It seems like only yesterday that Twitter (TWTR) didn’t have a care in the world about turning its users into dollars. But nowadays — as one would expect from a newly publicly traded company — monetization seems to be the only thing TWTR management is focused on.
Not that Wall Street’s complaining — since coming public in early November, TWTR stock has soared by more than 130%!
On Thursday, Twitter made its latest move in its quest to monetize its users — the courting of Stripe, which operates a payment platform. According to a report from Re/Code, TWTR and Stripe are talking about partnering up to allow users to make credit card purchases straight from their Twitter feeds.
On its face, it makes sense. After all, smartphones are increasingly becoming a key source of e-commerce payments, and — how about that! — a big chunk of TWTR users are mobile. Not to mention, there’s added possibility in the use of Twitter on the “second screen” (where people check out Twitter while watching TV). Thus, there might be another way to get e-commerce dollars to flow through Twitter as people see products highlighted during commercial breaks.
Naturally, all this is important as Twitter looks to diversify its revenue streams. Sure, 11% of its revenues come from data licensing, but that business hasn’t been growing much, and that still leaves advertising to fill that generous remainder.
One only needs to look at Facebook (FB) to get a sense of the payments opportunity. In just a few short years, Facebook has built payments into a respectable business that accounts for around 11% to 12% of its total revenues.
However, payments might not be as reliable a knight in shining armor for TWTR.
First, keep in mind that FB gets most of its payments revenue from Facebook games, which as of right now isn’t a viable option for Twitter.
Also, while Facebook has had some success with payments initiatives, it also has had its share of failures. For instance, traditional e-commerce transactions such as Facebook’s Gifts effort have failed. And a variety of startups have attempted to build online stores on Facebook, most of which have fizzled.
Is it just behavioral? Perhaps. Think about what you’re looking for when you log onto your social network. You’re connecting with friends. Perhaps you’re even trolling around for news. But if social media sites are hoping to build themselves as the starting point for a shopping spree … well, they’ve got a long way to go. For now, Amazon.com (AMZN) and eBay (EBAY) remain the clear kings of e-commerce, and the numbers don’t suggest a quick change from that reality.
Lastly, there’s the issue of trying to fit payments into Twitter’s current build. Unlike Facebook, which has several rails and layers to work with, Twitter is fairly straightforward. A likely method could be what Twitter has done with American Express (AXP), allowing people to sync their cards up to Twitter, then use a series of hashtags to make orders … but then you’re banking on the mass adoption of putting numerous purchases right on public feeds.
So while it’s still possible that Twitter might find a creative way to make payments work, at the very least, it could take years to build some serious traction. Conversely, it could make the user experience even more convoluted (and commercial), which could alienate users.
In short, be skeptical — payments probably aren’t the magic elixir for TWTR stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.