The Twitter Revolution (TWTR)

Why Twitter Will Dominate the Creator Economy

“The best business is a royalty on the growth of others, requiring little capital itself.” – Warren Buffett

Twitter is becoming a royalty on the growth of the creator economy. Twitter is the best way for online creators to stay close with their customers, and Twitter is going to start monetizing this relationship with “Super Follows” later this year. In addition, Twitter recently rolled out a number of engagement-focused products (Spaces, Topics, and Tipping), which are A+. Wall Street does not know it yet, but in the near future artists, photographers, streamers, celebrities, podcasters, educators, and newsletter authors like myself will be paying sizable royalties to Twitter.

(Full disclosure: 50% of my portfolio is Twitter stock and call options expiring in 2022 and 2023.)

Super Follows

Later this year Twitter will be rolling out Super Follows, a way for popular users to charge followers for premium content like newsletters, private tweets, and other exclusive content. Two weeks ago, The Verge reported that Twitter is “close to launching” the Super Follows feature and highlighted leaked screenshots showing what the application process will look like for creators.

(Publicly published leaked screenshots by @wongmjane. Notably, Twitter will allow content from other platforms — like Substack, OnlyFans, and Patreon — to be part of the Super Follows experience.)

One area of success for Super Follows will be email newsletters. Twitter is an integral part of almost every email newsletter and the ability to charge directly over Twitter will be a huge draw once released. Over half of the web traffic for The Bear Cave newsletter comes directly from Twitter, and other newsletters see Twitter account for upwards of 80% of their traffic. It is no coincidence that 23 of the top 25 top Substack newsletters have major Twitter presences.

I pay nothing to Twitter today, but would happily pay $100k+/year for the ability to charge directly through the platform and offer more exclusive content to readers like private Spaces audio events and private tweets. This is the best way for online creators to build closer relationships with their audiences.

I’m not the only online creator that thinks this way. Here’s what Alex Morris, author of the TSOH Investment Research Substack newsletter, wrote:

“As I mentioned earlier, there’s no question Twitter has accounted for the vast majority of the sign-ups for my service. But that growth was all organic. I’ve been active on the platform for years and slowly built a network of 23,000 followers. What if Twitter could help me to further grow my audience through advertising? Considering the unit economics of my business, I would spend a lot of money if Twitter could reliably and measurably deliver new subscribers to my service. This need will become commonplace as part of the emerging ‘creator economy’ – and in my mind, that’s a massive long-term opportunity for Twitter. For that reason, I think the company should be laser focused on it.”

Twitter can monetize online creators in two ways. First, by taking a cut of any revenue through Super Follows (Twitter has not disclosed what % fee it plans on charging). Second, by allowing creators to advertise their services directly through Twitter.

Revue, Twitter’s newly acquired newsletter subsidiary, made clear it plans on making newsletters a more visible part of the platform:

Read the Tweet replies and you will find 100s of online creators jumping at the opportunity to integrate their paid products with Twitter. Dickie Bush, who runs a successful online writing course, said it best:

“[This is] only the beginning of Twitter as the all-in-one creator platform.”

Super Follows is such a great idea that it has been occurring naturally before Twitter introduced it. For example, @moon_shine15 is a public stock trading account that regularly tweets trade ideas. The main public account has 28,700 followers and promotes a premium service which has 732 subscribers. To get on the premium service you need to direct message the author and pay ~$60/month through a separate site, and then you will get access to follow the locked account, which has more premium private content.

This is an example of a naturally occurring Super Follower business on Twitter:

Many other trade recommendation services operate on this model of a free public Twitter stream and then a paywalled locked account/discord server/texting service. This will easily be consolidated into Super Follows and increase conversion for the creators and generate fees for Twitter.

The potential for “Super Follow” businesses is limitless. Here are just a few ideas: trading services, breaking news services, newsletter premium content, podcast premium content, YouTuber premium content, celebrity interactions, athlete interactions, adult entertainment, and news media.

Wall Street analysts will continue to talk about Twitter’s “ad rebuild” “performance advertising” and “development velocity” but they are missing the Golden Goose that is Super Follows.

Beyond Super Follows, Twitter’s other new products deserve an A+ and are adding a lot of value to the platform.

Twitter Spaces

Spaces are live audio conversations on Twitter. It was launched earlier this year as a direct competitor to Clubhouse and has gained significant traction.

One user commented how a Twitter Spaces about black holes attracted live questions from rapper MC Hammer:

Another user commented that a Twitter Spaces about bitcoin grew to over 32,000 listeners and was ultimately joined by the President of El Salvador:

Anecdotally, I have hosted two identical live Q&As with hedge fund manager Marc Cohodes on the different platforms. The one on Clubhouse had around 80 concurrent listeners, while the one on Twitter Spaces had around 500. I promoted both events equally and hosted them at the same time of day, the only difference was the platform.

Hosting a Q&A is easier on Spaces because hosts can view the Twitter profiles of users requesting mic access. Moreover, hosts can promote their own content within the Spaces room. Spaces cements Twitter’s lead as the best place for online creators to stay close to their audience.

Topics

Topics, first introduced in November 2019, is a way for users to follow a general theme (e.g., basketball, humor, the Baltimore Ravens, or hip-hop) rather than individual users. Previously, new Twitter users were overwhelmed with the work of finding specific accounts to follow. But now, new users just need to identify a few topics of interest to start enjoying the platform.

The rollout of Topics has coincided with accelerating user growth on the Twitter platform:

Management expects this growth to accelerate and guided to at least 315 million monetizable Daily Active Users by the end of 2023, largely driven by the ability of Topics to onboard new users. Moreover, at Twitter’s February Investor Day, Kayvon Beykpour, Twitter’s Head of Product, said this about Topics:

 “It remains difficult to target your conversation to a captive audience of people who care about the same interest. We are working on solving this problem by creating a product experience that makes it easier for people to form, discover, and participate in these micro communities. And then experience that enables creators to customize these spaces including setting and enforcing social norms above and beyond our terms of service. We see this as a highly complementary product experience to topics. With Topics, Twitter is creating a taxonomy and graph that connects people to the content, people, or communities that they are interested in.” (30:58)

One could easily imagine Twitter recommending newsletters and other premium content as part of a topic and Topics give Twitter more power to editorialize and steer users to revenue-generating and impactful content.

In addition to Super Follows, Spaces, and Topics, Twitter has rolled out smaller incremental features that will add value to the platform. For example, Twitter now allows creators to accept tips from users, which is a new incentive for creators to post meaningful content on the platform. On a similar note, Twitter is testing Twitter Blue a $3/month subscription that provides additional features and perks. Assuming 10% of Twitter’s ~300 million daily 2023 users sign up, the service could add an incremental $1.1 billion in annual recurring revenue. Finally, Twitter has been improving its direct message inbox, which could act as an email inbox for creators to send premium content directly to followers.

Despite the best growth prospects, Twitter trades at one of the lowest revenue multiples of its social media peer group (Twitter ~12.1x revenue, Facebook ~10.1x revenue, Pinterest ~23.2x revenue, and Snapchat ~32.8x revenue).

Taken together, Super Follows, Spaces, and Topics create an experience where the sum is greater than its parts. This new direction has tremendous potential that the market is missing.

Back in 2013, Jack Dorsey gave a talk titled “The Future Has Already Arrived” and foreshadowed the movement we see today:

“I want something with purpose. I want something with direction. I want something with thoughtfulness, so instead of constantly talking about disruption I believe we should focus more on revolution. Revolution has shared purpose. Revolution has an idea. It has values, leadership, and direction. It has something people can see it has an end state that has a positive impact. But most importantly, it’s a cohesive end to end experience that people can really get behind and join.”


Concluding Tweets

I’m hosting a Twitter Spaces at 4:15pm ET to discuss the future of Twitter and take reader questions. Follow me on Twitter @StockJabber and join the event then.


This article is not investment advice and represents the opinions of its author, Edwin Dorsey. You can reach the author by email at edwin@585research.com. This article is for paid subscribers of The Bear Cave newsletter. If this article was forwarded to you please consider becoming a paid subscriber to receive articles like this twice every month for $44/month. Learn more here.