Twitter announced this week that they were setting up a business model to bring in revenue:
But my question is how have they covered expenses up until now? Surely they needed money to pay for office space, upkeep of the Web site and salaries.
They didn’t make money.
The money to pay there vast staff of about 30 people, office space etc. came from the initial startup money from investors.
The didn’t make any real money of their own. Just like lots of start-ups, they got money from venture capitalists who finance them up front for a share of the future business. Twitter did this in multiple waves and secured over $160 million in funding so far. That pays the bills and lets them grow aggressively without having to worry about paying for operating and marketing costs by themselves right away.
Here is an article about who financed a part of that:
While that’s entirely accurate, it’s worth noting that there are still plenty of “old fashioned” start-up entrepreneurs and VCs who feel a new venture should have some revenue model from day one. Although certainly profitability from the beginning is never essential.
And I would completely agree with them, except that twitter for all its lack of revenue model up till now has managed to get enough users that there’s surely some way of extracting money out of them.
The real test as far as money is concerned starts now; does the new strategy deliver some cash without chasing away too many users? If not, it’ll sink like a stone and nobody will remember it in 3 years. If it makes a shit load of money, the investors will look like visionaries.
An additional revenue model is getting bought up by Google or Microsoft, etc., who are willing to spend a lot to buy the technology, concept, brand, and user base of things like Twitter or YouTube before anybody’s figured out a way to monetize them. The VC’s are quite happy to get their return that way, and then they don’t care if the purchasing behemoth manages to convert it into a profit-making operation or not.
It would certainly seem like this is foolhardy on the part of the established big players, but Sergey Brin could buy and sell us a thousand times over, so presumably he knows what he’s doing.
–Cliffy
Twitter just turned down Facebook’s $500 million buyout offer.
http://www.law.com/jsp/lawtechnologynews/PubArticleLTN.jsp?id=1202426340822
My head count of 30 is out of date. they are now up to about 120 to 150 people.
I don’t believe Youtube, Myspace or Facebook have yet turned a profit.
YouTube sure as hell turned a profit for their original investors, having been bought by Google for a cool $1.65 billion in stock.
Whether is actually turns a net profit day-to-day, I have no idea. It doesn’t seem likely.
Google now says that YouTube is turning a profit, that every new user is a net gain. I don’t know where I read that, sorry.
I have a suspicion that the ad rates on MySpace have fallen dramatically in the past couple years. I don’t know anyone who uses it regularly, and I teach high school.
It should also be pointed out that Evan Williams, one of the founders of Twitter, was also one of the founders of Blogger, which Google bought a few years back for quite a bit of money. So there was plenty of money to keep Twitter alive for some time from the beginning.
I’ve often puzzled over the values assigned to these “social” sites. The business model seems to be: “Hey look, we’ve got all these people in one place!” and… er… that’s it. Okay, I’m sure that kind of brand awareness and loyalty is fairly valuable, but does it really justify the telephone-number figures we are talking about (and I mean full international telephone numbers, with an extension number on the end)?
I mean, Twitter is lame enough when it’s free, but paying to tell the world you’ve run out of milk (or hear that @geek has run out of milk)? I think not.
But how about if Twitter delivers you one ad a day? Or one ad after every third Tweet? Would you dump it for that?
How about if businesses had to pay to Twitter? Would you care?
I would tend to agree, but as I noted in tongue-in-cheek manner above, the history is that you can sometimes make money – even crazy money – by providing a free service to people if you have enough of them. (Broadcast radio and television are an earlier example of this, of course.) Exactly how you do that is the sticky part. (Duh.) And sometimes they don’t figure out any way to do it, but sometimes they do.
–Cliffy
Social networking sites may seem a waste, but look at cell phones. How many of you actually NEED a cell phone. No one does. Ten years ago almost no one had it and you got along just fine. Now suddenly you can’t live without one glued to your ear.
And what are you doing, you’re killing time with other people. Instead of learning to relate to the world around you or simply learn to handle a situation where you have tgo be alone with your thoughts you can be a “time burgler” to your friends.
AND
You pay for that priveledge. Not only in money but in terms of self delusion. I bet I could put people on a lie detector here and say “do you REALLY need a cell phone.” And they would answer yes, and pass it. Why? Because they have convinced themselves they NEED a cellphone and it’s worth any amount of money to have it.
Of course you don’t need it but you pay for a cell phone. So how is this different than paying someone to Twitter?
It’s not any different that’s how. But people see the need to be important and will pay for it