37signals founder Jason Fried probably had the post of the day today mocking Twitter’s $1 billion valuation on its latest rumored round of funding. The post, titled “PRESS RELEASE: 37SIGNALS VALUATION TOPS $100 BILLION AFTER BOLD VC INVESTMENT” is very funny. But it’s also disingenuous.
By way of sarcasm, Fried raises a number of points. But the key ones he hits on are valuations, revenues (or lack thereof), business models, and hype. And he chose an easy target in Twitter, which has no shortage of naysayers who simply cannot believe the amount of funding and valuation the service keeps getting. But Fried undoubtedly knows how the game is played, and by picking on the current “it” company, a few people noted that his post looked more like a case of sour grapes. But his points are still definitely worth talking about.
Valuations
Fried jokes that 37signals is valued $100 billion based on a group of people who are paying $1 for 0.000000001% of the company. His point is that valuations based on investments are ridiculous. But that’s not entirely true.
Certainly some are — Microsoft’s investment in Facebook that pumped its valuation to $15 billion is a great example. But the key point there is that Microsoft wasn’t making an investment in Facebook hoping to get rich when the company eventually has an exit. Rather, it was making a small (1.6%) strategic investment mainly to keep Google away. At the time, everyone went mad over the $15 billion number, but it was never realistic to begin with. Since then, Facebook (which has grown a lot in size) has raised real money at valuations that are much less. So did Microsoft get screwed? No, because it was never about the money.
But in Fried’s example, lets assume that the $1 investors are putting money in hoping to eventually get it back. If they really are paying $1 for 0.000000001% of the company, putting the valuation at $100 billion, those investors are going to want an exit of more than $100 billion (leaving out the various types of deals and options they could have surrounding an exit). So that $100 billion number does have meaning.
And likewise, without knowing the details of its latest round, the $1 billion number probably does have meaning for Twitter. If an when it closes this latest $100 million round, those investors are going to be looking for an exit of more than $1 billion. You can bet that T. Rowe Price wants to make money on this deal, as do the firms involved. And they clearly think Twitter is worth more than $1 billion dollars. And they’re hardly alone.
Revenues & Business Models
Fried jokes, “In order to increase the value of the company, 37signals has decided to stop generating revenues.” And continues, “Once you have profits, it’s impossible to just make stuff up.” That is absolutely true, and Mike wrote a great post recently about that very dilemma Twitter could well face shortly.
But this is Fried pulling out the tired “Twitter makes no money” card. Let’s be clear: If Twitter wanted to right now, it could make money. (Well at least revenue, if not profits.) They would simply have to turn on advertising (which they can now do thanks to a recent change in their TOS) and some amount of money, and probably not an insignificant amount, would start rolling in.
At the same time, if it did that, investors would have a better idea of their business potential and that could make some wary of sky-high valuations if the numbers weren’t stellar — which both Fried and Mike rightly note.
But as Twitter has stated numerous times, its real intention for making money (at least right now) is not to go the way of ads, but instead to do professional accounts and tools. It would seem that Twitter is getting closer to rolling that out, and they’ve said the plan is to start making money before the end of this year. We’re closing in on that, so it seems safe to assume that new investors have a pretty good idea of Twitter’s strategy here. And if that’s the case, they clearly like what they see enough to pour in $100 million (again, assuming that round closes).
With this rumored new round, Twitter would have some $130 million in the bank. Like Facebook before it, that would give the company plenty of time before they had to start making any meaningful amount of money. Actually, Facebook just this past quarter went cash flow positive for the first time — after taking over $700 million in funding throughout the years. Twitter seems downright svelte by comparison.
The point is, they will have plenty of cash, and as such, plenty of time to worry about getting the right business model in place. And these investors would not be investing if they didn’t think that would happen, obviously.
Hype
“Bhatnagar admits the math [for valuations] is mostly a guess but points out that ‘the press eats it up.‘,” Fried writes. That’s undoubtedly true, we the press do eat this stuff up. Big numbers are sexy, and lead to interesting, or at least lively, discussions. But again, this is Fried suggesting that valuations based on investments are crazy. In some cases, they are, but not always. And provided that both the writer and reader understands how they work (which, admittedly, is quite often not the case), they can be a useful point of reference.
“37signals will lead the new global movement filled with imaginary assumptions on growth and monetization potential,” he continued. “We’re excited to roll out a list of unconfirmed revenue possibilities that involve crowdsourcing, a robust set of widget creation tools, 3G, augmented reality, social stuff, and an app store. Also, everything we make will include a compass,” Fried concludes.
Though he later backtracked from it, it seems pretty clear that Fried is suggesting that Twitter is pretty much all hype. We touched on this a bit yesterday, but ultimately, this still remains to be seen. But what’s humorous is that on the sidebar of his very post, Fried himself has a Twitter widget, and it’s actually above his list of 37signal products. This isn’t quite as bad as the people who loudly proclaim that Twitter is all hype — on Twitter.
But regardless of where you fall on the hype debate, all that really matters is that the investors obviously don’t think it’s hype. And they’re apparently still pouring money into it with the belief that it will be the next big thing. How big? Big enough to have an exit north of a billion dollars. How do I know? The valuation told me.
[photo and video: New Line Cinemas]
Nice counteraction. You misspelled Fried’s name 3 times though.
not too bad considering i used it like 50. thx
LOL that was freakin hilarious!
Good try…but Fried isn’t making fun of Twitter, you dolt. He’s making fun of the investors, the media, etc.
True.
Hilarious as shit ( and probably true by virtue of
it’s obvious ‘group-think-hype’ )
MG – you spelled Jason Fried’s last name as Friend in some places.
thx, think i got em.
Jason’s post is pretty funny and does touch on some of the important issues Twitter is facinng including generating revenue.
““In order to increase the value of the company, 37signals has decided to stop generating revenues.” – that’s classic.
it is definitely very funny.
Yeah 37Signals (and Jason) have consistently done a great job of bringing the tech community back to reality, and I think he is dead on with this post.
MG, I was surprised to here you say “that would give the company plenty of time before they had to start making any meaningful amount of money”
As if that was a good thing? Why is taking on more debt and postponing any revenues a good thing?
Titter is almost definitely going to have a rude awakening when it starts trying to pay for all this with ad revenue or special corporate accounts.
And I don’t think 37Signals using Twitter is ironic. It’s a great service, why wouldn’t they? The joke is on Twitter for giving it away for free and thinking it’s worth so much.
Btw, Twitter won’t do this, but I have the perfect business model for them, and it’s drop dead simple:
- if you have less than 10k followers, free
- between 10k and 100k, $10/month
- 100k and up, $50/month
I’m surprised no one is talking about this, but it’s probably what they should have done from the beginning.
Brian Armstrong
Right – that won’t work. If twitter charged for usage another “free” version (or Facebook) would popup and destroy them. Don’t you get it, twitter has very little in way of any true secret sauce.
Because 99% of the service’s users have fewer than 10K followers.
The thing I never understood is why would the person who has that many followers get charged, why wouldn’t it be people who follow over a certain amount of people?
Let’s say joe shmoe creates an account and out of no where everyone starts following him, and he then has a million followers, why should he have to pay to have that many followers? It’s not as if it’s his fault people want to follow him, or that he even expected that to happen.
Google, Twitter, and Facebook are effective tools for the world governments/citizens to improve security and understanding, and that is a good thing. None of them has to make money to stay in business.
When I read Jason’s post I thought it was more a slap at reporting from, for example, TechCrunch than about Twitter.
More a slap at startup/VC culture than a shot at Twitter (that is part of that culture.) I think there is some projection going on to say he was attacking Twitter per se. That was my reaction-more satire than sour grapes.
I’ve invented a time machine, and used the same $20 over and over and over again. Thanks to this, I now value myself at over $100 trillion dollars.
Eat that, Twitter _and_ 37signals! :p
(Okay, perhaps I’m trying too hard.)
+1 (trillion)
Who needs “revenues” anyway? aren’t valuations where it’s all at?
As funny as it is, Twitter is a real world changing company. Think about the Iran elections, live earthquake reports and so many more stories that involve Twitter but would otherwise be impossible without the technology. Twitter may be simple, but it’s a huge leap forward in connecting the world.
While companies like 37 signals also provide value and offer services to generate “revenues” and valuations, companies like Twitter come along once in a lifetime and maybe they deserve sky high valuations even though the value, for some, may be hard to see.
Valuations don’t put food on the table. Revenues do.
You’re wrong. Valuations put food on the table if you get an exit.
And im assuming they will exit to microsoft or google for the amount right?
All hype, no substance. Useless product. Twitter will pass soon. Change world? Don’t think so!
The wheel changed the world. The printing press changed the world. Electricity changed the world. The affordable automobile and flight changed the world. The internet changed the world.
Twitter is not changing the world.
+10
Cause the Iran protest did really help!
Serious question:
How did Twitter change anything in Iran? Did it change the outcome of the election or just provide infotainment for us? How does sending “OMG building shaking..for real” to a follower list affect any kind of civil service earthquake response?
I think there is a clear use case in sending building alerts(Gunman in Dunder-Mifflin office-run for you life) but with the ratio of noise to signal, there no guarnatee of timeliness in viewing…
I think of twitter as superfast email and superfast harder-to-escape spam…Which are both great if you have a business.
If Twitter did not exist, the sun would rise again tomorrow. The Iran situation could have easily been conducted through Facebook, MySpace, personal blogs, etc, etc, etc. Twitter is not worth any money at all, not only that, they don’t need investment capital. It’s obvious that Biz and Evan took some cash off the table.
I think it was a fantastic Post by Jason and he has used a great tone to suggest the current trends. Ofcourse a satire sounds great only if it is a little over the top and that is what Jason has done brilliantly.
MG you might have been a little too critical in analysing each and every aspect of his post. I think he really explained the overall valuation scenario beautifully and more importantly about how the “real profits” are currently taking a backseat.
“it is definitely very funny”…. and not at all disingenuous.
It was a great piss take from a long term player ( the Federer of Web 2)
Is it still appropriate to say ask if Twitter will be the next big thing?
I thought it already was.
Me too. One look at CNN and you would think it is. Same goes for everywhere else really…
That’s where their money is going. They are clearly paying for PR in the mainstream media, because they are definitely hiring systems architects or developers…
I dont get it? What on earth is this to do with Apple?
It’s a funny post. I love 37signals, but I wish they’d try some new stuff.
Most of their positive press dates between 2005-2007. I’d love to see some creative end-user stuff from them.
Like all their products that are simply awesome and get improved on something like a monthly basis?
Sure, they have some of the best and easy to use layouts in whatever they choose to do. That’s why I said I love them.
But, if they aren’t changing the landscape, then I don’t know why they don’t try to mix it up, even if it doesn’t pay off right away. They can blog about Twitter, but that doesn’t get them very many new clients.
The best post at 37signals ever!
MG – however humorous the fact that there’s Twitter functionality next to a post criticizing Twitter, it’s not really the big deal that your (’FAIL’-like) screenshot makes of it.
It’s ok to criticize stuff you’re using. The same thing is true for TechCrunch – each one of your pages contains functionality from Google (Feedburner), Facebook (Connect), MashLogic, Youtube (Austin Powers video), Personforce (Crunchboard) and probably others.
sure, not a huge deal, just kind of funny when you’re more or less saying a service is all hype.
Fried didn’t more or less say that Twitter’s service was hype. He said that Twitter’s valuation is all hype.
That is awesome..
MG, your thinking is so muddled that you manage to disagree with yourself from one paragraph to the next. Regarding Microsoft you say: “So did Microsoft get screwed? No, because it was never about the money.”
And then in the next paragraph you say:
“So that $100 billion number does have meaning.”
So which is it? does the price that an investor pays (in proportion to valuation) have meaning or not?
Siegler is not a writer, take whatever he posts with a grain of salt.
tc is run by bloggers.
One paragraph is about Microsoft’s investment in Facebook (which was strategic), the other is about the hypothetical 37signals investment (which was not). Two different investments, as I said.
It’s funny to see where 37signals’ focus is, the feeling I get (and not because of this post, but because of their products) is that there isn’t much innovation being done at 37 signals. They recently updated the icons and file upload – that’s a small improvement, hardly a release worthy.
I would be more interested to see if they look at twitter from customer perspective and embrace how people are communicating and find some tie ins into their products.
Maybe, just maybe 37s are in business for money, not for innovation for the innovation’s sake?
Top-tier VCs also invested heavily into WebVan, who then spent something close to $1billion on infrastructure.
Tell me again how that one ended up?
Just because a company is receiving a sky-high valuation pre-revenue doesn’t mean it’ll pay off; if anything, it is more likely to be a spectacular flameout.
bingo
I did some elementary school math on the Twitter investment to calculate that Twitter needs to generate about $2.13 per month per user to return the $158 million invested over three years at a 10x rate…doesn;t seem like a stretch if the revenue generation model is a combination of advertising and fees…but I guess time will tell.
http://whispers...s-to-cents.html
Do you realize that Facebook has 300MM users and makes ~700MM/year? Social networks have a difficult time breaking the $5/user/year barrier, so for Twitter to make close to $25/user/year would be astounding…
I still stand by my wager in this post
http://oonwoye....-save-humanity/
Twitter is ‘Opened up Facebook Status’ or ‘opened up Y! messenger’…. FB will win the war…..
Twitter is a GREAT product (NOT company) but not worth the hype, it is that simple….
I get where Jason Fried is coming from, we should encourage the new breed of entrepreneurs to focus on generating revenue instead of ‘potential’ revenue.
It is a shame that once you criticize the Twitter hype, you are accused of jealousy…..
I am not too sure about your rationale here. If Twitter is a great product, than trying to belittle it as an “Opened up Facebook Status” is hypocritical. The point is, they saw an interesting feature that was being underdeveloped in another system and made it a primary function for their company.
.
there are some issues in your TechCrunch-Facebook interface, since, I haven’t posted the 27 previous (empty) comments!
this is my first and only comment in this post… just to ask you… WHY do you have posted the Steve Ballmer photo in this article? …
.
“But regardless of where you fall on the hype debate, all that really matters is that the investors obviously don’t think it’s hype. And they’re apparently still pouring money into it with the belief that it will be the next big thing.”
Because if there’s one thing we’ve learned in the past two years, it’s that investors are always right about everything. Always.
of course not, but they’re not always wrong either. the difference from this and most others is that this is a *huge* bet, putting twitter into the billion dollar valuation club.
Which means nothing. While the money raised is good for Twitter, the valuation is useless until exit. With no known business plan and only hints of revenue potential, when will the exit come? Ads on Twitter is a bust, due to a potentially huge rush for the exit (drop in utilization). Revenue from tools? Really? If the API remains open, this will lead to many competitors, reducing the earnings potential.
great comments!
MG, I see a great relationship between your posts and AnyClip.com snippets in the future.
i do as well!
It seems Fried gets douchier and douchier on a daily basis.
> But Fried undoubtedly knows how the game is played, and by picking on the current “it” company …
Clearly TC is playing a “media” game, but projecting it on to others is unfair.
Maybe he picked twitter because as an informed, experienced developer at the cutting edge of this new market, he thinks the valuation is so bad it needs to be mocked.
but is he really better to determine that than the group of investors who have seen the books?
The books of Twitter’s cash furnace?
Premium accounts can easily be @5 Dollars per user!
And .002% percent of users will pay for them!
I’m considering invest in Twitter $100
That mean I will own 0.0000001% of the future profits… I going to be rich real soon…
What do you think the model “really” is?
It should have been grow, grow, acquire some companies (bit.ly) then flip. Now, it’s too late. They have no choice but to have an IPO and develop a real business.
But unlike a real business, they didn’t start backwards. In a real business, you say, ok, what’s our final goal? How are we going to make money? Then you work backwards and figure out how you are going to do that.
In the roulette business model, which was what they used to be playing, you don’t have a real business plan, and you don’t need one. You just grow far and wide and then flip to a company that wants you so their competitor can’t take you instead. (ie. sell to Google so Microsoft can’t have you). This WOULD have worked, and worked quite well. Would have easily exceeded liquidation preferences, everything. Everyone would have been happy.
Now, they have to develop a real business. But they didn’t conceive of one to begin with. So what they’re doing now is extremely dangerous and should never be attempted unless you like crazy risks. And they do, which is why, ultimately, Twitter will inherit the Earth and lead us to our final destiny.
37signals has a good thing going for them except their arrogance and narrow mindset that what works for them, works for everyone.
“I’m happy for you Twitter, and I’m going to let you finish but 37signals has the best web app ever!”
Bad form, stop making yourself look like a douchebag.
Great points @AK and @Fremen. The Twitter-makes-no-money card is ”tired”? They could make money if they wanted to? Well that and a dollar will get you on the bus. (Or, apparently, 0.0000000001% of 37Signals.) I’ll take the profitable company every day of the week. A bird in hand, etc, etc.
do you not agree they could make money pretty instantly if they just turned on ads? i dont think there’s really a debate there.
They could make money, but not enough to warrant 150MM in funding. Look at Facebook, their ads perform very, very poorly, and they have some of the best targeting in the world. Twitter knows comparatively little about its users.
Nobody is saying that they couldn’t make money if they turned on ads. The problem is that will it be enough to warrant a 1B valuation. How much revenue and more importantly, how much PROFIT can they make ?
Make money? Sure. Make good money compared to the amount invested? No, and I think it would lead to a drop in usage, which would hurt earning potential.
It would depend on the value of the audience. If you look at anyone’s followers they’re filled with prostitutes and sex-cam solicitors. They’re pretty easy to spot since they tend to follow 1000 people but have zero followers themselves and 1 post. If they go with CPC model to value the ad network they could quickly find that a large percentage of Twitter users are either fake or scammers who don’t really use the service other than to spam people with followers. And if they go with an ad-view system advertisers are going to scrutinize the value of the audience. I think that’s the real reason they haven’t “turned-on” revenue. The bulk of the twitter network could very well be useless spam.
For the record, Twitter was not the reason we wrote this press release. We’d had the idea early last week and had been writing and refining it it since Monday. We finished it yesterday and posted it to Signal vs. Noise. Timing was coincidental with their announcement.
We sure don’t need the Twitter $100M round to point some good fun at the silliness of profit-free tech valuations. But the fact that people are automatically making that comparison just highlights the need for this kind of discussion.
Hear, hear!
Somehow, that makes it even more funny. Crack a joke regarding valuations, and the twitter defense brigade rolls in!
And I was going to jump in to defend you…
I was going to say how your always bringing up this point on SVN and that not once that it mentioned twitter in the post. Well at least I was right in my assumption that it wasn’t based on twitter directly.
well you know we did report on Twitter’s $1 billion valuation last week… just sayin.
http://www.tech...lion-valuation/
“We sure don’t need the Twitter $100M round to point some good fun at the silliness of profit-free tech valuations.”
No, you actually could have used like 30 companies from bubble 1.0 as the poster children if you needed a straw men to poke fun at. But people seem to get amnesia quickly.
Its strange that even after Google, Facebook.. et all Doubters are still in business. Though some of the criticism is justified but the money being poured in is real and those who are doing it are putting their ‘moneys where their mouths are’. The doubters meanwhile are just putting their word out.
Have a strong feeling that Twitter will carve a unique value proposition. It is already a million broadcast channels being followed by several hundred millions. Level of engagement too is much more value driven than on Facebokk, orkut, myspace pack.
Sanjay Uvach
Corruption in India
Sorry, but you have only named 1 successful company. Oh, and they just happen to basically own online advertising market.
Dewd, Mani wants to know what people are saying about it, dewd.
MG, don’t smoke and write. And don’t tell me you didn’t =)
Jason is full of crap. Have you ever listened to this guy speak? He’s grumpy and angry at the world. Try having a conversation with him. IF he’s listening to you (usually he’s instead focused on what he wants to tell you next), he’ll nit-pick your choice of words, tell you that he doesn’t like the words you use, and then instead cleverly come up with a choice of more appropriate synonyms. Annoying. Go away Jason Fried.
And who are you?
If you want people to listen to you, it helps to have something of value to say.
If someone nitpicks your words, it generally means they don’t respect you and/or you are a sloppy, weak thinker who doesn’t actually know the meaning of the words you are using.
Not saying this applies to you, but I also don’t see any evidence to the contrary.
Evidence? Look no further than this video. Count how many words he “hates”.
http://www.bigo...big-omaha-2009/
Is “revenues” redundant? Isn’t it just “revenue”?
We say “cattle”, not “cattles”.
Just sayin’.
Come on, you guys throw company valuations around like it’s candy. Since most people haven’t ponied up some of the silly amount your site throws out from time to time, I’d like to know how you come up with the figures you do sometimes.
Also I don’t think advertising is the answer. Sure just throw ads in that will solve the problem. Twitter is a services. A service I’d pay for now… I see the value and I’m ready to pay especially to keep it AD free.
Is you phone services loaded with ads? You pay for that right? Oh maybe the city can just give me water if they put in some advertising that would pay for it….
At least some one came out in open and said it openly. Else we were going to have ridiculous valuations. Home run for this post!!!
As long as a service is free there’s no point in creating a competitor, but the minute Twitter start arranging things to make any profit, will annoy some part of their users and there will be tons of clones ready to strike because there’s no barrier (they could even “steal” the twits via API)… the community can be moved as easily as flipping a switch in their client’s configuration and the technology… well, what is twitter but a table and index on steroids
Truth is that they have no way to protect their idea (and “prospective revenues”) but keeping everything free. Ah …and Jason Fried rocks!
The point saying Twitter ‘could generate revenue’ by just turning on advertising is misleading. Yes, they could make a bit of revenue but considering most users don’t utilize twitter.com how would this work out so well? Plus, a company like facebook which has numerous times the users and pageviews has been advertising for a long time and is just becoming profitable.
I think in the end, Twitter will be the next Myspace. Hyped as ‘the pulse of the world’, get a huge valuation, then find a space as a niche medium for certain uses but no where near the level it has today.
What happens when another company comes out with Bwitter – 145 characters. Just like coming out with the 6 minute abs.
Wait, are you saying I should scrap my plans for Zwitter (with 143 characters), it seems so limiting now that you have disclosed your Bwitter 145 character stealth project.
“those investors are going to want an exit of more than $100 billion (leaving out the various types of deals and options they could have surrounding an exit). So that $100 billion number does have meaning.”
So an investor wanting/wishing/hoping for a big payout gives meaning to the number? Perhaps I am missing something? That doesn’t seem to compute.
I could see Twitter purchasing a number of tool providers and then charging fees for these add-on tools. Not a bad business model. But placing three ads on the right side bar wouldn’t hurt anyone either.
The moment I read the headline, I knew this was an MG article
i’ll take that as a compliment
Now that Facebook is generating revenue, will it’s valuation go down as compared to its investor fed hype?
How about an analysis on that?
Or is it, this discussion is quarantined to pre-revenue generating and media hyped enterprises?
facebook has been generating revenues for a long time, it just went cash flow positive last quarter, meaning it’s making more money than it’s spending.
Why does this discussion always come down to “Can Twitter make money or not?” Absolutely Twitter can make money. The question is can they make enough money to justify the $1B valuation. That’s where it’s all speculation. Plenty of startups in the bubble made money, just far below their targets. 37 signals is absolutely right – and there’s no contradiction between finding Twitter useful and believing that the valuation is based on hype.
It’s not actually real paper money, so who really cares anyway? I have a hard time believing that a company is worth a certain amount based on something that does not include actual revenue. Even “potential revenue” is not a valid factor anymore.
Only ONE Billion? To put that into perspective, consider that Roman Abramovich’s new yacht is reported to have cost approximately $1.2-billion. Twitter’s valuation is chump change on the global stage.
wait really? i want a ride! i’m on a boat!
MG – I think you’re the best writer at TC. I’m really enjoying your analysis. This one was especially great.
thanks!
sorry, i dont think the writing is that good but rather bad. analysis otoh, is pretty good compared to other TC reporters.
I think they did that investment because they are pretty sure that Google or other big player (my guess is Google anyway) will buy Twitter for a billon sooner or later.
Wich means, making money on their own is not the hypothesis, they don’t really care about Twitter making 1 million a year with premium accounts or something. The point here is getting a big % of the company before the gigantic sale.
So: 1-They “build” a big valuation. 2-Get a solid percentage of the company. 3-Give the guys plenty of time to wait for a major offer.
It worked with YouTube and others, why not keeping that strategy if it still works?
YouTube is an interesting case because that was a literal example, in my opinion, of when these major acquisitions fail. Google thought they were getting the hottest product available – which I will give YouTube credit for since they literally took over online video hits through amazing SEO, but Google never truly understood the price. This article talks about how YouTube is hemorrhaging money:
http://www.slat...16162/pagenum/1
(A bit dated but works nonetheless)
Inherently, the onus of taking a company that doesn’t generate real revenues (and may not have a long term revenue model) becomes the responsibility of the buyer. This is quite dangerous as YouTube demonstrates.
If anything, I’d hope companies are wary of these use cases and make sure they have a pretty damn good model to execute when they make a purchase. It could be purely strategic as well.
I thought people had realized by now that just placing ads in some real estate doesn’t bring in revenue. Placing it in an area where people are in a mood to click on the ads brings revenue. Is Twitter closer to IM/e-mail or to Google (in terms of ad efficacy) is the million dollar question.
In terms of targeting, the fleeting, short and real-time nature of Twitter usage means that it is difficult (if not impossible) to catch the user’s intent and interest. It is like trying to target the current inclination of a 3-year old from the actions.
About the tools, it depends on what value those tools provide. Just because you have tools doesn’t mean people will pay for it.
The best bet for Twitter is actually in the enterprise market of B2C companies where they can charge the B for useful analytics, access and leads to C.
The current valuation requires them to displace a not small chunk of money thrown towards ads at the moment to establish brands, get feedback, get leads, etc., by providing a non-ad mechanism to achieve the same results in a more cost-effective way.
If they are really successful, they will be competing for the same dollars as Google does in the large company budgets.
Consumer revenue model is unlikely for Twitter.
well i think that’s at least part of the reason twitter hasn’t gone that route. but there have also been studies that twitter users love to click on things (even viruses), so i think if there would in-stream ads, they would click on them.
but i agree, b2c is the better way.
“If an when it closes this latest $100 million round, those investors are going to be looking for an exit of more than $1 billion. ”
A venture funding expectation is not the only model for investments although the Valley seems unable to see anything else being far away from the East Coast.
Think of it as a convertible note where the interest on the rate is the return with an option to benefit from conversion IF the company makes it big, that is not the same thing as saying the investors invested with only the latter as the rationale.
it’s true that there are other reasons/options, but without knowing the details here, it would seem to be a pretty straightforward investment. hard to know for sure.