News of the Tweet: Show Me The Money!

Adventurous investors, sale of the century and mysterious money.

By Seb Kemp

I’ve not had much chance to scan Twitter this week but I’ve been pondering it nonetheless.

#howdoestwittermakemoney

@ShaneCoombes1 is confused about, well, possibly which brush is for brushing his hair and which is for scrubbing the toilet. But also he highlights the confusion over where the money comes from. @ShaneCoombes1 might regard social networks as the equivalent of the tooth fairy – a sort of magic and if you do one thing (in this case tweet) then it causes a related reaction (in this case money appears under the pillow of Twitter corporation).

Twitter has rapidly gained worldwide popularity, with over 500 million active users as of 2012, generating over 340 million tweets daily and handling over 1.6 billion search inquiries per day. Since its launch, Twitter has become one of the top 10 most visited websites on the Internet, and has become a bit of an addiction to many people.

It is supremely successful if success is measured from the perspective of user growth and popularity. However, that isn’t what keeps the world turning, money does. How do they pay for the servers, the employees, the technology developments, the Skittles, the Star Wars marathons on every second week of the month, and where do the venture capital funds that have backed Twitter see the equity worth of billions of 140 character brain farts?

In its early days Twitter raised over approximately US$57 million from venture capitalist growth funding. In 2008, just after the Twitter’s popularity soared after the 2007 South By Southwest Interactive conference, Bill Snyder of The Industry Standard (a news website dedicated to the technology business) pointed out that Twitter’s long-term viability was limited by a lack of revenue. However, despite Twitter board members hinting at possible future ad banner sales or e-commerce none of that has happened and investors still flood in to finance a business model with no clear source of revenue.

The company raised US $200 million in new venture capital in December 2010, at a valuation of approximately US $3.7 billion. In March 2011, 35,000 Twitter shares sold for US$34.50 each on Sharespost, an implied valuation of US $7.8 billion. In August, 2010 Twitter announced a “significant” investment lead by Digital Sky Technologies that, at US $800 million, was reported to be the largest venture round in history. In December 2011, the Saudi prince Alwaleed bin Talal invested $300 million in Twitter. The company was valued at $8.4 billion at the time.

These are clever people and brilliantly shrewd business people. If they see Twitter as a viable investment, then there must be sense to backing the banal banter of people like @ShaneCoombes1

In 2009, some of Twitter’s revenue and user growth documents were illegally obtained by a hacker and then posted on a technology news feed called TechCrunch . The documents projected 2009 revenues of US $400,000 in the third quarter and US $4 million in the fourth quarter along with 25 million users by the end of the year. The projections for the end of 2013 were US $1.54 billion in revenue, US $111 million in net earnings, and 1 billion users. No information about how Twitter planned to achieve those numbers was published.

On April 13, 2010, Twitter announced plans to offer paid advertising for companies that would be able to purchase “promoted tweets” to appear in selective search results on the Twitter website. Twitter has very powerful analytics so that companies can track growth from their ads and allows them to hand select the tweets they want to promote rather than taking the most recent tweets.

“By targeting people’s topical interests, you will be able to connect with a greater number of users and deliver tailored messages to people who are more likely to engage with your Tweets,” Kevin Weil, Twitter’s director of product management, wrote in a post on the company’s advertising blog.
“When people discover offers and messages about the things they care about on Twitter it’s good for both marketers and users,” he added.

Marketers can now target more than 350 different types of interest categories ranging from Sports to Style and Fashion. Interest categories can be even more targeting than just the larger umbrella. For instance, if you want to target users under the “Movies and Television” interest you can specify that you are particularly interested in users who like Horror Movies.

The company generated US $45 million in annual revenue in 2010, after beginning sales midway through that year. The company operated at a loss through most of 2010. Twitter generated US $139.5 million in advertising sales during 2011 and expects this number to grow 86.3% to US $259.9 million in 2012.

Users’ photos can generate royalty-free revenue for Twitter, with an agreement with WENN (World Entertainment News Network, an entertainment text and photo wire-service provider) being announced in May 2011.

This arrangement has caused some controversy because what Twitter, WENN and TwitPic have done is claim the copyright on all content published to TwitPic. After a storm of criticism the terms and conditions were “updated” and now read

“You retain all ownership rights to Content uploaded to TwitPic. However, by submitting Content to TwitPic, you hereby grant TwitPic a worldwide, non-exclusive, royalty-free, sublicenseable and transferable license to use, reproduce, distribute, prepare derivative works of, display, and perform the Content in connection with the Service and TwitPic’s (and its successors’ and affiliates’) business, including without limitation for promoting and redistributing part or all of the Service (and derivative works thereof) in any media formats and through any media channels.”

Basically, you and I still own our content, but by using TwitPic we grant them the right to distribute that content to affiliated partners with no royalties or revenue coming back to you and I. So, say for example, @ShaneCoombes1 is out at the club and sees his favorite rapper with bitches on his elbows and Gucci on his toes get into a fight with a bouncer and he takes a photo of the scuffle and uploads it to TwitPic then that photo can be used by WENN to be distributed to any affiliated news source on the globe but @ShaneCoombes1 gets no financial reimbursement for snapping the controversial image. Thank goodness because who knows if he would just blow the cash on a chocolate teapot or magic beans.

Anyway, I’m still left wondering about the money and there is a little information out there.

According to this blog “Twitter sells its tweets related to a particular topic to these search engines, and that’s one way of making money. Twitter sells the rights to publish live tweets on any hot, trending topic (for example, the Football world cup, or The Royal Wedding of William and Kate). Search engines get live data, and unique comments through each tweet. As a by-product, Twitter gets more users. A win-win situation!”

But I still wonder, really where the money is coming from and what use Twitter really is. We know that the CIA is following Twitter and Facebook closely so perhaps making money isn’t really its principal aim and the venture capitalist firms were just a veil.

http://www.theonion.com/video/cias-facebook-program-dramatically-cut-agencys-cos,19753/

http://onion.com/eM6Es2

Or not. Still, I’m left asking Twitter to show me the money.

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