Twitter has a secret formula for creating a billion dollar company that most people can follow in three phases. In just 7.5 years, Twitter went public on the New York Stock Exchange and minted 10 billionaires. And 10 years after that, Twitter sold for $44 billion to Elon Musk.
Becoming a billion-dollar company is a feat other social networks took longer to do:
The best part is this was all part of a masterful plan anyone can understand, regardless of your business model. But what is it that the Twitter team knows about building a growth engine & scaling tech companies that others don't?
After extensive research, I was able to uncover that Twitter's success comes down to a simple 3-phase process:
To see how Twitter built its successful growth engine to $44 billion, we first need to understand Twitter’s history and beginning.
Before Twitter, ex-Google employees Evan “Ev” Williams and Noah Glass attempted to launch Odeo, a podcasting platform. Their vision? “We're making it easy for you to discover, create, and subscribe to fresh, independent audio content,” according to a March 2005 archive of Odeo.1
Despite their best efforts, including coverage in the New York Times, Odeo never took off.2 Some speculate that when Apple released iTunes podcasting, it made Odeo's platform obsolete.3 However, this seems unlikely as Twitter was later able to compete with the SMS app Dodgeball.4 Plus, some founders view taking on a huge rival like Goliath as a badge of honor.
To find a new direction for Odeo, the team ran hackathons.3 Eventually, this led to hatching Twitter, the now-iconic unicorn company. Twitter was a little birdy in March 2006 as an Odeo side project. Initially, it was only available to employees of the company.
Later, Jack Dorsey introduced the concept of status updates through text messages.5 He soon posted the first tweet to Twitter: “just setting up my twttr.”
Little did Dorsey know that people’s desire to keep up with the status of events was the foundation of Twitter’s positioning strategy, which takes us to phase 1.
In 2006, Jack Dorsey stumbled upon what became Twitter’s value to its users: the ability to get lightning-fast updates about news and events. This is why Twitter became popular at events like South by Southwest. It’s why celebrities found the platform beneficial for sharing their latest events with their fans. And it’s why Oreo’s humorous tweet about the 2013 Super Bowl blackout may have reached more fans than the $3.8 million ads.
In the summer of 2006, Twitter received coverage from Techcrunch’s founder, Michael Arrington.6 Arrington enjoyed the product, but there were issues with self-sign-up. “Someone added me to Twitter at the same time I tried to register directly. The result was a lockout of my phone number. I’ve been playing around with someone else’s account until I can figure out how to get my number sorted out.”
Even with Arrington’s hesitations, the Twitter team continued with their launch. In September of that year, the founders launched Twitter at Love Parade,7 gaining some traction.
The team uncovered Twitter’s positioning and value proposition: the ability to be the first to know what’s happening now.
Events are a powerful means of getting new users as they offer a lot of exciting things happening at the moment. Yet you might miss these moments if you’re not in the right place at the right time. Twitter made it easier for people to be where they needed to be.
Here’s what happened:
First, Twitter spun off from Odeo and became its own company in April 2007.8 Three months later, Twitter announces a $20 million funding round. The round was led by legendary investor Fred Wilson of Union Square Ventures.9
In June 2007, Twitter raised a second round of funding and included Amazon’s CEO Jeff Bezos.10 Bijan Sabet of Spark Capital also came on board. Existing partners Union Square Ventures and Digital Garage invested more money.
In February 2009, Twitter announced a $35 million Series C funding round at a $250 million valuation. This brought investors like Peter Fenton of Benchmark Capital and Todd Chaffee of Institutional Venture Partners.11
Twitter experienced massive growth in these years, according to the co-founder Biz Stone.12 “Active users have increased 900% in a year and even though our web traffic is amazing, we see twice that traffic to the APIs...”
Twitter doubled down on events, and its progressive growth showed that its users would stick around even with a buggy platform. In March of 2007, Twitter began to reach new heights as it found massive traction at South by Southwest (SXSW). Twitter usage spiked to 60,000 tweets a day, three times more than it was.13 Tripling growth leads to more issues.
Tech evangelist Robert Scoble thought it would never survive after SXSW because of its slow server speeds:
2008 wasn’t much better as Twitter crashed during Steve Jobs' keynote at Macworld Expo.14 One user wrote, “The fact that Twitter continues to crash during times like this arises from nothing short of poor planning on the part of the company.”
Yet it’s important to note what the Techcrunch writer also said: “Twitter will probably just shrug their shoulders as they usually do during outages, and ultimately we’ll all keep using it…” I want to emphasize that last line. It’s important to note that, despite problems, users returned to the platform because of its strong positioning strategy of sharing real-time status with friends.
If you prefer to do it yourself, you can:
Or you can work with professionals such as Growth Ramp who specialize in positioning. With our expertise, you can expect more impartial and impactful insights. To see how they can help, you can check out our brand positioning services or schedule a free discovery call. Just like Twitter, having the right positioning strategy can help you grow even during tough times.
Once you have your positioning strategy in place, you should visit your go-to-market strategy. And, as Twitter did, you’ll focus on doubling down on the right distribution channels. This brings us to phase 2.
To reach a valuation of $44 billion, Twitter had to focus on the right channels that complement each other. The co-founders continued to thrive using events to scale their growth. They later leveraged the power of celebrity influencers who attended these events.
As you can see, the fast access to news and events served Twitter well.
During Super Bowl XLVII in 2013, a power outage left millions of football fans in the dark.19 While most brands had yet to adopt social media, the Oreo cookie team seized the opportunity with a tweet: “Power out? No problem. You can still dunk in the dark,” receiving over 13,000 retweets and 6,600 likes.
The tweet became a Twitter legend, and Google Trends shows the significant impact it made on Oreo's popularity:
Twitter's positioning strategy of staying at the forefront of news and events fueled its GTM success and vice versa. Getting its positioning right unlocked an unexpected growth channel: celebrity influencers.
Most founders waste resources trying new channels. Twitter saw success with celebrities because they were using what was already working: events.
But celebrities soon saw the value of Twitter for other means of connecting with their fans. This includes Demi Lovato’s tweet about the Virgin Mary seeing Chuck Norris in her grilled cheese sandwich or Kim Kardashian's tweet about motivation to hit the gym. As Twitter grew, it eventually hit prime time.
In 2009, Twitter CEO Ev Williams appeared on Oprah Winfrey’s show with Ashton Kutcher, boosting the platform’s visibility. What was the occasion? Kutcher was the first user to gain 1 million followers.20 Winfrey lagged with only 100,000 fans. Looking back at Winfrey’s first tweet, written in all caps and referring to "Twitters," was a nod to how early everything was then.
Twitter’s go-to-market strategy leveraging events and celebrities helped it reach critical mass.
If you’re going DIY and haven’t set up your voice of the customer program, start here. For your go-to-market strategy, some questions you might ask on your customer discovery call include:
This will allow you to synthesize your results to map out your go-to-market strategy. You can do this by:
Or, you could hire product marketing experts like Growth Ramp to get more impactful and impartial insights. Growth Ramp works with early-stage SaaS companies. You can see our go-to-market service process or schedule a consultation call. Perhaps like Twitter, you’ll see your growth improve by focusing on the right channels.
With the right go-to-market strategy in place, Twitter attracted a massive user base. But having a lot of users is useless without a pricing strategy, which takes us to phase 3.
Twitter’s sale to Elon Musk for $44 billion was a rare achievement. Only 75 M&A deals in world history have sold for more money. While saying Twitter could have sold for more than $44 billion is bold, at least 20 others thought that too. Namely Musk and everyone he partnered with to finance the deal. To understand the success of this sale and why it could have been higher, it is important to look at Twitter's pricing strategy.
Twitter’s revenue mainly came from three sources:
Advertising accounted for 80-90% of its revenue since 2012.21 It had a 5-year compounded annual growth rate (CAGR) of 16.4% from 2017 to 2021 with revenue reaching $4.5 billion that came through ads in 2021.
Twitter’s data licensing also provided steady revenue. The 5-year growth rate was a solid 11.4% CAGR from 2017 to 2021 with revenue at $572.8 million in 2021.
Because of Twitter’s network effects, users feel locked to the platform and rarely leave for good. This ensures Twitter gets consistent revenue from these ads and data licensing. Having a subscription product like Twitter Blue would increase its revenue.
Twitter Blue may also have been a decent source of revenue. One platform claims Twitter made $2.3 million in annual recurring revenue from in-app purchases.22 Given the timing, it’s likely this was from Twitter Blue, which launched in November.23
Despite growing revenue year-over-year, Twitter’s stock price was dropping. Something needed to change, quickly.
Nothing Twitter tried worked, eventually leading to the selling of the platform to Musk. Musk bought the company for $44 billion, a deal that was made possible by Twitter’s pricing strategy. But had the exec team dialed in their pricing strategy even more, they could have had a bigger success.
Twitter's stock declined due to many factors and after looking deeper into Twitter’s situation, it’s clear why:
Twitter put many of its fragile eggs into the advertising basket. While Twitter’s ad revenue was growing, it wasn’t able to keep up with its high labor costs. And that basket was about to break.
Twitter struggled to attract advertisers, who are typically divided into two categories:
Twitter was not able to connect with direct response advertisers as it lacked the necessary tools. Direct response marketers need accurate tracking to measure the return on investment of their campaigns. But on Twitter, they encountered poor cost-per-click and conversion metrics. Unreliable conversion tracking wasn’t helping either.24
Additionally, Twitter's user base of 300 million users was only growing by 1.3% a year, which made the platform less appealing to brand advertisers.25 Consider how this compares to Facebook’s 1.5 billion users at the time.25 Since brand marketers want a wider reach, fewer ad dollars went to Twitter because it's a smaller platform.
This issue, combined with the banning of political ads, deterred advertisers from using Twitter's platform.
In October 2019, Twitter’s CEO Jack Dorsey announced it would stop running political ads on its platform.26 In some ways, pausing political ads made sense because advertisers could make any claim, even false ones.
Despite the reasoning behind the ban, this decision led to Twitter missing out on a lot of ad revenue. Around $2.5 billion went to TV ads in 2020 and $360 million was put toward Facebook and Google ads.27 That number increased to over $6.4 billion put towards political ads in 2022.28
While the ban on political ads hurt Twitter's growth, unaddressed child pornography problems further crippled its revenue.
Due to Twitter's failure to address child porn problems, 30 brands like Disney, Dyson, and Forbes discontinued their ads. Other companies like NBC Universal, DIRECTV, Mazda, Coca-Cola, and PBS Kids also suspended their campaigns.
What happened? Twitter was putting the ads near tweets that distributed exploitative material.29 A test showed that Twitter failed to remove over 70% of offending accounts, causing significant PR problems. The companies didn’t want their brand associated with child pornography, so they pulled their ads.
Because Twitter’s ad revenue wasn’t growing fast enough, it needed to find a new way to make money fast. While many successful companies can rely on a single source of income, larger companies like Twitter need to diversify to continue their growth. Unfortunately, Twitter struggled to find new ways to make more money.
How bad was the problem? Twitter's new revenue streams Super Follows and Ticketed Spaces generated only $12,400 in two weeks. This was a small fraction of the company's expected and necessary revenue.30
With about 100 creators using Super Follows and average earnings of $2,800 per creator, the revenue from this product was unsatisfactory.30 If you look at 15 of the influencers using Super Follows, these creators also averaged about 297,000 followers each.30
For Twitter to make $10 million a year from Super Follows, Twitter would likely need over 40,000 creators with 297,000 followers. Good luck with that, Twitter.
From the limited data, it seems its engagement and retention on these two products weren’t good either. Three out of the 15 Super Follow accounts stopped offering the subscription just 16 months after launch, a 20% churn rate. It’s not clear what the churn rate of the followers is like. With Twitter’s user growth on the decline, it’s not likely Super Follows and Ticketed Spaces will improve.
With US user growth remaining flat, Twitter found itself between a rock and a hard place. Ad revenue was growing, but it wasn’t fast enough. New products also weren’t doing well. While Twitter sold for $44 billion, it could have sold for more had it dialed in its pricing strategy.
Many co-founders overlook the impact of an effective pricing strategy. A subpar pricing strategy will prevent you from:
You have two options to get your pricing right: either do it yourself or hire trained experts. Nailing your pricing strategy requires effort and patience, but here are some resources to help you get started:
If you prefer a streamlined approach, consider hiring a product marketer like Growth Ramp to align your pricing strategy. You can check out Growth Ramp's data-driven pricing process or schedule a 30-minute call. We’ll provide you with insights on how to increase customer lifetime value.
Twitter’s failure to monetize is a big reason for its $44 billion sale, but there were other issues. Two costly legal losses totaled $960 million, for misrepresenting user growth and misusing user data.31,32 The acquisitions of Periscope for $50 million and Vine for $30 million also failed to deliver expected profits. Twitter eventually shut down these companies. It remains unknown if Elon Musk’s plan will revive the platform's fortunes.
On October 27, 2022, Musk acquired Twitter for $44 billion. He soon revealed that the company was losing $4 million per day or an annual loss of $1.46 billion.33
Twitter's success was a result of its effective positioning, go-to-market, and pricing strategy. However, the platform sold as its ad revenue wasn’t growing fast enough. This happened because it struggled to win advertisers, banned political ads, and didn’t handle the child pornography problems well. Twitter’s new attempts at monetizing didn’t get traction fast enough either.
Despite these problems, Twitter was one of the fastest social media platforms to create billionaires. Its rapid growth was no coincidence. The founders executed a well-planned strategy that anyone can use. Perhaps readers of this article can learn from Twitter's success and achieve even quicker growth.
Thanks for reading, I’ll see you in the next article.