growth in 2Q13  Came from International Users

For the three years from 2Q10 to 2Q13,  Twitter’s worldwide user base has been growing at an average rate of 14.5 million users per quarter.

However, international users have accounted for an average of 79% of that quarterly growth. Furthermore, for the most recent two quarters (1Q13 and 2Q13), growth in international markets has been accelerating, accounting for 84% and 93% of absolute growth in those two quarters respectively.

Title:Twitter Quarterly Increase in Monthly Active Users (MAUs)
Sub Title:Increase in MAUs Relative to Prior Quarter (Millions)
Companies:Twitter
Years:2010, 2011, 2012, 2013

US Users are More Engaged with Twitter than International Users, but International Users Are Closing the Gap

When measured in terms of how many times a user visits their Twitter account, refreshes their timeline (Twitter feed) or uses Twitter’s search features, then US users were 47% more engaged than international users in 1Q12 but only 27% more engaged in 2Q13 as international users have become more progressively more engaged:

Title:Average Timeline Views per User (MAU)
Companies:Twitter
Markets:Social Networking, Microblogging
Years:2012, 2013
Regions:Worldwide
Countries:United States

75% of Twitter’s Total Operating Costs are Due to International Users, and that Percentage is Rising

Because Twitter’s total operating costs are related to the number of users we can get a feel for the percentage of Twitter’s costs that are due to international users by looking at MAUs and Timeline Views for international users.

In the following figure we have used two approaches: one is to assume that the company’s costs are directly proportional to the number of international users while the other approach assumes that Twitter’s costs are directly proportional to the number of international timeline events:

We have also charted an average of the two approaches:

Title:Twitter Approximate Percentage of Total Operating Costs Arising from International Users
Sub Title:Percentage of Total Operating Costs and Expenses
Companies:Twitter
Markets:Social Networking, Microblogging
Years:2012, 2013
Regions:Worldwide

While this is clearly a very approximate way of estimating how Twitter’s costs are apportioned across its user base, it does illustrate how important the company’s growing international user base is and also how the growth in international users (which accounted for 93% of the company’s’ absolute growth in user numbers in 2Q13) is causing the company’s cost structure to be skewed heavily in favour of international users.

In 1H13, International Users Accounted for 77% of Active users, but Just 24.8% of Revenues

International users are contributing a steadily increasing percentage to Twitter’s total revenues:

  • 6.8% in 2010
  • 16.7% in 2012
  • 24.8% of revenues in 1H13

This improvement was mainly due to Twitter having introduced its first international ad product in September 2011.  Twitter is presently dependent on partners in international markets to sell its ad inventory but the company has said that it plans to roll out its self-service ad platform in selected international markets in the near term and has also announced a plan to open a number of international offices which will reduce the dependence on resellers and agents.

Title:Twitter Worldwide Revenues
Sub Title:USD, Millions
Companies:Twitter
Markets:Social Networking, Microblogging
Years:2010, 2011, 2012
Regions:Worldwide
Countries:United States

Nevertheless, the difference between revenues derived from international users and the number of international users is considerable:

Title:Twitter Worldwide Monthly Active Users (MAUs)
Sub Title:Average for the Year , Millions
Companies:Twitter
Markets:Social Networking, Microblogging
Years:2010, 2011, 2012
Regions:Worldwide
Countries:United States


International Revenues are Growing, but not Fast enough to keep pace with Growth in International Users

The following chart compares the rate at which international revenues are growing with the rate at which international users are growing:

Title:Twitter: International Business
Sub Title:Comparison in Rates of Growth for Users and Revenues
Companies:Twitter
Markets:Social Networking, Microblogging
Years:2010, 2011, 2012
Regions:Worldwide

It is clear from this chart that Twitter was successful in accelerating the rate of growth in international revenues in 2011, compared with 2010, but that the current trajectory is still too low: Twitter must aggressively develop its international ad business in order to avoid a potentially fatal problem where international costs continue to increase at a faster rate than revenues.


75% of Users Access Twitter via Mobile Devices and 65% of Advertising Revenues Come From Mobile Devices

Title:Twitter Mobile Access: 2Q 2013
Sub Title:Percentage of ad revenue and active users that are mobile
Companies:Twitter
Markets:Social Networking, Microblogging
Years:2013
Regions:Worldwide


Average Advertising Revenue per U.S. User is 20x that for an International User

There is a sharp difference between the revenue that Twitter is extracting per active user when figures for US and international users are compared.

In 2012, the first full year when Twitter had an international ad product, users in the US were generating more than 15x as much ad revenue as international users. When viewed on an annualised basis, the figures for 1H13 show an even stronger skew in favour of the US, with US ARPU being over 22x that internationally.

Bearing in mind that ‘international’ includes major developed ad markets like the UK, Germany, France etc. then the contribution to ad revenues of developing markets – those where Twitter has been credited with being instrumental in effecting political change, for example, must be practically zero.

Title:Twitter Average Advertising Revenue per Active User
Sub Title:Advertising Revenue per Monthly Active User (MAU) per year
Companies:Twitter
Markets:Social Networking, Microblogging
Years:2010, 2011, 2012
Regions:Worldwide
Countries:United States

This is highly significant for two reasons:

  • Online and mobile advertising ARPUs are fundamentally lower in international markets than in the US, and this is especially the case in developing markets where most of Twitter’s growth is coming from. This a feature of the wider online advertising market that has nothing to do with Twitter and means that there is a limit to how much Twitter can increase advertising ARPUs for international users;

  • Mobile advertising ARPUs are fundamentally lower than online advertising ARPUs – and this, again, is something that has nothing to do with Twitter: Facebook and Google are dealing with the same problem as they develop their mobile advertising businesses. Again, this means that there is a limit to how much Twitter will be able to increase international advertising ARPUs.

Essentially, Twitter is facing a ‘double whammy’ problem – its user base, cost structure and growth is heavily focussed on international markets but the revenues extractable from those international markets are fundamentally lower than in the US when measured on a per user basis: international per user ad revenues are lower than in the US – for all ad media, and mobile ad revenues are also lower than online, which is the dominant access method used by Twitter’s international users.

The worst case scenario for Twitter will be that the company faces a fundamental problem where most of its growth is occurring in markets which are fundamentally incapable of being adequately monetised using mobile advertising products. In this case, Twitter would be in a runaway situation with users and costs increasing in proportion, but revenues failing to keep up.

We think that the company will need to introduce a major change to its business model if this problem is to be avoided.

Andrew Sheehy
Chief Analyst

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Contact Andrew Sheehy at andrew@nakono.com or follow him at twitter.com/sheehy_andrew