Twitter appears to have just adopted either a daily deals, flash sales, or group buying business model. They recently announced a newly created Twitter account called @Earlybird that will be used to promote “time-sensitive and sometimes supply-sensitive” products and services. These Woot-like daily deals will be created through a partnership with merchants to make huge savings available to followers of Twitter’s @Earlybird account. Twitter plans to offer both local deals and category based discount offers (e.g. fashion, music). “We’re starting with US-wide offers but will explore location-based deals in the future.”
Twitter’s Deal Model
With Twitter’s announcement to offer location-based deals, it suggests they plan to employ a group buying business model or something akin to a local flash sales model. Unless their selling vouchers directly on Twitter, however, they’ll have to forward product purchases to the merchant’s website. Assuming that most merchants aren’t going have the infrastructure or software requirements to process time-sensitive group buying deals in which quantities are limited, one may conclude that Twitter will most likely be accepting payments on behalf of all merchants. Doing so ensures that Twitter gets paid upfront, the number of purchases do not exceed the available quantity, and that sales are no longer possible once the deal expires. If Twitter follows the Groupon-like business model and takes the traditional 50% share of each sale it generates for merchants, it stands to accumulate a windfall of profits. Aside from a handful of Twitter employees, the exact amount of revenue cannot be known. However, we should be able to formulate a decent estimate to outline the potential profitability of Twitter’s new income source using tools like our group buying calculator.
Twitter Deals Income Estimates, Growth Potential
Service based deal offerings for things like restaurants and spas are more profitable versus product deals because products can’t be discounted quite as much. An average Twitter account’s click-through rate (CTR) is 1% to 3% depending on how many followers you have and how well your followers are targeted. In the case of @Earlybird, it seems reasonable to assume that only those interested in hearing about deals will follow. Hence, it is logical to believe that Twitter will attain at least a 3% CTR. Clearly not all people that click-through will complete a purchase and realistically that statistic may be even lower than 1%. Even so, given the rate @Earlybird is accumulating followers, a mere one percent purchase rate for all click-throughs could result in a very large number of sales. Actually, these are very conservative estimates and it’s highly probable that rate of purchase and CTR will be much greater. Based on our conservative estimates, when @Earlybird reaches 100,000 followers they should secure at least 30 sales (0.03 x 0.01 x 100,000) per deal promotion. Scaling this to 1,000,000 followers means that @Earlybird will obtain at least ~300 purchases per deal offering.
A typical deal promotion for a given merchant’s services generates around $10-$20 for every voucher sale that’s achieved by the group buying site. For products, its reasonable to assume that Twitter could earn at least 5-10% of the item’s sale price. Taken altogether our estimates suggest that Twitter would make $4,500 per daily deal for every 1 million followers (300 sales x $15 revenue/sale) or roughly $0.0045/follower ($4,500/1,000,000 followers). At just 1 million followers, Twitter would therefore earn $1,642,500 per year from one @Earlybird account. Targeting their deal offerings to major cities throughout the U.S. (e.g. @EarlybirdChicago) and creating category based Twitter accounts (e.g. @EarlybirdTech) will allow them to achieve hundreds of millions of followers and a very impressive amount of revenue. Upon submitting their announcement on July 6th, Twitter’s @Earlybird account had ~800 total followers. In just two days, however, it had amassed another 20,000. At a constant growth rate of 10,000 new followers per day, @Earlybird should reach 1 million followers in about 3 months. If Twitter’s marketing engine kicks into high gear, as we assume it will, this milestone will be reached much sooner.
Marketing Twitter Deals
Another important question to consider in Twitter’s new monetization model is how they intend to grow their presence in the group buying deals market. Most group coupon sites incentivize the sharing of deals by requiring a minimum number of commitments to purchase before the deal is guaranteed for everyone. They further sweeten the incentive to share deals via promises of referral commissions, free coupons, virtual currency, or reward points. A Twitter affiliate program that reimburses publishers through commissions seems doubtful considering that it may contribute to the already overwhelming problem of Twitter spam. A more attractive option may be the creation and reimbursement of a Twitter virtual currency or a reward points system of reimbursement. These options are more desirable to providers anyway since they enhance publisher loyalty and reduce costs (i.e. virtual currency transactions don’t incur processing fees).
Are Twitter Deals A Serious Threat To Groupon?
Are Groupon’s days numbered now that Twitter has entered the collective buying market? Could we be looking at the proverbial Groupon killer here? In short, no. While the Facebook Groupon killer app remains a theoretical possibility, the Twitter deals model sounds like a different kind of animal. Groupon will more than likely remain the dominant force in online daily deals for several reasons. First, Groupon’s use of email marketing to deliver daily deals provides some advantages over deal offerings that are served through Twitter alone. For example, the effective lifetime of a shared deal on Twitter is much shorter than one shared via email. As new tweets are delivered they push older Twitter messages down the user’s page and bury them within a just few hours. In contrast, unread emails remain clearly visible to the account holder after several days. Perhaps that’s why email marketing CTRs are usually much higher (~5-20%) compared to Twitter CTRs (~1-3%). Second, the absolute number of people that use email dwarfs the quantity of individuals that use Twitter regularly. Third, Groupon already has a well established brand and one hell of a lead on Twitter. Regardless, there’s plenty of room in this market for hundreds to possibly even a thousand group buying sites. Heck, even social gaming giant Zynga is offering group buying deals to its users now. Despite the growing competition, there still remains a plethora of untapped smaller cities throughout the U.S. that Groupon and the other major players haven’t covered yet. What’s more, potential customers are willing to subscribe to just about any email newsletter or Twitter account that promises them incredibly amazing deals and huge savings on great products and services. Of course there will always be a tipping point where the number of competitors could dilute the market but until subscribers become indifferent to receiving 50% off coupons, the group buying business isn’t going away any time soon.
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