Twitter weighs subscription service amid drop in ad sales

Brief:

Twitter is considering whether to start a paid subscription service to complement its advertising business, CEO Jack Dorsey said in a quarterly conference call with analysts. The plan is in the early stages, and is overseen by a small team that's also working to develop e-commerce and paywall management businesses, he said.
Dorsey discussed the plans as Twitter reported a 23% drop in ad revenue to $562 million in Q2 from a year earlier as the economic effects of the coronavirus pandemic dampened demand for social media ads. The company's total revenue fell 19% to $683 million, while the reversal of a tax benefit from 2019 resulted in a swing from profitability to a net loss of $1.2 billion, per an announcement. Twitter's drop in ad revenue contrasted with a 12% gain in its daily user base to 186 million from the prior quarter.
Twitter's main priority is the rollout of a new Mobile App Promotion (MAP) product for companies to promote their apps in Twitter ads, Dorsey said. MAP last year was dogged with technical problems that negatively affected ad revenue, the company reported.

Insight:

Twitter's early-stage work on businesses that would make money from subscriptions, e-commerce and other services comes as the social network grapples with a steep decline in advertising revenue. The company will have to consider how much people will be willing to pay for an ad-free experience or other premium offerings that would be behind a paywall.

"We do think there is a world where subscription is complementary," Dorsey said. "We think there is a world where commerce is complementary. You can imagine work around helping people manage paywalls as well that we believe is complementary."

Twitter also has to rebuild trust after a high-profile hacker attack that this month breached the accounts of public figures such as former President Barack Obama and Tesla founder Elon Musk. Amid the economic uncertainties, the company didn't provide an estimate of future revenue or income. Twitter in March had withdrawn the guidance as demand for advertising fell during the early days of the pandemic.

Twitter's revenue decline contrasts with the positive results for Snap, which this week reported a 17% increase in revenue to $454 million in Q2 from a year earlier — although the increase is lower than in the previous quarter — and growth in Snapchat's user base to 238 million. Snap also is seeing early signs of stronger growth, with revenue up 32% during the first few weeks of Q3 from a year earlier. However, Snap's management forecast that growth will moderate by the end of the quarter to about 20% amid the uncertain business environment.

Twitter's possible expansion into e-commerce comes as other digital media companies are seeking to diversify their revenue away from advertising by generating income from transactions. With more people shopping from home during the pandemic, there is a significant opportunity to drive e-commerce revenue.

Rival Facebook has undertaken several programs to boost e-commerce, most recently with last week's introduction of Instagram Shop on the photo-sharing app. Facebook last month introduced Facebook Shops, a feature to help small businesses in the U.S. turn their social media profiles into digital storefronts. Alphabet's Google expanded its e-commerce offerings with this month's introduction of video shopping platform Shoploop, following other initiatives including the extension of free product listings in search results for brands and retailers. Google's push into e-commerce also includes m ore shopping features on its Google Pay payment app as part of a major overhaul, as reported by The Information.