Did Twitter Miss The Best Valuation In History?
I want to take you back about 7 months to when Twitter was the hottest gig in town. Oprah was talking about it on her show, she even had Ashton Kutcher and the founders on the show talking about the race to a million followers. Twitter had just tripled in size in the last couple of months. The user base was expanding quicker than the service could handle and it was getting more mainstream media coverage than a startup could ever dream of. They raised money at a billion dollar valuation and had discussions with Facebook about selling for north of $500 million. Twitter was the media darling and it could do no wrong.
Most people are in business to make money and one simple way of doing that is to sell your assets at their most valuable point, it is a tricky skill to master as many property speculators in recent years will happily remind you. In my opinion Twitter hit the peak of their value during the summer and should have sold their service when it was at it’s most valuable.
Twitter’s Problems
Twitter is facing a near perfect storm of problems at the moment with the competition closing in from all angles. Overcoming all of these problems will be the key to making the business a success and getting a bigger valuation than they had back in the summer…
Big Pot Of Money
I know from experience that once you get a pot of money one of the first things you want to do is massively improve your product and add all the things that you wanted to in the past but couldn’t due to money restrictions. The beauty of Twitter is it’s simplicity. That is why it really took off, a simple service with one simple function that users loved. Users even defined the early direction by bringing in the Re tweet function and hashtags. With money comes the pressure to make the service better and I have to say that I think Twitter are adding features for the sake of it. Sure Twitter lists can be highly effective when used correctly but are they really needed? Does anybody even understand the new Retweet button? The money has helped the reliability of the service and it is down less often but what features are we going to be handed next and do we really need them?
Dwindling Users
It has been well documented that Twitter use first started levelling off at the end of the summer and last month it actually decreased for the first time. A combination of factors are at play here including existing users cutting down on their time on the service and no longer having as much endorsement from celebrities as it did during the summer. Many think the growth will spike again after plateauing for a few months but I have to question if the mainstream will ever come as I just think it has too much of techy edge to the service unlike Facebook which has more mainstream appeal due to it’s rich media content and tight privacy.
Search
This is the biggie. From the early days when Twitter bought back Summize for anything up to 10 million and turned it in to Search.Twitter.Com everybody realized that the real value in twitter was the real time search capabilities. You could see what people were doing and thinking in real time and this is what sent the valuations through the roof. Google and Facebook were really worried. A new type of search had arrived and in case you weren’t aware of this…search is very big business. In case you missed yesterday’s news on what is happening with Google real time search you should really watch this short video…
Facebook/Friendfeed
Facebook has always been the biggest threat to Twitter for the simple reason that it has 350 million users and more mainstream appeal. In the last 3 months alone Facebook added more users than Twitter has. Sure the services are different by nature but even the staunchest twitter fan will concede that Facebook is very slowly but surely encroaching on their turf. Real time search and live news feeds are giving users a more “real time” experience than they did 6 months ago and as well as all the changes Facebook has made itself the big card up it’s sleeve is the acquisiton of Friendfeed. None of friendfeed features have been incorporated yet but Facebook snapped up Friendfeed to help fight Twitter and you can be sure they will be rolling out a ton of real time stuff soon with the help of their very talented new Friendfeed staff.
The Business Model
Nobody seems to be talking about it anymore but where is the money? Sure Twitter will start making some money from providing their live stream of data to Google and Bing for search results but there is still no real business model for Twitter. Having no business model is all well and good when you are doubling in size but when investors have invested $100 million and your user numbers have been stagnant for 3 months investors may start to exert a different type of pressure. One of these days twitter is going to have to start making money and how they do that and how the users will react to it will be anybodies guess.
The Big Hope
Location is clearly going to play a huge part in the future of social media and the early success of Foursquare (note same investors as Twitter so merger a very real possibility) is showing that not only are users willing to embrace it but crucially there is a very real business model in there around location based advertising. Twitter is in the process of launching their API around location which could open up some very interesting doors for brands and advertisers looking to target people by location and we could see a very different Twitter emerging over the coming year with location a far bigger factor. Twitter to use some of it’s big pot of money to take out Foursquare anybody?
Summary
Twitter is still a massively popular service that has huge relevance to us all. My own personal opinion is that the founders missed one of the best valuations in history during the summer and have a whole host of problems on their hands now that are going to take a massive amount of skill and luck to navigate successfully. I don’t think they’ll get to their dream of becoming the pulse of the planet and being the first service with a billion users (Facebook will) and they have handed one of the biggest initiates away by allowing Google to use their data for real time search. That was their trump card. The guys who founded Twitter won’t exactly be hard up but I bet they will wish they had sold out for a cool billion and were all sitting on their yachts now 
What do you think? Is Twitter on the slide or is the only way up?
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