With social-networking phenomenon Twitter “valued” at 1 billion dollars there’s a few fundamental questions I ask myself about said valuation. First of all, what is Twitter’s business model for future revenue? The access to millions of users, at 140 characters per person, is a start. Companies such as FedEx, Microsoft and other major players have used twitter to advertise new products through the service with updates given to the “followers” of their twitter feed. This form of advertising is indeed a novel way to access the millions of users who have the service.
But 1 billion dollars worth of twitter ads? Is that a lot or a little? One way to find out is how much a comparable service makes in advertisements – but there aren’t any. Twitter is category-killer in a category that it made up on its own. Which begs the question. How, exactly, is this business being valued when there are no previous models for something like it. With all due respect to Twitter’s investors, they probably know something I do not. But I sure would like to know what that is.
More worrisome is Twitters lack of any business model that they are willing to show the public. They have ruled out advertisements embedded in the site, which leaves me scratching my head as to how advertisements will be delivered to users in any way other than by “tweets” from advertisers. Other forms of revenue have not been elaborated upon other than that they are forthcoming.
So what does this mean for the regular investor? Well nothing right now. Twitter is a privately held company and as such are not answerable to people like me who would really like to know how they have been valued.
But here’s a little hunch I have:Twitter’s revenue model is nothing more than preparing itself to be sold to a larger company. That’s it. For a company like Google, a billion dollars is probably not very much. And for the investors who are putting there money into Twitter, they stand to make a good profit should Google or another public company – always in need for expansion – open up their purse strings and buy it.
Much like Rupert Murdoch’s blockbuster purchase of Myspace.com, a purchase of Twitter could prove to be a very expensive proposition with what would amount to be unclear returns. Does Google know that? Perhaps it’s a risk they are willing to take.
Filed under: Business, Tech , social networking, technology, twitter
