Saturday, December 31, 2011

Twitter: teetering on the brink

Everyone is tweeting these days. Celebrities, politicians, companies, orgs, websites, what have you. Currently, there are over three hundred million users (I'm one of them, for the record) collectively making over three hundred million tweets per day. That's a lot of information. Many of the tweets include links and/or hashtags. For those unfamiliar with the latter, a hashtag (#) used in front of a a term--like #occupy--creates a tag for the term that allows it to be easily located in a search, creating a list of all tweets with the term. And when that list gets long, when enough people use the hashtagged term in a short period of time, it becomes a "trend," appearing as such on homepages of twitter accounts.

There's no question that Twitter is an effective tool for delivering information in truncated form. And in my view, there's also no question that it's both fun and easy to use. But these two things--an effective tool and a fun service--are very different things, in a practical sense. This dichotomy exists throughout the web, and indeed characterizes the entire web itself, but perhaps nowhere is the stark contrast more apparent than in a Twitter feed.

Links to recent news stories and commentary on issues/events run alongside pointless personal tweets and joke trends, based on who is being followed in a given feed. Financial and business related updates coexist with links to sexy photos and sports results.

And there's nothing wrong with any of that, really. It's life at a frenetic pace, very much a microcosm of what most experience in their daily lives, with the added bonus of being a searchable database. But as Twitter moves into its sixth year of existence--with exponential growth in use--it's perhaps time to ask where it is really going and--more importantly--who is paying for the trip.

Earlier this year, a fund-raising effort garnered some $800 million in private investments. More recently, Prince Walid bin Talal of the Saudi royal family announced a $300 million investment in Twitter. As means of facilitating these invenstments, the company was valued at over $8 billion. That's a very big number, to say the least, particularly for a company that operates at a loss and whose revenues are predicted to just barely exceed $100 million for the year. In comparison, Amazon.com's initial valuation--at the time of its IPO--was just over $1 billion. Now--some sixteen years later--Amazon.com has annual revenues exceeding $30 billion.

But Amazon is in the business of selling products. Twitter--like Facebook--has only advertising dollars as a source of revenue. Supposedly, Facebook has been successful in garnering advertising monies and--for the advertisers--promoting products, services, and websites. Twitter is still working on their approach; in my opinion, Twitter remains wonderfully ad-free and that does not bode well for their business model.

Really, I'm unclear as to how there can be a truly effective ad campaign on Twitter, aside from what is being done now--charging companies for "promoted" tweets that appear on the home page. Given the nature of the vehicle--the "tweet"--there hardly seems enough time to accomplish anything more than name recognition, and banner ads would seem to be just as effective, in my view.

So, where is this $8 billion valuation coming from? Is there anything to it? 2012 may be the year that we find out, as I don't think the current investors will be willing to wait to much longer to see signs of a return on their investment. And that's going to mean an IPO at some point in time, which will mean a new valuation.

And if the revenue sources are really there--and I don't think they are, at the end of the day--that $8 billion might be just right or even a little low. If the sources are being overstated--as I think they are--so what? Twitter is still viable, just not the cash cow some hoped for. It can still generate sufficient monies to operate and even be profitable in the future. But some people will have been taken for a hell of a ride.

Cheers, all.


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