With all of the buzz around Twitter lately (Michael Arrington feels like Twitter will soon go mainstream – whatever that is – shortly) the conversation will obviously turn to valuation.
Twitter is currently looking for funding (with 17 people I am not sure why they need that kind of funding) to improve operations and possibly make enhancements to the product. This brings two thoughts to mind:
1.) What improvements really need to be made (or better still where is the technology going…)
2.) Where is the money
When you think about improvements at this level you must separate the technology that is Twitter and the applications that allow us to use it. Twitter is nothing more than a set of web servers, a few databases and a set of API’s. Older data lists that twitter.com is used to post up to 60% of the tweets. So that leaves 40% of those tweets to applications and Instant Messaging – all of which are not controlled by Twitter themselves. These applications use the Twitter API’s to handle the posts and responses.
So, when you think about what improvements you may think about improving the website but I know in my circle of users – twitter.com is used way less than 60%. I use occasionally and that is only from my mobile phone. Give me something like Digsby on a mobile phone and I am all over it.
Where is the Money?
So have you noticed? Twitter is free. Not only that – you are not subjected to silly AdWords from Google every time you make a post. Um yeah … sit back and chew on that for a moment. There are not that many truly free services (of the magnitude of Twitter – 1 million users) out there.
I know that when I sit down with a VC group about my “idea” or “proof of concept” and I am looking for funding – they want to see revenue potential. How is Twitter going to pay back all of the money that they borrow?
One school of thought would be that the Web site could serve up ads like they have done in the launch of Twitter for Japan. I don’t have numbers to back this up – but my gut feeling is that the use of Twitter through a web site will continue to diminish and so too would the revenue stream if they were basing that on Ads. I have read a ton on the web about the degeneration of Ad based revenue and what it means for the Web2.0 style applications.
Another avenue for Twitter would be to turn there features into a pay for service style application:
- Small usage account is free – 20 followers – 20 tweets a month
- Medium usage account costs $19.95 a year – 20 to 100 followers with 100 tweets a month
- High usage account costs $5.95 a month – unlimited followers and unlimited tweets
It would be difficult for me to justify my use of Twitter if I had to pay a monthly fee (not that I am a “High Usage” account).
So I again have to ask – what is this money really going to do and how is Twitter going to pay it back?