So how is Twitter worth?
What’s the value of a service with 125 million or so registered users? Is it $1-billion based on its latest round of funding or, perhaps, significantly more if you buy into the thesis of Naval Ravikant (an early Twitter investor) and Adam Rifkin that appeared recently on TechCrunch?
Twitter could be worth more than $1-billion….or not.
Beauty is in the eye of the beholder so Ravikant’s belief that Twitter is under-valued compared with Facebook could be true, although you do have question an investor arguing about the value of his investment. Twitter does have a lot of users, a strong brand, and its growth shows no indication of slowing down. And there are also lots of monetization opportunities to boost Twitter’s value.
On the other hand, there are many people who scoff at Twitter’s valuation. This is a company, after all, with minimal revenue and a business plan that is just now starting to emerge, although there is little indication that it will be successful.
It’s one thing to have 125 million users for a free service, it’s an entirely different proposition to make a lot of money on their backs. A good example is Google, which built a better search mouse-trap but needed to “borrow” Overture’s pay-per-click business model before it could transform from a cool project into a business.
Twitter faces the same challenges. For the longest time, it had no business model, and showed little interest in getting one. The recent appointment of Dick Costelo as CEO may suggest that Twitter is going to aggressively embrace the idea of making money.
The recent launch of New Twitter was as much about making Twitter.com more advertiser-friendly as it was about improving the user experience. And there’s no doubt that advertising and things such as Promoted Tweets are going to aggressively pushed.
The $64,000 (or, in Twitter’s case, the $1-billion) question is whether advertising will be a way for Twitter to make enough revenue to justify its valuation. Advertising could fail to resonate with Twitter users, which would force the company to find something else.
Then again, Twitter users may discover relevant and contextual advertising to be wonderful. This would drive revenue and, in the process, boost Twitter’s valuation.
Until then, speculation about Twitter’s value is a guessing game. The proof’s in the pudding, and until Twitter starts to show revenue growth (or a lack of revenue growth), anyone who attempts to value Twitter may be right….or wrong.