Michael Moe knows how to make headlines: Talk about Twitter and predictably people will bite (I'm proof of that). He led the team at NeXt Up Research that calculated the value of the micro blogging service and arrived at $526 million to $674 million -- half what Twitter is generally believed to be worth.
Really?
The team estimates that Twitter will generate revenues of $114 million to $134 million in 2013. In 2014, Twitter is expected to post revenues of $126 million to $148 million. This is far more conservative than the valuation implied by the company's most recent round of venture capital investment, which puts the company's worth at more than $1 billion.
With more than 70 million users, adoption of the social media site is certainly not in question. The company is feeling its way through the financial world, apparently hoping to stumble into revenue. It effectively did this when it licensed its data to Microsoft (MSFT) for use in fine tuning its search engine, Bing, and to Google (GOOG) for its search engine. Yet, there haven't been any noticeable moves to turn licensing into more than an ad hoc arrangement.
Other revenue possibilities include are corporate accounts, which company executives have spoken about a few times (but not much else) and running ads on Twitter.com. The latter seems more likely given recent website enhancements.
But the problem is that according to NeXt Up, only 17.8% of Twitter users interact with the micro blogging service via the website, far less than the roughly 30% recently estimated by Tweet Stats. This bearish view only reinforces the notion that Twitter would need to attract more users to its website (rather than other services, such as Tweetie and TweetDeck) if it wants to succeed in its pursuit of an ad-supported business model.
The other revenue model, premium accounts for corporate users, hasn't received as much attention, but it's clear that that's where the potential is. NeXt Up estimates that Twitter-based advertising is among the cheapest forms available and can deliver results. Dell (DELL), for example, used Twitter to generate $3 million in revenue from 2007 to 2009, NeXt Up reports, with $1 million of it coming in the first six months of this year. During the same period, the number of users following Dell surged from 11,000 in December 2008 to 1.3 million in October 2009.
So, it continues to look like the only company that will have trouble making money on Twitter is Twitter. The recent round of financing certainly led to an inflated value, but given NeXTt Up's revenue projections, even its bearish view is optimistic. Until Twitter can demonstrate a real and consistent way to make money, any valuation will be best expressed in unicorns rather than dollars.
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Reader Comments (Page 1 of 1)
11-15-2009 @ 9:21AM
Brian Pasch said...
I use Twitter more often from integrated third party tools than actually going to the website so I agree that Twitter's model makes it hard for them to monetize their platform.
I have my blog setup to automatically tweet when I do a new post. I have LinkedIn account also connected with Twitter. I also use TweetDeck because of the better interface.
It seems that the current Twitter architecure is turning out to be a pipeline or infrastructure for social communications with their website a secondary need.
11-15-2009 @ 6:46PM
Mike said...
Inserting ads into the stream would solve the site vs service problem.
By ignoring the stream itself, all you are doing is parroting half-assed analysis.