Twitter’s business model is to sell the company

by dbasch — 5 Comments »

Web apps are a lot like TV shows. In particular those that are supported by ads, because their source of revenue is the same and the viewer/user is not really the customer but the product. These days it seems that everyone has some advice for Twitter about possible business models. I really don’t think the folks at Twitter need to worry about that, if they don’t find one that works they should just focus on making the company a good acquisition target.

If you come up with an idea for a TV show and even put together a pilot, nobody asks what the business model should be because it’s obvious. A TV show is made to be sold to a network, who will in turn monetize it with ads. Why can’t you just skip that step and monetize it yourself? Simply because you don’t own the infrastructure required to broadcast a TV show. You could try to build it, but clearly it doesn’t make sense if all you have is just one show.

Now look at Google, Yahoo and MSN as the multimedia networks that they are. They have a system in place to monetize many of their offerings. Plus, they benefit from the economies of scale. Today you wouldn’t start a company to build something like Yahoo Finance. I don’t know how much revenue Yahoo Finance generates, but it doesn’t need to be much to be profitable given that the incremental cost for Yahoo to keep it running isn’t very high. Gmail is probably not very profitable but it’s still very useful to Google (brand awareness, data mining, playground for new ideas, etc).

What could a company like Google or Yahoo do with Twitter? In a way Twitter has a “search” component to it. You can ask people a question such as “what do you think about X?” and if you have a few followers you’ll probably get some answers that may start a conversation to refine the “results”. You cannot do that with an automated search engine. I’m sure it’s possible to use your recent tweets as one more input to give you better search results and show you more relevant ads (not necessarily on Twitter but on other applications). Also, there is a lot of information worth mining in Twitter but you don’t need to acquire the company to extract it :)

In short, building a product to sell to one company is a valid business model. It’s risky, like creating a piece of art that perhaps nobody will like. You only have one product that you can sell to at most one client. As long as you understand the risk and have investors who believe in your idea, there’s nothing wrong with it. Perhaps it’s a good time for large companies to start thinking of new applications like Television pilots. They should encourage small teams with good ideas to work on “pilot” web applications (like what Ycombinator does, but perhaps with a larger budget). If they like the “pilot”, they already own a chunk of it and can acquire the rest.

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  1. I think it’s a very accurate analogy the one you’re using to describe some of the dynamics that rule the current business around the web. Sometimes, at least for me, its easy to forget that after all the web is just a new kind of media.. not a software platform but a media space just like tv, radio and newspapers. And it’s important to realize the value in that (and the learnt lessons from near-century old technologies such as tv and radio).

    I often find lot of value in twitter when asking complex questions that a machine cannot tell me, but many of my friends and connections can. It’s on those moments when I see twitter as a more-than-entertaining tool. I would like to see them get a notion of how to fully realize the potential behaviour of that emergent act.. but it still seems they need to fight their scaling issues, and that sucks.

    Great blog btw!

  2. [...] – Twitter’s business model is to sell the company (interessante wie offensichtliche Aspekte zur Nutzung finden sich bei Datamining – Twitter In and [...]

  3. That’s what Cisco did with one of their original storage networking initiatives. Andiamo comes to mind. See http://www.byteandswitch.com/document.asp?doc_id=4197
    It was an official spin-in, as opposed to being a spin-out or spin-off. See also http://www.byteandswitch.com/document.asp?doc_id=47936

    They may have done it again with some of the same “founders” a few years later with a company called Nuova.

    Cisco clearly isn’t in the web app dev space seriously (unless you count WebEx) but the concept still applies here.

    As for Twitter’s business model, I thought it was clear that it was a feature, not a product. (Or it may be a product, but they’re hurting its potential with all bad PR and tech problems, kinda like what happened with Friendster.)

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  5. I do agree making money is important and in fact that’s the reason why Twitter was started, but not sure how they will monetize it though. Also, noting a lot of useless spamming on Twitter these days to compound the problems that Twitter has been having of late.

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