I couldn’t turn on the TV or radio (ya, I still listen to the radio), or read a magazine this week without getting some sort of mention of Twitter. Those that live and breathe the web have been on Twitter for a while, but I’ve never seen so much mainstream hype around the service as I did this week. The coverage started in February and has dramatically accelerated Twitter growth but has really been kicked up a notch.
Case in point: Access Hollywood had a segment dedicated to this great new phenomenon Twitter! It went into detail of how celebrities are tweeting what they’re up to, what they like, and what they’re thinking about. Fans around the world can instantly know that John Mayer is going through a tough emotional time, while Ashton Kutcher is on 2 a day workouts!
Great news for Twitter right? Not so fast. There isn’t a web company on earth that wouldn’t love to be the darling of celebrities, and therefore the world. Hollywood is as mainstream as you can get. But for a company that needs to pay for more servers and processing power as usage and traffic grows, yet has no real revenue-generating business model it’s a gift and a curse.
Twitter was founded in 2006, but like MySpace, YouTube, and Facebook in past years, Twitter is the darling web company of 2009. And just like most of those darlings it’s backed by a lot of venture capital money ($55M) with investors hoping the hype and traffic will somehow make money…or…someone will drop an insane amount of cash to acquire the company and then figuring out a business model will be their problem.
Will Twitter meet the hopes of it’s investors and figure out a business model? Will investors pump more money in to meet the demand of the celeb hungry masses? Will a white knight (i.e. Google) come to the rescue with a sack of cash?
Three knocks against a Twitter acquisition:
1. Facebook can compete: Twitter turned down an offer from Facebook (reportedly $100M + $400M in FB stock, whatever that’s worth). Facebook responded with an “if you can’t buy ’em, beat ’em” strategy, rolling out more real-time messaging across the network.
2. Google not interested, yet: Google CEO Eric Schmidt told Charlie Rose that “we’re in the middle of a cycle”, “prices are too high”, and so “Google is unlikely to make acquisitions in the short term”. Add to this that Google bought and then open sourced Twitter competitor Jaiku, effectively ending direct involvement, and you get a picture that as it still struggles to turn YouTube into a money maker, Google isn’t interested in plunking down lots of money for a service that might make money some day, maybe.
3. You can build your very own Twitter: Twitter is a micro-blogging service. There are a lot of others as well. You can even build your own using the open sourced Jaiku. True, building a service is not the same as growing it to mainstream success. This point here is that the technology is not something that you (or any would-be acquirer) couldn’t build; it’s the popularity and traffic that is valuable.
Big reasons why Twitter is valuable and will make money (business model or get acquired):
1. Twitter generates very valuable data: Through Twitter you can find out what people are thinking and feeling on a subject at any given time. It’s proven to be a great news breaking service and a place to go to understand how people are relating to a brand or event. It’s the pulse of the online user, and it will gain more value as it becomes more mainstream. Possible (obvious but not easy to pull off) business model: an ad system to rival AdSense.
2. Google hasn’t done well socially: Google’s Orkut social network does well…in brazil. Friend Connect hasn’t been a great success, and Open Social is doing ok but not the smash hit that was hoped for. Twitter brings the same thing YouTube did: ownership of the hottest new web service vertical online – microblogging.
3. Google sees the threat and opportunity (or Microsoft sees the golden child): Twitter can extend Google’s dominance over search and extend AdSense. Microsoft could see the search and resulting advertising value as finally an opportunity to challenge Google’s dominance.
A lot to think about! My predicitions:
a) Twitter starts to monetize it’s traffic through ads and hopes users don’t revolt.
b) Google buys Twitter as much a defensive measure against Microsoft
c) Microsoft buys Twitter and promotes it as ‘the new more valuable search advertising opportunity’. We all hope they don’t kill Twitter in the process.
I know, I’ve predicted everything. Hey, the web is a wild place! Let’s hope something happens before the flood of celebrity seekers flood Twitter and we start seeing the fail whale again!
Want to talk about it? Catch me on Twitter anytime: @jaafer.