How is Twitter going to make money?
Posted on : 13-12-2009 | By : DickRaman | In : Tips
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The biggest issue for anyone who’s putting his cards on Twitter is that Twitter has not announced theirbusinessmodel. Until Twitter makes clear how it plans to make money it provides a shaky foundation for investors, developers and even users.
Twitter board member Todd Chaffee forecasted that the company could make money from eCommerce. Chaffee noted that many users are already using Twitter to get product recommendations and companies are using the service to promote their products so it would follow that people might want to buy items straight from the site.
If this is the best Twitter can do on predicting its business model, then we have a long road ahead of us.
For the founders of Twitter there is very little incentive to rock the boat and try out a model that might bring revenue for Twitter or that might fail and bring the current valuation down. They can get their hands on as much venture capital as they want and are not interested in even trying to attract money from small investors. All the big investment firms are behind them and they can let it grow some more. They can enjoy the ride and sell Twitter to someone else when they feel the price is right and let someone else worry about how to make revenue.
Interestingly, since early July 2009, Twitter is trying out some advertising. It is very subtle and you would not even notice it, unless you are looking for it. Under the ‘following – followers – updates’ numbers, there was always some silly definition of some ‘TwitSpeak’.
Now it seems that the silly words are not so silly any more: they are now ‘Sponsored Definitions’. Indeed… cold, hard ads for Twitter related products and services including a link to their website. As a revenue model this is clearly not enough. This will bring some revenue for Twitter and notably it will be the first revenue, but it is a drop in the ocean of what Twitter really needs.
The biggest issue for anyone who’s putting his cards on Twitter is that Twitter has not announced theirbusinessmodel. Until Twitter makes clear how it plans to make money it provides a shaky foundation for investors, developers and even users.
Twitter board member Todd Chaffee forecasted that the company could make money from eCommerce. Chaffee noted that many users are already using Twitter to get product recommendations and companies are using the service to promote their products so it would follow that people might want to buy items straight from the site.
If this is the best Twitter can do on predicting its business model, then we have a long road ahead of us.
For the founders of Twitter there is very little incentive to rock the boat and try out a model that might bring revenue for Twitter or that might fail and bring the current valuation down. They can get their hands on as much venture capital as they want and are not interested in even trying to attract money from small investors. All the big investment firms are behind them and they can let it grow some more. They can enjoy the ride and sell Twitter to someone else when they feel the price is right and let someone else worry about how to make revenue.
Interestingly, since early July 2009, Twitter is trying out some advertising. It is very subtle and you would not even notice it, unless you are looking for it. Under the ‘following – followers – updates’ numbers, there was always some silly definition of some ‘TwitSpeak’.
Now it seems that the silly words are not so silly any more: they are now ‘Sponsored Definitions’. Indeed… cold, hard ads for Twitter related products and services including a link to their website. As a revenue model this is clearly not enough. This will bring some revenue for Twitter and notably it will be the first revenue, but it is a drop in the ocean of what Twitter really needs.
If the founders are serious and want to take Twitter public, they will have to show how Twitter is going to make real money and it probably will be a requirement that there is actual money coming in the door. And here is the dilemma. Taking Twitter public without a decent revenue model is not possible and trying out different revenue models might hurt Twitter’s valuation, which is only felt by the founders and the other current investors. And since they make the decisions for Twitter now, it is unlikely and IPO can happen without a change of control first.
One way out might be to sell the company to one of the Internet giants. It might actually be a smart move for Google to take over Twitter, because at the rate things are going right now Twitter might very well replace a big part of the search engine market.
Another way out would be to take Twitter public as it is right now anyway. This would be unprecedented though. But given that investors are already lining up to get a piece of Twitter today and are willing to value the company at $1 billion this might actually be a smart move.
There is one more concern about Twitter and that is that it states in its Privacy Policy, that it collects personally identifiable information about its users and shares it with third parties. The service considers that information an asset and reserves the right to sell it if the company changes hands. This means that when another company acquires Twitter, nobody knows what will happen to the data Twitter currently collects about its users. That is why it would be best if Twitter went Public soon.
However, there are two more very important reasons why Twitter must go Public. The first would be to provide stability for investors and developers, the second reason would be to scale quickly and fight off the competition.
