Friday, 25 September 2009

Tweets For My Sweet

I am one of those people who signed up to Twitter, gave it a good bash and then left it. I just couldn't understand why a screen full of irrelevant, banal comments on nothing was adding any value to my life. I dare say I am missing the point, but I have tried and just didn't get it.

Well clearly I am in the minority. The company has not made a single bean in revenue - in fact, in the 'pure' world of tweets, the users believe that trying to 'monetise' them would be an affront and most likely drive many away. But that hasn't stopped the latest round of capital raising go ahead with renewed gusto. Twitter has just raised a further $100m led by Insight Ventures which now values the company at a very super-cool $1bn.

Let me run that by you again - no revenue, the users would be really cheesed off if charges were imposed or advertising allowed and the company is valued at $1bn.

For the limited number of characters allowed, this values the company at $7.14m per character. What's more, this is the second tranche of new money this year and many analysts believe they don't even need it. Makes you wonder why any company would raise so much money without a) using it and b) having a business plan of any nature to try and make a profit.

But in the world of web 3.0, which I am told by many is all about who follows you, it is not important to show a profit. Twitter is all about grabbing users, much like Facebook, another site staunchly not making any money but which had the audacity to use some of its funding to try to buy Twitter for $500m last year.

Here are some interesting 'facts' on Twitter that make it both exciting and potentially worrying for its investors. It's 140 character set Tweet was originally designed to be compatible with SMS as seen on mobiles - such was the lack of a business plan by its founder, Jack Dorsey. It is now ranked as the third most popular social networking site with an estimated 6m visitors to its site every month and around 55m unique visits, and it is ranked by some authorities as the fastest growing site in its category.

However, it is estimated that only 40% of all Twitter users are retained. Of the core of users, who love and use it every single minute, as I have found out on my experience to tell me if their dog is abluting or the river is passing by sluggishly in front of the hotel room window, there is a strong backbone of those who regard this site as the last bastion of free, free enterprise. Many users might just walk away if the site was ever to charge or try to send adverts to them as then the whole ethos of Twitter would be lost and they would have to go somewhere else to send me another article link that they thought was good.

From a business plan and profit making point of view, this is bad news. From an investment viewpoint, I assume it is not about making profit, it is about the 'potential' to make money by selling the company to someone who may believe they have a method of accessing the users for gain. An example of this was Sky's investment of $200m in Facebook. In fairness to Sky, Facebook has a ton of ways to make money in the future and the users will not necessarily mind as they might accept it. But Tweeters are a different breed - they vary from the geeky, sandal wearing types, to a new breed of newshounds and then on to celebrities and lots in between. The danger area that I can see is that relatively savvy users of the web like myself (OK I take your point) can easily get disillusioned with the Twitter bandwagon and leave too easily. The sheer volume of rubbish on I found to be actually depressing rather than uplifting - and it seems that 60% of all people who have a go like me, actually leave. That's not a good percentage of churn for investors, believe me.

There is no doubt that many new sub sets of Tweeters exist which group like-minded or similar business sectors such as StockTwits which links stock traders together. This may be useful if you want to get in on the fast information required to make a few bob on shares. Old bulletin boards hat I have used seem now to be so passe yet at least they contained some background information to make your choice, 140 characters seems like just a hollering shop based on guesswork - but what do I know?

The fact remains, Twitter is a social phenomenon and it is here to stay. Or at least until the investors want payback. Then the fun starts to see how the users react.

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