Please, Twitter, forget about advertising

Uh, sweetie, that *is* the business model – paying a subscription to make the ads go away. It’s kind of like blackmail, but more civilised.

Consider that every SMS Twitter sends outbound in the UK costs them around 3p, and they will receive around 1.5p for every inbound SMS they receive. Costs will be similar across the EU.
So, if you send an SMS update in and one of your buddies receives it as an SMS update, they’re already in the hole by 50%. This just increases for every other person who receives the update. If you update twitter via desktop (IM etc.) and people receive these updates as SMSs, then it’s 100% pure loss.
As a business model Twitter without advertising works in the US where receiving parties still pay, so Twitter gets a revenue kickback for every outbound as well as inbound SMS. In the EU it doesn’t.
I’ve done business cases to try and make similar product ideas make sense at various times and for various companies. At one stage we did research trials, where the result was the best reception we’d ever had for a product. We then followed up to ask what price level people were prepared to pay, and what advertising they were prepared to bear, and it just didn’t make sense.
For instance – if you update a social SMS service and that update is then sent to 10 of your friends, you’d need to pay 30p to the product operator for that single action to even break even. We looked at whether charging a premium SMS rate, which would allow us to charge 30-50p per SMS update, was acceptable to generate revenue, but understandably people we unwilling to pay that much to send what are often ephemeral messages.
So that leaves you two options – subs or ads. Subs, again, needed to be pitched at about £5-10 per month to allow you to game for decent usage. We looked at tiered subs bands, but users were woeful at accurately guessing their usage level, and more importantly once you introduce a paid cost usage and uptake die stone cold dead. Which is death for any viral social product.
So that only leaves you advertising. And with the best will in the world, given the 1.5p net loss you incur on even the most basic inbound/outbound message ratio you’ll need either an unsustainable high CPM or a spam-tastic attitude to ad/message ratios to make it work.
The net result was I’ve never recommended launching something similar to this product in the EU. I was pleasantly suprised at Twitter’s launch outside of US, considering the tricky nature of the costs. I can only imagine what their burn rate is, and their disappointment that Google bought Jaiku.