Twitter VC Laughs at the Idea that Twitter Has No Business Model
Todd Dagres, founder of Spark Capital and one of the VCs that poured an additional $35 million into Twitter recently, finds it amusing when people talk about Twitter's lack of a business model.
"We think it's kind of funny," Dagres recently told Innovation Economy. "We know how we're going to do it, and we're very confident about how we're going to do it, and it's not necessarily in our interest to tell people how we're going to do it."
Dagres, who claims that Sparks and Union Square Ventures are the two biggest shareholders in Twitter, said that there is a business model - it just hasn't been implemented yet. But he did provide one clue. "All of a sudden there will be some changes that won't undermine the experience or the vitality -- but it will be pretty obvious how we're going to monetize it."
While there has been much speculation about Twitter's business model, or lack of, could one of the changes that Dagres talks about include the "suggested friends" feature we discussed here on ReadWriteWeb last month? It certainly fits the description.
Like all good things, it has taken time, but fortunately, the wait shouldn't be too much longer. Although Dagres pointed out that they are in "no rush" to generate revenue right now, he said it is definitely a project for 2009.
On a similar note, if you missed Evan Williams' talk at TED: How Twitter's spectacular growth is being driven by unexpected uses, watch it below. Who knows, it may just provide a few more clues about Twitter's future plans and long anticipated business model.
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OK, so the obvious question is... WHY have they not turned on this magic spigot of cash? If they're really quite confident in it and it's something that will not hurt the experience... why not make money? I can think of three classes of reasons
1) technical - it's something that's being developed.
2) operational - monetization will cause pressure on the infrastructure or requires backend processes to be in place and ready
3) business - there are partnerships that need to be in place for this to work.
A followup exploring these would be interesting though I doubt you'd get an actual answer. But I can't think of any good reason to choose not to make money if it won't affect adoption and there aren't roadblocks in any of the above categories.
Ha ha. That chaps comment about the twitter business model makes me laugh. He dosent have a clue!
Seems fair. I think that the biggest challenges for twitter in 2009 will be spam, facebook and the functionality being broken into something more open and distributed. If I was a twitter investor, I would be much more worried about those things than monetizing the current user base.
Anyone who reads my blog (or lots of others for that matter) knows that there will ultimatly be 100's if not thousands of ways that Twitter will be monetized.
My prediction is though that MORE money will be made in the "Twitterverse" (Businesses that ride on top of Twitter - not by Twitter itself.
I have long not been a fan of Twitter's management team - and I believe Twitter thrives in spite of management. This was confirmed to me in an email from @EV where he told me "We are not interested in hearing from our users on how to monetize Twitter." - IMO any management that only wants to here there own internally generated ideas is a failure.
Twitter's most notable recent hire to help monetize gives at least a hint of one direction - and a direction where I think they will fail. They hired someone to help Twitter in the Telco/RBOC space. Perhaps Twitter already knows this however historically the Telcos' take a LONG LONG time to deploy anything directly - usually years. Secondly, should the Telcos have wanted a more formal relationship with Twitter they likely would have already been one of Twitter's API customers. Sure, they love the data usage that Twitter generates, but like I said ...see above.
Twitter management has also been quoted about mining their data and selling that to brands...yet another fail. This WILL be a huge revenue opportunity, but not one monetized by Twitter. Look to others already doing this in their space like Unbouindtech or Lotame, and others. Ultimately Google will datamine here as well.
http://twitter.com/A_F
I'm feeling , well not smug, but clued in that
I saw this well before the VC's ;~))
I know nothing about Twitter management, and I am not a fan in general of people being too cavalier about not needing revenue. However, I think there are times when a business might want to wait, if they can, to begin to take that money.
For example, in Twitter's case, they might want to get to the point where they are truly indispensable before stepping off. If they can have that critical mass of users first, the monetization becomes less an open door for competitors.
It does make it slightly less hard to believe that the monetization will not undermine the experience or the vitality though. If that were true, then no sweat, crank it up now, it won't make Twitter any less competitive.
I think there is no doubt Twitter can make money. Anyone who can't make money with that user base is pathetic. NO QUESTION they can make money.
It has no importance if they are producing money from Twitter or not. Obviously they are. But this is not important.
Is important the quality of their services. Till now is ok. Let's hope for the future.
Andrew Finkle is dead wrong.
It is *way* harder to get traction than it is to monetize traction.
yeah, i love VCs, they give $35 million to another bidness that don't make a dime; then they're going to graph on a "bidness" model which "will" automatically work, and everyone will be over joyed. yeah!!!
i betcha he got stanford MBA
Evan Williams talk at TED did not inspire confidence nor was it a worthy presentation for such a notable audience and powerful service.
When i see comments like 'we're not interested...in user comments..' by the Twitter mgt team, it really makes me wonder about their competence and maturity...
As shown recently by @loic and @scoble filtering their following lists, or the many spammers following everyone (in an interesting twist of fate), twitter has a lot to do to handle relevance; more specifically, if you watch @ev's video, you see him twitch at "follow some*one* interesting": in spite of what he says, he knows that the right unit or relevance is not the emitter, but the message.
Some great twitterers have their family of breakfast moment — it's not too bad for me, but it won't become easier with automated twits, incompatible user-generated standards and more confusion between "you are interesting because we work in the same area/enjoy the same restaurants". For a long time now (since I notice my Facebook statuses in English did not appear on my non-English speaking friends) I've been arguing for a more intelligent filtering of messages, preferably with semantic technology, or at least the staring feature. Something hard to develop, demanding cash (well, computer time) is that kind of filtering.
I've also been arguing for an "Action" button, next to the Reply and (unusued) Star, that would precisely spot the semantically relevant word in a twit and suggest a relevant action for both writer and reader of the message. E.g.: "Just finished listening the latest audio book by Tom Smith; it's great!" would trigger:
- Writer: Would you like to comment a little more about this book on Amazon.com?
- Reader: Would you like to order a copy of _My Life_, by Tom Smith?
or, if Amazon refuses to give buckets of gold to Twitter:
- Would you like to ask your friend to rip his audio version of _My Life_?
And, yes, I secretly hope that the next time I complain about a yet another hustler turned car rental (Avis, I'm looking at you), the suggested action is: "Would you like 'Aldo (Security services)' to take the manager's index and mail it to you?"
the title to this post is extremely misleading
if you click thru to the original interview on Kirsner's blog you will see that Todd isn't laughing at the lack of business model as this post suggests
they can make money with ads ... other than that, i think claiming to make money because of real business model sounds close to a scam
Blindingly obvious that they can monetize in any number of ways. No doubt when they do various people will proceed to claim that *they* gave twitter that idea, which is one reason they're saying they're not interested in monetization ideas from users.
Whether they can make back all the VC that's been invested is a bit less certain, but I'd say they have a fair shot at it.
I am not sure how Twitter plans to make it's money but I think they are taking their time to make sure whatever it is they have planned won't backfire. If they want people to pay a small fee to use Twitter they might lose the fight because although I am sure companies will pay so they don't lose out on business, I doubt customers/users will and they will probably start to use any other free social media sites...can be tricky I can't wait to see what they have in store.
it's pretty obvious. Become an essential service, and then when people get hooked, charge for extra features.
Twitter isn't interested in user suggestions for monetization, the same reason NBC isn't interested in your unsolicited script for a Seinfeld reunion. They have people they're already paying to do the things they want done, everyone else has to go through proper channels so credit can be established to the proper parties and authorities, rather than end up 3 years later with a guy with a grumpy email who claims that Twitter stole their idea despite the idea being a little too vague or a little too obvious.
There are a lot of fairly obvious ways to monetize twitter. Most of them almost unquestionably involve spam. Ever waste time on search.twitter.com? It's almost as if you're reading people's thoughts, since they don't put a lot of effort into tweets and you just get the raw brain of most people who have no self control and think people care about every mundane thing they do. At that point though, they're ripe for advertising directly about something they're probably interested in. Straight to your cellphone, twitter account or email or whatever.
Did you just twitter: bored, looking for something to do ?
Twitter can locate that in a heartbeat, and send you a message on something to do. They can even cross-reference your past tweets and decide that you like music and spam you with a club or a concert. There's an infinite amount of possibility once you're aggregating the thoughts of people.
I'd personally love it if I tweeted something silly like "I'd kill for a taco right now" and some enterprising taco truck sent me a coupon for a buck off my order if I stop by and show them the message on my phone.
I'm fairly convinced that twitter is probably the most valuable resource on the internet right now. If I had the cash I'd invest as much as they'd let me and wait for it to pay off, because it absolutely will.
As long as they don't do something to piss off the users and make them go somewhere else.
On Friday I saw Mo from Spark Capital and Albert from Union Square talk about Twitter. It's not like Twitter couldn't monetize their pages today and make some cash. They have explicitly chosen not (right now) so they can develop a smarter way to monetize the service. I expect them to look beyond things like paid functionality and think more about the value of the data and content flowing through their system. Search will probably also be a key part of their strategy.
Why is it that people don't get that if you do it *WRONG* your users rise up against you? (For reference: please see Facebook's recent ToS debacle and Beacon debacle.)
Are there "tons of ways" Twitter could monetize? Of course. Are there tons of ways they could monetize without suffering from user revolt? No.
So they're taking their time and doing it right.
VCs with $35mil to drop don't do it without seeing a business plan in this economy.
While I agree that Twitter's management team is the least responsive toward their users of *any* social networking platform company out there - Ev's supposed comment makes sense. If you, random user, happen on the same idea that they're already planning to implement and email it to them? How do they avoid the lawsuit when you sue them for 'stealing' your idea?
Sheesh people. Think for a minute.
I bet twitter is building a new SMS platform which will be more effective for carriers... and then they will get a slice of the pie buy charging the carriers for use of new system. In short, i believe they are building new architecture for sms. you will go through twitter rather than carrier. Confusing? Watch it happen.
Rick - Good question. I think I have to agree with Fred Wilson's take on the monetization of Twitter. He pointed out that some of the great Web companies today all launched without a business model, took their time putting one in place in the main because they were waiting for an audience of scale. See his post here.
I suspect, Twitter is much like this. It knows what it is doing and where it is going; it's just waiting for the world to catch up ;) - kinda like what Todd said.
Edwin - Interesting. Personally, I think Twitter is getting really good with spam. Sure, stuff still gets through, but they're quick now to grab it. As for Facebook, nah - I can't see it as a problem, it's too different a product. But I am intrigued why you would think that.
Andrew - thanks for your detailed comment. I really want to believe that Twitter won't be monetized in 100s if not 1000s of ways - not in the next few years anyway :) I honestly believe they do know exactly what they're going to be doing, and this is evidenced by the VC support they're getting.
I have to admit that I'm surprised you received an e-mail from Ev telling you he's not interested in hearing from users as I've seen the Twitter gang learning from their users countless times - just take a look at their recent TED talk. But I also have to agree with some of the commenters here; there is risk when taking unsolicited advice/ideas - just look at what happened with Facebook recently, so I can understand Twitter being ultra cautious.
Morgan - I'm not sure whether you mean taking money from VCs or as part of their biz model, but in any case, they seem to have been careful with the money that they have received to date from VCs and I'm certain it costs a pretty penny to run the Twitter set up.
Nemrut - I think Ev himself was a little anxious about his TED talk, but then, wouldn't you be standing up in front of so many people ;) - I know I would definitely not sound too confident. But still, his talk did show that Twitter is here, and it is here to stay - and can be used in an amazing amount of ways. That, to me anyway, inspired much confidence.
Bertil - Love your comment. We too very much look forward to the semantic Web - not just when it comes to Twitter, but across the board.
Bijan - I'm really sorry. The title was in no way meant to be misleading, nor do I think it is. VC Laughs at the Idea that Twitter has no Business Model - I thought I'd definitely made it clear that Todd is not laughing at the lack of a business model, but the fact that people assume there is no business model.
Not only that, but I totally agree with what he said.
Seth - Absolutely. I too think they have a fair shot - better than fair.
Kimberly - Me too can't wait :) And I agree, whatever they have planned will work beautifully.
8 O'clock - I think it's fine if you create an essential service and charge for extra features. If I choose to use them, sure, I'm happy to pay.
David - Really nicely put. Thank you.
Lucretia - Absolutely hit the nail on their head. :)
I wonder how many people have a business plan that involves the use of Twitter?
"I bet twitter is building a new SMS platform which will be more effective for carriers"
That's pretty funny. Clearly written by someone who knows nothing about the wireless infrastructure or business model.
I'm simply bored with Twitter. It held my attention for a year, but I can't think of anything that would recapture it. Plus, there are much more serious things to think about these days, with the economy and all. Twitter seems just a little self-indulgent in retrospect.
twitter. please dont do any business if it will hurt users. we love twitter and we dont want it to be like flickr where once its free then premium bla, premium bla and all that stuffs.
Say what you want, but it is still a very nice to see all of this unfolding. I think Twitter is working very hard to get enough users & getting them addicted to the service including all those complementary apps via the API. Then they will ask us for some money for premium stuff.
What would you pay?
Attention.
Do you think all these new twitter groups services will last after twitter starts implememting thier business plan? There is ginx.com and just today i came across http://www.tweetizen.com/beta... would be interesting to see how they survive (especially ginx who has about 2mil in funding)
Not often have so many pretended to know so much about so little that is knowable.
Now it's my turn: The greatest challenge here is monetizing a technology / social phenomenon / game / medium that enables / generates / plays / communicates almost entirely about itself
Say what you want about Facebook: New participants -- and this includes the flood of over-30's (and then some) signing up day and night right now -- get past being on FB in about a week at most and start interacting genuinely and "substantively." The never look back. Even though a meaningful percentage of what we might call third-wave FB interaction is, like almost everything utterance on Twitter, crass self promotion, darn if it doesn't "descend" into actual creation of content and genuine personal interaction.
In contrast, though the percentage changes depending on the social cloud you float into, tweets are still overwhelmingly about Twitter. And while a FB page can actually be left alone for -- shudder! -- a day or even two or three or more and still attract the interest of a potential new friend / follower because it's, well, interesting, on Twitter if you're not constantly swimming (i.e., begging for attention), you're sinking like a stone.
What could be more 21st century, more beyond post-modern, more American, and less "obviously" amenable to monetization than these two qualities?
That's why those VC's get the big bucks, I guess.
twitter like social bookmark for help me find traffic
The hardest part of any business is selling the goods or service for real money.
Having a contract, sending out the invoice and getting paid: that's the challenge.
If FB has 175 million "active" users (http://www.facebook.com/press/info.php?statistics#/press/info.php?statistics )and generated $280 million in 2008 (about $1.60 per "active" user annually), what kind of revenue targets are viable for Twitter (with 5 million "active" users)?
Twitter will remain sexier as long it keeps its business model under wraps. At this point, the expectations are massive - any model short of a home run is going to be lauded as a huge disappointment (can't wait to see the comment section of TechCrunch on that article).
>>there is a business model - it just hasn't been implemented yet
I got a chuckle out of that one. Saddam does have weapons of mass destruction, we just haven't found them yet.
I don't think your suggestion of selling friend connects is the answer. I think something more along the lines of google adsense is logical approach, share the revenue stream with the twitter publisher. Twitter has demographics on all the followers of each twitter publisher. That raises the value of the space from an advertiser's prospective. Targeted text / image ads is an easy way to go. In order not to alienate the publishers when this is implemented, cut the publishers in on the revenue. It incentivizes them to continue to twit.
That would not be the total answer but a start in the right direction and easy to implement.
Twitter must find a way to monetize that is not common. People are getting way too savvy with the ads out there. Google Adsense is one of those that used to be huge, but now everyone pretty much avoids them like the plague. I think that StumbleUpon has a pretty good model, one which Twitter would be wise to follow.
With that kind of money invester somebody would have a buisness plan
You do indeed raise some valid points here!
RT
www.privacy-center.pro.tc
Note that Twitter is a platform and it's FREE (Period) Do you see any similarity with Linux-based OS? Both of them are free and powerful.
So how do Nix vendors earn money? Through add-on services or 3rd party clients. It makes good sense that Twitter could earn money by acquiring proven business models (a.k.a Twitter clients with business models).
--
p.s. Dear Twitter management this is not my suggestion, just personal opinion. So please don't reply with a rude message.
Well it will be interesting to see what they do because I've stumped myself trying to figure out the best way possible. Where there's a will, there's a way.
@Joe
"Selling friend connects," boy that is serious crap. It's like Pimping 2.0.
The question isn't whether Twitter can monetize, that's obvious. The question is whether they can generate enough revenue to justify the amount of capital the VCs have poured into them. Given the amount of capital, it has to be a billion dollar idea. Billion dollar ideas aren't super secret little twists that nobody can figure out.
Twitter has spawned a huge number of businesses. It created an economy. If you capture the revenues from this economy, it could pay for Twitter itself even if Twitter doesn't raise a single nickel itself.
Well it will be interesting to see what they do because I've stumped myself trying to figure out the best way possible. Where there's a will, there's a way..
I can see Twitter going a lot of different ways to start bringing in some revenue
You do indeed raise some valid points here!!
If they want people to pay a small fee to use Twitter they might lose the fight because although I am sure companies will pay so they don't lose out on business, I doubt customers/users will and they will probably start to use any other free social media sites...can be tricky I can't wait to see what they have in store.
$35 million in US dollars?
What? Does Twitter employ a platoon of PhDs (ie, all of its employees) that justify that huge amount of money? Cutting & pasting HTML codes doesn't cost much. A funding of about $3 millions is the appropriate cost for pasting HTML codes and this is fact. Anyone who argues against this is disingenuous. The reason that R&Ds at Google, IBM, Microsoft and those big corporations run into billions, is because they employ people with brains (PhD people) to do nothing else all day but to invent new things that have never been developed or done previously by anyone, ie, original research and anyone who has involve in doing real R&D knows that this is an expensive exercise.
It is beyond me to understand the huge costs (millions) that involve in funding startups to develop just websites.
I'm surprised they put that much money in to Twitter to be honest. While I can see it getting bigger I still can;t really see it taking off to that level with large and already very well established competitors.
Hope in pursuit of digging gold they dont dilute the classic experience of Twitter experience.
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