Twitter's purchase of data firm is an example of a new kind of media competition

Written by Dr. Hugh J. Martin Wednesday, 16 April 2014 23:00 PDF Print E-mail
I’ve been expecting Twitter to assert more control over the enormous volume of data generated by its users because the data can be sold to businesses, government agencies and academics. Yesterday, Twitter took a notable step to assert that control when it announced the purchase of Gnip, a company that packages and sells data generated from more than 500 million Tweets that are posted each day.

Twitter was losing money when it began selling stock last November, so Twitter has to show investors that it’s doing everything possible to make a profit. Twitter vice-president Jana Messerschmidt explained why Gnip will help Twitter generate new revenue:
“Every day Twitter users share and discuss their interests and what’s happening in the world. These public Tweets can reveal a wide variety of insights — so much so that academic institutions, journalists, marketers, brands, politicians and developers regularly use aggregated Twitter data to spot trends, analyze sentiment, find breaking news, connect with customers and much more.”   Twitter also generates revenue by selling advertising. But Twitter knows that we are at the beginning of a data analysis revolution that already generates valuable insights for “hundreds of clients” in business, government, the media, and academe. Those clients will now be paying Twitter for access to Tweets and the analytical tools developed by Gnip.

 

Twitter is under particular pressure from investors to generate revenue because the initial price of its stock rose to levels that some analysts considered too high for a company that was losing money.

But I suspect investors paid those high prices because they believe Twitter is likely to be one of three companies –Google and Facebook are the other two - that will dominate Western Internet markets for information and advertising. When a small number of companies dominate a market, those companies may have pricing power – they can increase prices far above production costs to generate high profits.[1]

One way for Twitter to reassure investors is to take steps that rapidly increase revenue, which is why I expected the company to assert more control over the valuable data on its network. Investors apparently viewed yesterday’s announcement the same way – Twitter’s stock price increased over 11 percent, which Reuters called the largest stock price increase since the company went public.

Gnip is not the only company that purchased access to Tweets and then re-sold them to its clients. Twitter’s statement did not specify how its relationship with other Twitter data providers might change.

However, it’s unlikely that independent Twitter data providers will be allowed to compete away a significant share of the revenue that Twitter gains from purchasing Gnip. At the same time, it will be interesting to see if Gnip continues to offer data from Tumblr, which is owned by Yahoo.

Media companies have always competed for audiences and advertising. Twitter’s purchase of Gnip is an example of a new kind of media competition. The new prize is an endless stream of raw information detailing the characteristics, behavior and preferences of millions of people who use the company’s products.
[1] An oligopoly exists if a company can set a price above its costs, but must then account for the reaction of rival companies in the same market. This makes it possible for companies to earn economic rents, which are profits above the level of returns that could be earned from comparable investments elsewhere. However, economic rents are not assured. A rival firm might offer advertising and information at lower prices, triggering a price competition that ends when prices are just high enough to cover production costs.

Source http://feedproxy.google.com/~r/EconomicsOfMedia/~3/nJJBl5LtLv8/twitters-purchase-of-data-firm-is.html