Tuesday, 10 May 2011

There ain't no money in Twitter, mate

Twitter in its current form will never turn a sustainable profit. You heard it from me.

Today, Skype is reputed to be under offer from Microsoft for $7-8 billion and you might argue that it's the same situation. But it isn't. Skype can morph and bridge the gap between mid-range business VoIP PABX type solutions and very small businesses who just want cheap, reliable business phone features and tariffs to make themselves global. Somewhere in there lies a large telecoms company with a global footprint already and millions of subscribers. Go figure.

Twitter, however, is a different beast. I would assert that over 98% of the tweets ever tweeted on Twitter (try saying that after a few drinks) are complete, banal dross. Irrelevant to 99% of the users of the Twitter platform. But that's why it is so popular - it's cool, it's freaky and you can do what you want without any cost and be seen to be a complete bore globally.

So imagine if a charge was introduced. As many as 98% of all tweets would disappear as no one would pay just to tell you they had eggs for breakfast. Which means that you would be left only with the worthwhile tweets which may be good but then no one would be on there to listen to them - so the initial value that it is big, cool and freaky has been destroyed. You are left with a talking shop, a coffee house, a club for self-opinionated people to expound amongst themselves. Twitter as we know it would implode.

The danger is that by charging Twitter loses its critical mass of users that make it the cool place to be and without users no one would want to pay creating a downward spiral. We have a precedent here. At the height of Web 1.0, online chatrooms were the rage. Loads of people got online in chatrooms large and small and conversed creating a whole new language and the rise of 'social networks'. Microsoft lead the way in providing free platforms across the world. Then one day they changed it all by taking the rooms private and charging for them. They didn't need the money but they needed the protection as these rooms were fast becoming the grooming grounds of social predators like paedophiles and scammers. The concept of the chatroom almost vanished overnight. The addicts stayed but the fun was gone as the numbers dwindled. Nobody wanted to pay to hear themselves talk to themselves. They got small and niche with little profit opportunity.

Twitter's biggest value is that we might get millions of would-be journalists reporting the news live, in situ as the chap did during the US SEAL raid in Abbottabad. Or people revealing wrongly that Jemima Khan has been cavorting lewdly Jeremy Clarkson - even I saw through that one. That set of tweets alone set the cat amongst the pigeons on 'Super Injunctions' as many would argue the law has little jurisdiction over the internet while the simple practical issue is that while the injunctions may have been violated, Twitter is served from the US and so is immune to UK law. The issues surrounding this may well come back to haunt the internet and Twitter. As much as we want freedom of speech we don't want prejudicial lies propagated.

Indulge me by considering gold. It is shiny and perceived to be precious because it has bulk. It has few real uses beyond the cosmetic yet it is one of the single most sought after commodities in the world even being the base of currencies until recently. It varies in price according to the economy and it has little practical uses. Yet gold is different as you can melt down an ingot, cut it into pieces, redesign it and then sell each piece so that the aggregate of the value of all the little pieces is many multiples the original ingot value. Gold has more value in its constituents than the whole.

Yet investors and financial people treat Twitter like gold. They are convinced the value is in every individual who uses it when the reason people use it is because of its sheer size. Cut Twitter in pieces and the value is diminished.

Is there a middle ground to create a real business case? To create a long term, sustainable and profitable business, Twitter has to change. The change cannot smash the reason why people use or it will implode.

So could Twitter be sold on an airtime-type model? Listening in is for free and then you buy a package which is dependent on the number of tweets you want to do. Because of the sheer volume of users and the their tweets, this may serve two purposes. 1) It monetises serious tweeters and 2) it cuts down the number of banal, useless tweets that serve as the irritating noise that puts many off using it regularly. The chances are that if the charge structure is sensible, you may still maintain a sizeable volume of subscribers and create a growing revenue stream.

The problem for investors is that Twitter may be fool's gold. It looks like it's worth something but the reality is that it isn't. Twitter is free today and it's worth every penny.

- Posted using BlogPress from my iPad

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