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Did Twitter Miss The Best Valuation In History?
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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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agree i think they sold their golden goose. I still think twitter will survive and maybe its a part of their overall future strategy moving into LBS which is very exciting.
Oh it will defo survive there is no doubt about that because it has a lot of users but from a business perspective i really think they could have sold out and been living a very comfortable life at this stage if they had cashed in!
For what it’s worth, and from what I can see; Twitter is growing, albeit maybe slowly – I certainly see a lot of people from school joining up now than there was before
Well that is good news. The one thing that I always wished was that my close personal non techy friends were on it. I see huge potential if they were far beyond people who you know through the web. Good to hear that the youth are embracing it although the big issue there is obc privacy and security. Not sure how man parents want their kids broadcasting their every movement and thought down to a very precise GPS co-ordinate!
For me, twitter is the plaything of us. It’s ours. Us who blog ourselves and comment on other blogs. It’s a way for us to connect. It’s a way to share links with our online friends.
For everyone else, my physical real-life friends, it’s just a series of facebook updates. It doesn’t allow them to share photos, chat in real-time, or much else.
That’s why I can see twitter levelling out, and more or less staying as is. I know many people who’ve signed up, but never returned. It’s inevitable. Not even Stephen Fry and Alan Carr can keep them tweeting.
There is a certain amount of a learning curve and even the early adoptors will tell you that they didn’t get it at first. I think it was about a month from my first visit to me actualy using it proprly. I defo think there are very different crowds on FB and Twitter. FB is for all my personal friends whereas Twitter is a mixing pot of all sorts of interesting people
Money isn’t eveything. I’m sure the Twitter founders would be much happier at the end of the day having raised their baby themselves and watched the world take it for a wild ride over 2009 and beyond, seeing it become one of the most popular internet services of the last few years. I think internet entrepreneurs are of a different breed than old school business types and aren’t always just looking out for the optimum point in which to sell and make the most money. The term ‘exit strategy’ is so horrible and the new school guys from the likes of Twitter and Google have a bit more integrity and love for their product, I would hope.
Yeah it’s true that everybody has different goals. Not sure if you know but I used to work for Paul Allen (co-founder of Microsoft) as a private chef and he had all the money in the world and lots of yachts but lost the business purpose in his life after getting out of Microsoft early. I am sure the Twitter lads have taken a good bit of money off the table already just in case it all goes horribly wrong. I am sure like you say they probaly see themsleves in the same light as the guys in Google as in they are changing the world with their service rather than just to make a bunch of cash!
I think they are in a comfortable position. At least for now. I am not sure about the goals and culture of twitter and where they are heading. That is pretty worrying.
You can check me out on twitter. @markidguru
Well as Paddy says above I think they are following fairly noble goals by trying to see it out to the end and not cash in early
Good read Niall. Have to agree with you on adding features for the sake of it, I like the simple nature of the service but I am unsure if it is for everyone. Facebook allows users to publish more types of content and hence attracts more users and more repeat users. Another issue I think for Twitter will be the amount of people using 3rd party services such as TweetDeck to manage their accounts, once you register on twitter.com, why do you need to go back?
YEah well I have always thought that Twitter could make some money off the 3rd party apps and to be fair they are what makes it so good. IT would never have taken off as just a website! The fact is though that those 3rd party apps are making money now and Twitter ain’t
This is a hard one to call. On a personal level, I like twitter / not so crazy about Facebook, but Facebook is proving more effective for conversations with what I do. The sheer size of the Facebook user base makes it pretty compelling. I think facebook has more depth to it which will likely work in its favour over the long haul.
Facebook will become more than a social netowork as time goes on. It will get really interesting when they start to accept payments etc! There is just way more to do on Facebook and I guess that is what Twitter is trying to copy but just not getting there!
I agree with many of your speculations. (Summer was definitely the height of Twitter’s popularity and Facebook will never give up the fight.) But I’d like your thoughts on the enhanced user experience that these growing pains are producing. You mentioned the Twitter lists, for example. When Facebook was a fledging college network in 2006, they provided tons of crazy features and programs to their user experience, and while not many of those features remain, the lessons clearly do. Facebook learned from their risks and I think Twitter will as well and continue to grow in a few months.
Also, I tend to believe Biz Stone and Co. had a plan when they turned down 500 million. If they were smart enough to get Twitter to the forefront, I want to believe they have a business plan up their sleeve. But that benefit of the doubt can only last so long I suppose.
Twitter will be around for a long time to come , its an essential part of the internet community like Google . Its fun and serious all at the same time just like life and takes all sorts . You can even tweet to your idols , money isn`t everything , viva la tweet!
Wow, great analysis on the valuation of Twitter. Obviously, it’d be safe to say that their going to be around, but yes, I’d like to know where the business model is for this things. I wonder what kind of plans the Twitter team has to stay afloat amongst the competition.
Good one, Niall!