Hyped by technorati, website seems to be defying the economy's gravity, but can it make money?
Perhaps no American company is more of-the-moment than Twitter, the real-time messaging start-up that allows people to publish their current doings, readings, and ruminations, or ask questions of their Twitter community and get fast answers.
Jon Stewart mocked Twitter on "The Daily Show" last week, showing a congressman Twittering away on his phone during a recent speech by President Obama. Google's chief executive made dismissive comments about Twitter, while BusinessWeek speculated that Google might buy the company for several hundred million dollars. And Facebook, which tried last year to buy Twitter for a reported $500 million, is rolling out a redesign of its website this week, in part to try to duplicate popular Twitter features.
And yet, despite the San Francisco company's growing reputation among the digerati as the next potential Google, YouTube, or Facebook, few American companies are less of-the-moment than Twitter: It is able to raise new funding from sources that aren't the federal government (more than $35 million last month), it has no announced plans to make money from its service, and two of its Boston-based investors don't seem to be exerting too much pressure on Twitter to bring in that first dollar of revenue.
"The priority is still growth and stability," says Bijan Sabet of Spark Capital, referring to increasing Twitter's population of about 5 million users, and making the service more reliable. As for a business model, Sabet says, "we're going to try a few things this year that we're excited about." His colleague Todd Dagres told me recently that "we're in no rush right now" for Twitter to start booking revenue.
Twitter is the latest in a series of Internet-fueled comets, a series of start-ups that have included the instant-messaging service ICQ, Web-based e-mail hosting service Hotmail, illegal music-sharing network Napster, social hub MySpace, and Skype, the free Internet calling system. Each start-up has attained incredible momentum based almost entirely on digital word-of-mouth. Many have been snapped up by larger companies before they were forced to figure out how to stand on their own two feet.
Some describe Twitter as a "micro-blogging" service - a way to transmit succinct messages to a group of friends that Twitter terms "followers." Others liken it to Facebook's status updates, where that site asks "What are you doing right now?" and lets your community see and comment on the answer. But über-Twitterer Chris Brogan says it also offers a way to tap the expertise of a large group.
"I ask Twitter for information many more times a day than I ask Google," says Brogan, a Boston area marketing consultant and conference organizer; Bro gan has more than 50,000 people who follow his "tweets," as Twitter messages are known. "I'm in Bellevue, Wash., this week, and so I will ask my Twitter followers where should I get breakfast. It's like having a lot of human concierges to answer questions."
Twitter can also be a good conduit for news, Brogan notes. He learned of a recent plane crash in Amsterdam through the service, and the first pictures of the crash site were transmitted via Twitter.
But if you haven't used Twitter yourself, you may just not be able to understand, says venture capitalist Lee Hower of Point Judith Ventures. "It's kind of like TiVo was. You can explain it, but until you use it yourself you really can't tell how it's going to change the way you communicate," he says. (Earlier in his career, Hower worked for a few other Silicon Valley comet companies: PayPal, the online payment system, and LinkedIn, the social network for businesspeople.)
No one disputes that Twitter is spreading virally, as the techies like to say. (Barack Obama's staff Twittered throughout his presidential campaign, and the newly minted talk show host Jimmy Fallon has lately been asking his Twitter followers to submit questions he should ask guests.) Twitter said last month that its number of active users has increased ninefold over the prior year.
But using Twitter is free, and there's no advertising at all integrated into the service or the company's website. In these recessionary times, I suppose it's nice that someone doesn't have to worry about making a buck.
With regard to revenue streams, Dagres says that "all of a sudden there will be some changes that won't undermine the experience or virality" of Twitter, "but it will be pretty obvious how we're going to monetize it." Neither he nor Sabet will say more, and guessing at what Twitter will try has become something of a parlor game.
One possibility, Brogan speculates, would be selling tools for power users that help manage the direct messages they receive through Twitter. Another prospect would be a fee-based service that would help marketers understand what people are saying about them on Twitter.
"Somewhere in all of those millions of tweets," says Forrester Research analyst Josh Bernoff, "is something that can help Wal-Mart understand how to talk about themselves, who they should reach out to, and who are the people spreading disinformation."
Hower suggests that another model would be to charge for "a corporate version, where companies would pay to use Twitter as an internal tool for collaboration." And as the number of Twitter searches increase, where people look for information about what Twitter users are doing and saying, placing ads next to the search results is yet another possibility.
For entrepreneurs striving to figure out how to get their companies to profitability, there's a fair bit of skepticism Twitter will ever develop into an independent, sustainable business. "It's more likely that someone like Google or Microsoft will say, 'Let's buy this company and then figure out how to make it something that's valuable for our customer base,' " says Prasad Thammineni, a Twitter user who is also CEO of the Waltham start-up Pixily.
The company has already passed up one such offer, from Facebook. "Our feeling was that it was just too early, even though it was a pretty interesting offer," says Sabet, who was involved in the negotiations. The company still has much of the $55 million it has raised in its bank account, and it still has yet to hire its 30th employee.
For now, Twitter is one company that is somehow defying the gravity of the overall economy. "A lot of companies right now are being told to cut their burn rate," or the amount they spend every month, "and do what they can to survive," Hower says. "Twitter gets a pass on that by virtue of having extraordinary growth and a future with a lot of potential."
Scott Kirsner can be reached at email@example.com