Despite disappointing results from Twitter with regards to monthly user growth, the microblogging’s data licensing business grew by 26% year-over-year to reach revenues of $85 million. While this stream of revenue only comprises about 15% of the total revenue from the social network company, it enjoys higher profit margins compared to revenues garnered from advertising.
According to the chief financial officer of the microblogging firm, Anthony Noto, $1 generated from data licensing is equivalent to around $3-$4 generated from advertising. Twitter has already set a goal of becoming profitable on the basis of GAAP by the close of this year. The best path forward now looks like it is accelerating data licensing since this revenue stream has a bigger profit margin compared to advertising.
Tiered pricing structure
The growth in data licensing in 2017 was significant since it had slowed down significantly last year. In 2016 data licensing growth decline from 35% in Q2 to a level of 14% in Q4. Early this year the ad products of the microblogging platform were refocused and changes were made in the data licensing business. The changes included creating a tiered pricing structure which now offering two potential new areas of growth.
First the new structure brought in new customers and secondly it increased the amount of money they spent every month. Twitter’s shareholder letter even admits that the changes resulted in an increase in the number of enterprise deals. These efforts to grow the data licensing business were rewarded as this revenue stream grew 17% in Q1 and 26% in Q2. And in the first half of the year the net loss attributable to this revenue stream was lowered compared to 2016 due to the higher margins it enjoys as well as cost reduction measures employed all over the company.
Promising revenue stream
But while the prospects Twitter’s data licensing business are looking promising, this won’t be the case for much longer if Twitter fails to attract more users to its platform.
“It’s directly related to the audience growth and engagement on Twitter. We’re taking that data and packaging it for our partners. So, as the audience grows and the engagement grows, the value of the asset will grow,” said Noto.