TweetUp: A Search-based Business Model for Social Media?

by Susan Feldman, IDC

"Ridiculous", we all said, when appeared. "Who would want search results ranked by willingness of the author to pay the most?" Well, morphed into Overture, which was bought by Yahoo! in 2003 for $1.6B. Other search engines realized that they finally had a business model, and were no longer philanthropic endeavors. And the digital marketplace was born.

Today, social media are in the same boat as search engines were in their pre-advertising era: incredibly popular, but with no acceptable business model. Today, Bill Gross of Idealab and Overture fame announced TweetUp. Twitterers who want to rise to the top of the search list will bid on key words, and will pay a set amount each time their post or profile shows up in a search. The idea is that people who are convinced of the worth of their postings have the courage of their tweets will be willing to pay to get noticed. Bids start at 1 cent.

There's a reason why some sort of business model is necessary if social networks are to take off the way search did: every marketplace needs a venue. We tend to think of marketplaces as collections of buyers and sellers. But in fact, they also need a venue a shopping mall, a commercial district, a farmers' market. Sellers in these real-world venues pay to rent a store or stall. Online marketplaces would appear not to need a venue because the buying and selling take place in a virtual venue. That's not true: they still need a place for people to congregate that allows them to find the collection of goods or information that they need. Social networks in particular need large numbers of members. The Web search phenomenon took off when a few contenders (Yahoo!, Lycos, AltaVista) amassed large enough indexes so that they could become logical on-ramps to the Web. You could find anything just by starting there. These search engines succeeded because they filled a need: they were unbiased, indexing any information on the Web, without regard to value or source.

Just as these big indices delivered what people needed one unbiased place to start-the value to users of a social network is directly proportional to the number of people who use it. Once either a search engine or a social network collects enough of the market in one place, it takes off because it creates the buzz that drives exponential growth. Google is a prime example of the success that this network effect, combined with buzz and an acceptable revenue model can create.

There were (and still are) dozens of other search engines that were household names in the 1990's. Each had its moment of fame AltaVista, HotBot, Lycos, Northern Light, AlltheWeb, etc. but none lasted because the cost of maintaining a large search engine requires some sort of continuing revenue. Without that revenue, it was impossible to fund a major search engine. Hardware, software, and upkeep were too costly. GoTo (Overture) provided the model for bringing in revenue for search. At first, it was an insult- we didn't want our search results obliterated by advertisers' spam. We wanted our results ranked by relevance, not willingness to pay. But gradually that model was refined until sponsored listings and relevance ranked results could co-exist on the same page. Today, the sponsored listings fund the venue to bring buyers and sellers together through Internet search in a non-biased setting that we now accept as normal.

We see a distinct parallel between the unfunded search engines of the 90's and the social media of today: big names, valuable and popular services, potentially astronomical stock prices, but with no revenue model. Social media like Facebook, Twitter, MySpace, and many others have struggled to find the right mix of advertising without intruding unduly on their members' privacy or screens. They all struggle with the problem of inserting ads on cell phone and PDA screens that are too small to contain both the ad and the social content. The model in place so far is the same as search: it relies on an advertiser to provide the revenue when a user clicks on an ad.

Bill Gross founded in 1998 with pay-for-placement as its business model. It changed Web search into a viable commercial marketplace. Today, he is launching TweetUp. TweetUp's approach flips the business model to rely on users, rather than sellers, for revenue. But because Twitter so far makes little distinction between corporate "users" tweeting and individuals tweeting, the Tweetup approach may allow corporate messages to dominate social search results in the same way that was rejected in the early days of paid search. It will be interesting to see if we will look back on this as the beginning or the end of this approach. Either way, it is something new, and the social sites are desperately in need of a new model.

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