Twitter Shows Its Real Value
September 27, 2009 4 Comments
Google’s CEO Eric Schmidt refers to Twitter as a “poor man’s email.” For millions of individuals, small business owners, and even emergency services organizations, Twitter is rapidly becoming an integral part of their business strategies and personal lives.
That fact is not lost on the private equity and investment communities. Twitter confirmed a large investment on Friday, estimated at $100 million dollars, with a posting on their website:
“Yesterday we closed a significant round of funding with a group of investment firms that we’re excited to publicly thank: Insight Venture Partners, T. Rowe Price, Institutional Venture Partners, Spark Capital, Benchmark Capital, and Morgan Stanley”
Social media is touching all of our lives. Even in the early stages of social media development, it is hard to talk with any network or tech-savvy person without having a conversation that is fairly intelligent on the topic. Some think social media communities and applications are a complete waste of time, some are finding creative ways to make tremendous amounts of money, and others are simply indulging in bringing together long lost relations and newly found relations in an instant contact “matrixed” tool.
Twitter, mentioned frequently in a media storm following the latest investment round, is thought to have a valuation of around $1 billion.
While it is difficult to place a hard monetary value on social networking, many investors are starting to jump on the social media venture bandwagon. Microsoft invested $240 million in Facebook, Digital Sky (a Russian company) another $200 million, all in a company that has only recently starting showing signs of generating income. Valuations change depending on who you talk with, largely based on their opinion of social networking. However one fact remains, social media sites are starting to attract serious interest and money from the investment community.
Why? Because even though social media sites and technologies are in the early “stone age” of development, we do understand how this method of bringing people, industries, and events together in a tech-driven community that allows instant global notifications of everything ranging from who is feeding their cat to instant emergency notifications of wild fire evacuations in California.
Twitter has “Become a Verb”
In 1999 we worked hard to startup a new data center business and communications operation for Level 3 Communications in London. It was fairly early in the days of SMS, but gateways allowed transmission of email messages into the SMS system, allowing us to send instant notifications from network management and monitoring systems to both email and mobile telephones.
In addition, as part of our business continuity planning, there was a very clear requirement for notifying individuals, including management, of events that may require a response, notification, or could potentially result in public interest in some level of our business.
The Level 3 software developers in London wrote a very clever, sophisticated web-based notification system that allowed us to meet all our notification and event-logging objectives. Basically a one-to-many broadcast network transcending mobile phone networks, email, pagers, and automated or human information sources. The only real limitation was the length of message, which could either be truncated or rejected based on the individual mobile network’s capacity.
Twitter takes that to a whole new level.
Twitter encompasses all the basic “food groups” of human communications. It supports one-to-one, one-to-many, and many-to-many models of communications. Twitter also supports both interactive and non-interactive (or real time) communications. Your “tweets” are transparent to the media used for either sending or receiving communications. A tweet doesn’t care if you are currently preferring a web browser, a mobile phone, or an email account – it will find you wherever you want it.
Twitter is Understood, Sort Of, and Has Our Attention
Let’s face it, aside from the fact Twitter works, and meets technical specifications and promises, possibly the most compelling reason we’ve adopted Twitter is the cost. It is free. I can send a thousand tweets, and the cost to me is the same flat rate – free.
What does it cost me to use Gmail, Yahoo Mail, or MSN Mail? Nothing, it is free. The only cost to me is the amount charged for accessing the Internet or mobile telephone network. How do they make money? Advertising. Same as the soon-to-be-former print media industry, such as newspapers.
Twitter is taking the cost and flexibility to another step. They have published some of their application programming interface (API) details, allowing private or independent application developers to “plug in” to Twitter’s platform.
An important point – Twitter is, at its lowest common denominator, a communications engine. That engine can be expanded on with much more powerful application support, taking advantage of the powerful interactive and non-interactive design.
Can Twitter Make Money?
Twitter, unlike other social media upstarts like LinkedIN and Facebook, has yet to make any money. Investors, no doubt, are also struggling with that question, and will also, no doubt, force the issue. Is it through introduction of premium services licensed via their APIs? Will our 140 character “tweets” now be truncated further to allow introduction of a MiniURL from an advertiser into each tweet?
Biz Stone, Twitter co-founder, told Reuters recently that “Twitter would not take advertising this year.”
Maybe Twitter is a special case, and will get a free pass on the need for revenue and avenue to “exit” for investors. Not likely. More likely, the development of “plug in” applications that will not corrupt the basic communications engine, such as the addition of geolocation features for both business and emergency services hold a key.
Licensing the communications engine to those who will “plug in” to the platform could be the higher value we are looking for in Twitter. Much like the basic infrastructure of fiber optics, wireless, utilities, and our freeway system, Twitter’s value could be in licensing fees for the additional value layered on top of the basic engine.
Or, other smart people may have already found an answer. Such as those willing to add another $100 million into the investment pouch.
Our User Role
As users we will eventually tire of sending meaningless, worthless noise tweets. The more users become aware of Twitter’s powerful communications engine, even higher value applications will emerge, taking advantage of Twitter’s communications innovation.
Whether it is ultimately Twitter, or some next-generation of Twitter, the concept is valid, and will become a part of the “matrixed” future. This is a good time to take Twitter out for a test drive, gain some tacit knowledge and experience in both social networking and Twitter’s communication engine, and plan for what role this will play in your personal and professional future.
John Savageau, Long Beach