Is Twitter Worth $3 Billion?

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stacks_smallADOTAS – As widely reported in the other week, investors rushed to pump cash into Twitter at a hefty $3.7 bilion valuation. To many pundits this is bubbly. Revenues are a closely guarded secret, so we can’t assess whether this valuation is justified on the numbers. However, as a transformational platform, Twitter is arguably without peer.

Twitter is changing the way we communicate, the timeliness of those interactions, the way people across cultures and across the world mobilize around common interests. And Twitter is making very real fundamental changes to industries from news reporting, to agriculture to disaster management.

No single technology has done that to communication since the invention of the telephone. On that basis alone a $3.7 billion valuation is a steal.

So why is “I don’t get Twitter” and “Why do I need to know what you ate for breakfast?” such common refrains? Twitter apparently continues to confound the masses.

Most people have no idea why the telephone works. All they know is that if they pick up the receiver they can communicate with someone else — and yes, they can even hear what someone ate for breakfast. It’s the output (a voice on the other end) that people care about.

Like the telephone, Twitter is a communication platform. Where it differs is that it is one-to-many, as opposed to one-to-one. And herein lies the problem (and challenge) for Twitter. When there are many people talking at once the output is difficult to hear.

Twitter has provided a fantastic communication platform — the equivalent of the telephone wires — on which many entrepreneurs have built businesses. @Dickc needs to decide if Twitter wants to own the output. Or more correctly, do they want to make it easy for people to find the information they want.

If Twitter decides it wants to simply be the platform provider, its only real long-term revenue stream is charging for use of the platform. But who would pay? Not the public. Most app builders could not afford to pay as most apps are given away for free and few are ad supported.

Twitter must own the output or at least the pages where output appears. Facebook owns the pages on which we all contribute our content. Google owns the pages we search on. Both companies drive the bulk of their revenue from the fact that consumers end up on their pages that contain relevant advertising. Twitter doesn’t yet have an equivalent.

And to be relevant to the masses Twitter must curate the output so that it surfaces the stuff people find interesting — not just Top Tweets that are effectively the most retweeted but the nuggets of information people want on any topic. Consumers don’t have to be tweeters, they just need to be interested in the content.

If @Dickc decides to own the pages on which the output appears then a valuation of $3.7 billion is a steal.

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