Last year, The Standard had a special feature, "10 ‘Net services that will succeed, and ten that will probably fail." So far, we're two for ten in the "fail" column (Joost and eCirkit). We're somewhat amazed that $200 Chumbys are still part of the gadget marketplace. As for the others, we got it wrong on at least a few of the companies, including Twitter.
Or did we? We said at the time:
"There's no compelling reason for most people to use it, and many existing services -- ranging from AIM to FriendFeed to social networks -- have overlapping functionality. And how is it supposed to make money?"
By now it's abundantly clear that millions of people have found compelling reasons to use Twitter, and it is still growing at a rapid clip. So, yes, we got that part wrong … way wrong.
But what about the money?
We've been asking this question for the past year and a half. In April 2008 (Is Twitter worth $75 million? $150 million? How about none of the above?). In July 2008 (10 ways that Twitter could make money quickly). In March of this year (Twitter finally plans to make money). A reader even created a prediction that Twitter would develop a business model, which barely squeaked by, thanks to the Exectweets project (Twitter reveals a business model by June 30, 2009?)
But let's be serious. Exectweets isn't going to pay the bills required to develop, maintain, and scale Twitter. So let's examine a few other possibilities.
- Advertising: How many teeth-whitening ads next to 140-character tweets would it take to buy a new data center?
- Pro accounts: That may appeal to some businesses, marketing types and image mavens that use Twitter extensively, but what about the 99% of people who are happy with the basic setup?
- Some super-duper Twitter enterprise platform that major corporations can use? Perhaps, but how much would they be willing to pay for it?
Beyond making enough money to cover the costs of maintaining and scaling this service, how will Twitter actually generate a profit? And even if it does, will the levels come close to justifying the frantic investments and 1999-style valuation that we see this week, thanks to the geniuses at Insight Venture Partners, Spark Capital, Institutional Venture Partners, and T. Rowe Price? T. Rowe Price apparently doesn't even use Twitter (judging by the lack of activity at @T_Rowe_Price and @troweprice) yet it thinks it's worth $1 billion?
So, @Biz Stone, @ev Williams, and @jack Dorsey: Please, please, please show us how you plan to enable this neat little service to make serious money. Or come clean an admit that all of the Twitter buzz, sky's-the-limit talk and crazy valuations are really about finding a cushy little exit opportunity to line the nests of the various stakeholders, while letting the deep-pocketed acquiring company figure out the pesky little question of how Twitter can make real money.
Sources: Wall Street Journal, IDG News Service, TheStandard.com
Image: Biz Stone, Reuters video screen capture.
Comment below, or email Ian at ian -at- thestandard -dot- com. Follow Ian on Twitter at http://twitter.com/ilamont. Standard updates and asides are available at twitter.com/the_standard and in our newsletters, and you can join our LinkedIn group.
Comments
Why do you care so much about how they'll make money? Twitter has pretty much every brilliant investor in the world behind it, it has a proven startup team, and it has more user attention than any other product on the web.
They'll make money when the time is right.
Peter: You're joking, right? Or is it a serious question?
If you're not joking, here are seven answers:
1) Twitter presents itself as a business.
2) Twitter's founders and investors say they are seeking a business model.
3) They've been saying this for at least two years, yet they haven't rolled out any serious efforts at developing revenue streams.
4) Twitter is growing rapidly, which requires large capital expenses -- servers, engineers, colocation facilities, etc. It's probably not on the same scale as Facebook (see Facebook's database from hell), but it is a huge cost and will keep getting bigger as the service grows.
5) They are backed by VCs and others who are using money that's been entrusted to them by individual shareholders, pension funds, university endowments, etc. These parties will suffer should Twitter fail to make a profit as a business, or profitable exit (i.e., acquisition).
6) Brilliant investors have been burned before (see Where Are They Now?")
7) It does not have "more user attention than any other product on the Web". Even if it's userbase is 30 million active users (highly doubtful, BTW), that's only 10% of Facebook, and probably less than 5% of Google's.
Ian Lamont
Managing Editor
The Industry Standard
twitter.com/the_standard
twitter.com/ilamont
LOL Peter, "It doesn't matter if they have no revenue model, all the right people believe in them" is the most hilarious bit I've read in a while, reminds me of some prospectuses I'd read back before the dot com crash in 2001.
Here's some ways Twitter can monetize:
a) context based advertising, of course. As goes google, so goes the industry.
b) logging the website/IP address/brand of device from which one tweets along with keywords and sell the geospatial data along with the keywords (particularly brand names) and demographic data to marketing people. The social network data is gold.
c) require paid accounts for those who tweet more than, say, ten times a day. That monetizes the addict crowd.
d) require paid corporate accounts for businesses that use twitter to push out press releases and other promotional info. No free riders in advertising.
e) come out with a paid app that integrates with popular baby monitor products, doing voice recognition so parents can receive tweets from their babies cribs.
f) another paid app that receives tweets from kids cell phones GPS chips so parents can monitor where their kids are at. Possibly make a custom GPS transponder for this that can be embedded into kids clothing, shoes, etc. for use in case of kidnapping/runaway....
g) same tracking app for tracking stolen cars, bikes, laptops, etc. would make police detectives much more effective in recovering stolen property very quickly and arresting perps. Crime will drop and products with tracking features will be more valuable on the market.
For Twitter (and Twitter's investors), this makes a lot of sense if one assumes that they roll up the choicest portions of the third-party twitter ecosystem into their core (through M&A), refine their API approach to this newly aggregated/federated platform and then cultivate a deeper, richer ecosystem around same.
Then, when the tree needs a good "pruning" again, start the M&A process anew.
For more fodder on this one, check out:
Twitter Financing: Pruning the Garden with $100M Shears
http://bit.ly/1902st
Mark
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