“How’s Twitter going to make money?” is not the stupidest question, it just can’t be answered just yet!
October 28th, 2008Last week, Fred Wilson from Union Square Venture, investor in and fervent supporter of Twitter, said this to Chris Snyder of Wired: “It’s like the stupidest question in the world: How’s Twitter going to make money? It’s like ‘How was Google going to make money?’.
Aside from an unfortunate choice of words and from violating the 11th Commandment (”Thou shall not call journalists stupid”), Fred is actually quite right: asking about Twitter’s revenue model is no different from asking a biotech startup about their sales strategy while they are in the midst of developing their new drug.
The reason why it sounds absurd in the case of biotech but not necessarily for Twitter is that there is a very clear line being drawn when a new drug is developed, tested, FDA approved and finally released. Because the development of Twitter’s social experiment is happening on the public place with everyone’s participation, the line between development, testing (which is where I believe we are when it comes to Twitter), and ready for prime time (revenue model figured out) gets blurred.
For any startup, whether in biotech or social media, there are 2 fundamental questions that entrepeneurs need to ponder from the very beginning of their venture:
1- What is the value that my venture is creating?
2- How will I be able to extract a fraction of this value?
In my view it is critical for entrepreneurs to pose these 2 questions very early on and revisit them frequently, even if there is no obvious answer in the early days.
In many respects, the question of the value creation is the more critical, otherwise, what is there to extract?
This week’s Advertising Age, ironically ran 2 articles across from each other - the first one titled Twitter, R.I.P.? Or Is There Gold Buried in Them Thar Tweets? and the second LinkedIn’s Promising New Revenue Model: Sending You Surveys. According to Ad Age (ok, not exactly a thought leader in new media) Linked In has it all figured out while Twitter is digging its own grave.
I would actually contend that Twitter is much closer to success than Linked In. The reason is that while Twitter has shown an amazing ability to demonstrate the value (to users and businesses alike) of micro blogging, Linked In has brushed off the question of value creation and gone for the easy dollars. I blogged about this a few months ago: Linked In is an API away from getting its whole business taken away because they haven’t proven the value of the platform itself, only the data it holds. No wonder their API has been in private Beta for over a year now…
Now, I don’t think that the future is necessarily all that bright for Twitter, not because they “don’t have a business model”, but rather because they have shown an unusual inability to execute. In today’s dire financial context, this could prove to be a fatal weakness. Let’s remember that the first reason for small businesses to fail is cashflow management (or lack thereof). So for a company with no revenue, it is indispensible to be extremely efficient in its resources in order to spend money wisely. With its continuous technical issues (service going down, functionality disabled, unreliable API), that even Michael Arrington has grown tired to joke about, Twitter is indeed putting itself at great risk.
But let’s get this straight: if Twitter doesn’t survive, it will not be because of a flawed business model but rather because they will have failed to execute. No doubt that another microblog will then take over proving that there was indeed value being created.
Note to Linked In: I hope you received the postcard you asked us to send to your corporate office to get access to your private beta API. I’m guessing that our key is on its way back to us on horse’s back. Quite a ride from Mountain View to Boston… 