Thursday, November 5, 2009

Selling dreams or Buying Twitter

Do you tweet?

I do, but not much. I must confess that I'm more the voyeur-type, just following a few people and mostly finding interesting things through searches. Different than Facebook or my five email accounts, I can forget to check my Twitter for a week and well, my world definitely does not fall apart.

But this is not the subject of this post.

While everyone is super excited about Twitter and the potential of "real time journalism", "life streaming" or "microblogging", I'm interested in finding out how Twitter will make money. Apologies if that's boring.

In Silicon Valley, for some weird reason, having a clear business model or even something basic as a source of cash flow might be completely irrelevant. YouTube, Blogger, MySpace and many other internet start-ups were sold for a lot of money to larger players despite not showing any profits.

But with Twitter this trend seems to be taken to the extreme: they seem to be avoiding having revenues.

Why would they do that?

Well, in the current situation, potential buyers can dream about how much money they can make acquiring Twitter and mixing it with their own services, or by turning on whatever revenue model they created. In other words, the sky is the limit. How much is Twitter worth? As much as your dreams want it to be.

On the other hand, as soon as Twitter turns on whatever model they have (or don't have) to make money, they are back to the real, cold world of valuation. If you have revenue, then you have margins, and EBITDAs, multiples and all those uncool financial terms that bankers use to put a dollar value to a business.

Twitter prefer to sell dreams than to sell a cash flow. And, crazy as it seems, that might just work for them.

PS: this post is a relflection on an article I read online a few months ago about Twitter sticking to the free model. I can't seem to find the original. If you find it, please post a comment and I'll be happy to add the link.

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