Here’s an interesting contrast in opinion.
A few weeks ago, Twitter closed a $35-million financing round – cash that didn’t necessarily need but, nevertheless, accepted. It was an interesting move given Twitter has only 20 employees, and its annual cash burn is probably about $5-million.
Still, some major venture capitalists are bullish about Twitter’s future and its ability to turn a fast-growing user base into a fast-growing business. This assumes, of course, that Twitter can discover a business model.
While most people applauded Twitter’s ability to raise so much cash, and its investors patted themselves on the back about what a smart move they had made, there are skeptics who don’t see Twitter evolving into a major business.
Among them is Sanford Bernstein, which published a research note last week that suggested monetizing Twitter “would be difficult at best and likely unsuccessful”. (Hat tip to DealBook)
Sanford Bernstein’s bearish approach is based on its belief the Web 2.0 model of building something and then figuring out a way to make money is no longer valid.
Apparently, Twitter has some revenue-generating plans that it will unveil soon. Personally, relevant and contextual advertising seems like the best route given the fast-growing audience but Twitter’s founder have strangely rejected the concept.
9 Comments
I hope that they do not run ads. However, if that is necessary then I do not mind…much.
Thanks,
Nate
They are already running ads, but they are quite discrete, text-based ads which don't get in the way of any tweet streams. And they've been doing so all week.
Given that they're practically invisible, however, it's likely that they will eventually either become more intrusive, or be removed in favour of other monetization schemes. Such as selling positions in the recommended users page.
Funnily, I've clicked on those ads already. And since they were interesting things, I'm likely to keep an eye on that area for the foreseeable future, to see if anything else neat crops up.
Seems like a masterful roll-out of ads… first, make the users look at the area where you'll place the ads, and then put paid ads there.
There are a lot of discussions about the business model of Twitter. As Chris says, the text based ads won't be a successful idea. Though statistics show that nearly 50% use Twitter from the web, but with new desktop clients and mobile applications coming up every day, text based ads will not be a huge success.
Twitter followed the number one rule for companies, especially tech companies in fast-changing technical and competitive landscapes.
Don't raise money when you need it; raise it when you can. Can't fault them for that.
I still think they stand a good chance of inventing a business model that will work. I remember when no one thought Google would invent a business model that would work. And then questioned that business model (text link ads) when it was rolled out.
Twitter's funding gives them a bit more runway and a few more options about how they proceed.
Good points. There were many companies during the first dot-com boom that turned down cash thinking the good times were going to last. Only later did they realize that you taking it when it's offered.
Yes… I've worked with a number of companies that turned down money that was not quite good enough (too much dilution, usually) and lived (just) long enough to regret that decision.
I think it's interesting that everybody besides Twitter is trying to find ways to monetize Twitter.
I think the text-based approach will probably work, after all a large proportion of tweets are already ads – tweeters promoting their blogs, bootcamps, etc. We're already used to that and accept it as part of the deal.
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