Crystal Ball: Twitter Requires Payment to Use API

While it may seem that the entire social ecosystem has been thinking that Twitter is floundering in their business plan (how in the world will they make money), especially after important documents were leaked back in July of 2009. Twitter is proving quite the contrary.

This month, Twitter sent out an email to API users stating that over the coming weeks they would be making two important updates that will impact how users interact with Twitter applications. (Update 1: Starting August 31, new authorization rules for applications and Update 2: t.co URL wrapping (long URL will display with t.co)).

And just last week we saw vast improvement to the user interface with regard to the account setup process and next steps to additional features and functions on twitter.com.

While these updates seem harmless and almost predictable, are they indications of how Twitter is positioning for the future? And what is that future?

The release of their iPhone/Android apps and ad platform earlier this year coupled with new UI changes and new API technology updates has led me to make either a “very bold” prediction or “very insightful” prediction as I look into the crystal ball of Twitter’s future.

Twitter to Require Payment for API Use
There I said it, and with good reason. There are currently over 250,000 applications built using the Twitter API – some are free and some are paid. Why should everyone else (Radian6, CoTweet, etc.) make money off Twitter’s technology and userbase except Twitter? Does it not seem reasonable, that now that so many have built a business on Twitter’s platform, Twitter should start building a business on it?

If this actually comes to fruition, imagine the effect it will have on paid applications or those that are VC-funded and rely solely on the Twitter platform. For those third-party applications with a large user base their entire business could go by the wayside if they don’t cough up dollars to keep themselves in business. Especially if Twitter sees profit potential in that application’s niche.

With 145 million registered users (roughly 20% are highly active tweeters) it may not make sense to just shut off their API entirely to third party apps; this would only frustrate and cause friction amongst the current user base who use one or multiple third-party Twitter applications, but why not monetize the asset that has been built. It looks like it is going to be a reverse of the Facebook business model (Facebook built the user base on their platform then opened it up to developers).

Supporting Evidence Keeps Mounding
CB Insights reported a 50% decline in VC funding from June 2009 to May 2010 in early-stage investment of Twitter startups. Mashable’s Jolie O’Dell said that “While third-party apps have drifted toward the shallow end of the investment pool, Twitter itself has been raising healthy rounds to continue growing its staff and infrastructure.” Last Fall, Twitter raised $100 million and just six months later closed another round of funding. This has to be an indication that something big and magical is happening under the Twitter birdcage.

Do you agree and what are your favorite third-party Twitter apps and if they go away will you go directly to the source?