Twitter is an important player in the social media space today. At this juncture, it would be worthwhile to have a look at the strategic position of Twitter in the social media space. Let us use the Porter’s five-forces model to look at the various forces impacting Twitter.
(Michael E Porter of HBS drew a framework for industry analysis enumerating 5 forces that determine how attractive any industry is in terms of profitability. Click here to learn more about the model)
Here is a brief, bullet point description of the 5 forces in my view.
Force 1 : Existing Competitors
- Though different in nature, Google Buzz and Facebook are the most potential threats.
- Google has deep pockets while Twitter still doesn???t have a firm revenue model in place.
- Facebook is already attracting a lot of traffic (400 million users), even though it has to sort out privacy issues.
- Point to be noted here is that only 4 out of 10 new users continue to use Twitter, and many of them quit within a month! That???s 10% of the number Facebook has, indicating clearly the inherent competitive forces at play in the social media space.
- An important aspect will be the fact that status updates in future will be omnipresent across websites, and might be made by accessing a single page. How will Twitter then be different from others?
Twitter will have to remain ahead of the curve to keep its place.
Force 2 : Threat of New Entrants
- As social media grows across the world, more players would be tempted to jump into the fray.
- Especially, there is a lot of scope for regional players (like Baidu in China).
- I am sure that a Hindi version of Twitter/Facebook will bring in a lot more Indians into the realm of social media.
- Obviously, Twitter neither has financial muscle not the reach yet to create entry barriers for new entrants.
However, since the social media space is large enough for all to co-exist in the short to medium term, this is only a long term threat.
Force 3 : Bargaining Power of Users
- At present, Twitter hasn???t put in place its revenue model. It doesn???t charge from its users (individual or business).
- Hence, there is little bargaining power the users have (unless of course they start leaving Twitter in hordes!).They are free to join/leave Twitter.
- But once Twitter starts depending on businesses for revenue, their bargaining power will increase. This is still some time away and, to me, doesn???t seem to be a big potential threat in the medium term.
As of now, Twitter therefore just needs to be alert towards keeping the user experience high class to ensure retention of users
Force 4 : Threat of substitute Products/Services
- Email/SMS are the only potential substitutes in sight but are unlikely to pose a threat for obvious reasons.
This threat is therefore minimal.
Force 5 : Bargaining Power of Suppliers
- Venture Capitalists
- They command significant bargaining power as Twitter doesn???t have a revenue model of its own.
- Overcoming this threat will significantly depend on Twitter developing a credible and sustainable revenue model and then going public.
- Ever since Twitter bought Tweetie 2, there have been murmurs whether Twitter has decided to offer key services on its own.
- Such a fear might compel developers to migrate to other media.
- Bargaining power of developers in an increasingly competitive social media space cannot be underestimated.
- Clearly, the biggest threat to Twitter emanates from the existing competitors and the bargaining power of venture capitalists.
- In the medium term, Twitter needs to keep the developer community satisfied.
- In the long term, it should aim to be very large in size as well as financially independent and strong to be a sustainable global powerhouse.
How do you feel Twitter will grow from here? What kind of revenue model will be sustainable? Are there any potential threats that I have missed out? Would love to have views/comments!
- Twitter’s Current Statistics [INFOGRAPHIC] : http://www.penn-olson.com/2010/04/23/twitters-current-statistics-infographic/
- Are Twitter doing an Apple? http://colinwalker.me.uk/2010/05/are-twitter-doing-an-apple/
- High-Tech Frenemies; Twitter turns on its partners.: http://www.newsweek.com/id/236461