I was at a party last night, some 300 people in a marquee at the 50th birthday of a good friend, Nick 'Shirtie' Gray. I knew around 30 people there and spent my time trying to speak to them and for us all to hear each other over the babble and music. To my mind it was very much like Twitter - lots of noise, irrelevant comment and inconsequential trivia verging on the immaterial and inevitably you gravitate to the people you know and trust as they say the most interesting things.
I suppose I don't seem to get this Twitter phenomenon from many angles. Then again SMS was an unlikely winner for me - initially a service left in by phone and airtime providers as a back channel for administration purposes, someone had the bright idea of introducing the service as a chargeable item and the rest is history. As it was already built into the service, there was no incremental cost of provision and so any charge was pure bottom line. Who would have thought that sending a short, almost illegible text to lots of people would ever take off? Now we send hundreds of millions of them via every airtime provider - and telecom companies could not be happier.
Twitter is described as micro-blogging, social network messaging or the SMS of the web. But here's the odd thing - founded in 2006 and having 34 employees, Twitter has raised around $57 million of venture capital money, the latest $35 million of which was raised early this year. Yet it has still to make a bean of revenue - in fact, it has a business plan, if you can call it that, which has no model by which it can charge money. What it does have is well over 5 million users from me to Barack Obama and in between many celebrities and important people, and then the cuddly girl from Essex who follows everyone, bless her.
Monetisation
This is the new word which Silicon Valley uses which is the process by which a company whose sole business model is to accumulate users, subscribers or followers can extract cash from its 'success'. The VCs behind Twitter must have something in mind - one of them is Jeff Bezos, the founder of Amazon and he knows a thing or two about making money. But Twitter may be different. Users of the service cringe at the idea of commercialisation of what they see as a 'pure' world of 'tweets'. So offering premium services or adverts alongside or embedded in tweets are frowned upon even though some their parties offer such a service. And that's the odd thing - lots of other companies are making good money off the back of Twitter, like offering advice on how to tailor tweets to get your company messages or news over to users or to promote blogs. Many companies have come out with tweet aggregators or filtering services, some offering mobile tweets - it seems the only people who cannot make money are the people who actually made the service in the first place.
The No Business Model Company
Rather like Facebook, Twitter has a dilemma ahead. Do they continue to offer a free service and just accumulate users, allowing other companies to make money while they just have fun or do they cheese off users big time and start charging for use of part or all of the service?
The latter would seem to be a non-option and many companies have fallen foul of such a business model - what is given for free is very hard to charge for afterwards unless you tell people up front this is what you plan to do. Twitter has always said that would not be done.
So there is only one other business model that works. Twitter, like Facebook has a notional value as a company. The CEO, Evan Williams, has already allegedly turned down at least one offer of $1 billion + for the company and it is reported that Google are stalking Twitter as its prey. It seems that perhaps the problem of monetising Twitter could be left to someone else, like Google.
We have seen that model at work previously. Skype came out with its revolutionary IP telephony service which allows free phonecalls across the web. Even better, it allowed IP calls to be routed to callers on standard or mobile phones by transporting the call largely for free and then just popping out at a local exchange or cell and the caller just paid the local call or reduced mobile rate. For international calling it is superb and with some new business services like voicemail, SkypeIn, and conferencing it is even better and the quality is now very good. As Skype took off with virtually no revenue, in came eBay and paid $billions for it. Since then, little has changed to either company, leaving the investment community to scratch their heads as to why eBay would have blown so much money for so little added value or profit to its business.
Twitter has that similar feel to it - even if Google were to buy it, how could it really allow Google to become a more profitable company if it were not to tamper with Twitter's model of free service?
I have blogged recently on Google and one angle is that Google wants to create more of its own content, particularly as a source of news. Twitter has proved very valuable in getting short news flashes into circulation about incidents but it can also be the source for rumours. While Google might have plans to be a news service of its own, with millions of freelance twittering journalists in its armoury, the problem will be the authentication of news. It could just become a platform for rumour, smears, innuendo and libel rather than an authentic, approved news service.
In terms of how the VC money has been spent, Evan Williams himself has been vague on why they even raised it and you have to suspect that when notable companies like Benchmark give money for no discernible reason from the founders, that they have other options in mind for themselves. A sale of Twitter is almost the only exit route that will 'monetise' their investment.
Where that leaves Twitter's users for the future is anyone's guess at this stage.
Scalability
One of the problems that has persisted with Twitter has been its ability to cope with scaling. Unlike SMS on mobile devices, the network had the built in redundancy to cope already there. Twitter was very intermittent when I first tried it about a year ago and a few re-writes of the server technology has got it into better shape but that does pose questions on the future, particularly if Twitter does become some kind of advertising or news service.
The inherent technology has an API to it that has allowed many companies to capitalise on Twitter. In can be embedded in other software and so the aggregation and filtering services have been easy to make while having Twitter in Facebook has extended its reach. It is highly likely, amid all the associated publicity, that Twitter will at least double its user community within the next year or so and this will pose a big strain on its underlying technology which has been tested severely at much smaller levels of users already. I suspect that is where a good deal of the VC will get absorbed.
This week in London, some people behind Lastminute.com launched a new service for companies to advertise down Twitter. From what I heard on the radio, Twitter purists will squirm at the thought, and I think this is where a risk to the plan lies. Bright sparks can see this as some kind of ticker tape advertising service which can embed logos and neat messages. If that is the case, I think users will go nuts as a well as the service getting stretched to breaking point to cope with the traffic and potential increase in resource use.
What Are You Doing?
The natty catchphrase that goes with Twitter is the raison d'etre. From announcing you are walking the dogs to watching the soccer, Twitter is the platform of the mundane with the occasional chirp of note. It is not dissimilar to everyday life or my party - eventually we will gather those we appreciate around us. Thomas Power, co-founder of Ecademy, sees this as the third iteration of the web where people will follow us having found us. I think there are some flaws to this logic. We are currently, as a society, obsessed with the trivial and things like Big Brother seem to be a huge success because we are fascinated by watching what other people do even it is incredibly boring. Maybe it's our animal instincts coming to the fore - we want alpha people to follow. But I can't help feeling this obsession with knowing if someone is having a cup of tea or not is short lived - soon we have to get back to what matters.
Or do we? Tweet on, baby. Who are you following?
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