November 11th, 2013 by Sarah Sluis

There’s a question all startups eventually have to ask themselves: How will we make money? Many internet companies have created a successful product first, and kicked the idea of making money down the road. Twitter, which just filed an IPO last week, is one of those companies. It still hasn’t earned a profit, but its market capitalization is nearly $20 billion. The IPO raised the company $1.8 billion, but Twitter’s lost $133 million so far this year. Long-term, the social media site will probably earn most of its money through advertising. But pre-IPO, it’s brought in a lot of its money simply by providing access to its data.

Twitter’s IPO filing revealed that the tweeting service is earning sizable revenue from licensing their user data. 15 percent of their revenue comes from paid access to the Twitter firehose, as it’s called, with the other 85 percent coming from advertising. Given projections that Twitter will double its advertising revenue in a year, big data will likely matter less to its bottom line. But it’s something that other companies have noted. For some startups, selling data may be one way to bring in money before other revenue streams mature.

During a conference last year, Instagram CEO Kevin Systrom noted that “Instagram isn’t necessarily a photo company, or a communications company as I like to say, we’re also going to be a big data company.” Systrom was saying this even though his company had been acquired for $1 billion by Facebook.

More mature companies like LinkedIn also earn money through their data. LinkedIn brings in three-quarters of its revenue through memberships that provide less restricted access to its data for recruiters, professionals, and all those companies pulling in LinkedIn information into their CRM systems.

What Twitter offers is worth paying for, according to those involved. The Twitter firehose is so powerful that a company sued Twitter when it learned the company planned to discontinue its access to the data source. While Twitter’s open API that allows for light analytics based on a selection of the company’s data, it doesn’t include every single tweet or allow search for a keyword based on all historical data. For that, you need to strike a deal with Twitter to gain access to the firehose, which captures all information, leading to some notably different observations.

Two big players with access to the Twitter firehose are Gnip and Datasift, which resell that information to companies that need slices of Twitter’s data. However, Twitter has also struck deals with other companies, like Salesforce.com’s Radian6, which offers intelligence on all social media.

Many companies are using big data to make decisions, but it’s often difficult to tell where it’s coming from, or what kind of transactions are involved to secure that data. For Twitter, big data was just the beginning. Soon, the adage “follow the money” may just turn into “follow the data.”

 

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