We All Made More Profit Last Year Than Twitter And Spotify Combined -- Houston, We Have A Problem

If you or I made more money than Twitter and Spotify combined last year, then you know there is a problem. Put it this way, you'd only have had to have a pound or a dollar in your pocket as profit for a hard year's labour to be ahead of the social media and music streaming giants.

Perhaps, to put it another way, Spotify has welcomed as its best year ever the fact that it lost more money than in previous years. Revenue nearly doubled in 2015 compared to 2014, rocketing from just over a billion euros to nearly two billion -- but losses were up 10% to 173m euros. So in the year it nearly doubled revenue, it also lost more than it had ever managed to lose before.

The reason can probably be seen in a very simple fact. Two-thirds of its users, roughly speaking, use its free, ad-supported version, but advertising only brings in 10% or so of Spotify's revenue. At the same time, the music streamer has been forced to cut deals with record labels that give them and artists a greater share of streaming revenues. 

A wise VC once told me that the music-streaming model was going to be the next billion-dollar balloon to go pop. Once the record labels started to get a fairer deal, he suggested, the income from each stream would hardly cover the advertising served against it. I'm not wise enough an investor to predict the future, but I have to say Spotify will have to increase the proportion of its users who subscribe very quickly or suffer the consequences of a mismatch between record company deals and the most income it earns from two in three users who get a free ride off the back of advertising. The basic math just doesn't add up.

As for Twitter -- well, another interview with Jack Dorsey confirms they are on top of tweaking the way the system works to keep users happy. It also confirms there is no immediate plan to keep investors happy. It would be easy to point to a lack of profit, despite continued promises, as Twitter's main plight. I'd point out, however, that, equally alarming is that users have plateaued -- and perhaps of greater concern -- whenever I see a guru speak nowadays, Twitter has moved to the right of the charts. By that I mean that whatever the chart is, the big guys for reach and response or daily usage by consumers will appear as tall towers on the left and those on the wane appear as lower two- or three-story buildings on the right, overshadowed by the neighbouring skyscrapers. Twitter is moving from the left to the right without having cashed in on being a former skyscraper.

I can't help but feel that Twitter has missed its golden moment to monetise. You can say all you want about character-length adjustments in tweets and new ways that the service works -- until it begins to be more aggressive with feeds, like Facebook, it will continue to lose money -- and perhaps soon, users. There is just too much content zipping through the sites for anyone to actually focus on Twitter, and it hardly appears like they are actually trying to make any money from advertising. Facebook got a lot of stick for curtailing organic reach and upping the amount of timeline and screen space available to advertisers, but riddle me this, who would you rather hold stock with right now, Twitter or Facebook?

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