Friday, September 25, 2009

How does Twitter make money?

Or, more to the point, how can Twitter make money?

I ask because of this sentence in a New York Times piece about a $100 million round of financing the social networking service just announced.

As for how Twitter managed to raise money and score an impressive valuation without ever actually bringing in any significant revenue on its own, that apparently was never a problem. Investors have been competing furiously to inject cash into the promising start-up, the person briefed on its plans said.

Twitter’s last round of financing, raised in February, valued the firm at $250 million, meaning Twitter has quadrupled in value in less than a year.
So, someone has decided that Twitter is worth $1 billion. Who has decided that? What criteria did they use? It's not a rhetorical question.

What is Twitter's revenue model? Does it have one? It's not enough to ask when the company will start to turn a profit. The real question is, how will it turn a profit?

Here is what the company has to say about it.

How do you make money from Twitter?

Twitter has many appealing opportunities for generating revenue but we are holding off on implementation for now because we don't want to distract ourselves from the more important work at hand which is to create a compelling service and great user experience for millions of people around the world. While our business model is in a research phase, we spend more money than we make.
Everything on Google is free, but Google earns its money by placing ads on its pages.

I guess at some point,that is what Twitter will do. Lots of users means lots of eyeballs for web ads.

It just seems to me that these big investors are placing a lot of faith, along with their cash, in a company that has not made a single penny and has not even made an effort to do so.