The Prequel : What is the Twitter Business Model ?

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Originally uploaded by benbarren

In not unexpected news, Union Square we liked the product so much we bought some of it, have invested in the how much cheaper must the valuation be vs Facebook, Twitter.

Obvious'ly the post pyra-blogger-odeo'd crew could have shortened the race and GEMAYA'd, but having already been there done 'dat, and increasing motivation from VC's to hold longer than a flickr flip + get more zeroes, I'd bet that twitter is going to go in for the longer haul, and look for a more Skype like exit than Kazaa/Odeo.

It's often said in the m.echochamber that there are two types of people : Those that don't get twitter, and those that use it. It's a post blogging hourly used beyond web utility that allows ambient intimacy as Leisa called it, and for myself it's the only app (along with blackberry/gmail) that I use on the road / in the supermarket.

The naysayers will ask "What is the business model?" (as have their own investors) but their pathway to profit is far richer than most websites inserting google/federated ads, and much closer to a (Hardware-Carrier-Portal + Consumer level) SkypeOut meets Premium SMS world of opportunities. To quote Union Square : "As we stated when we made our investment in Delicious, The question everyone asks is "What is the business model?" To be completely and totally honest, we don't yet know."

So for some fun, my ideas on what drives The Twitter Business Model :

1. Sell to Google/Apple/Motorola/Nokia etc - Well none of the parties here seem motivated by the early flip, with delicious and other lessons in mind. Mainly though they don't need to personally (pyra sale) and are probably placing a bet on being able to scale this closer on the continuum to a X% valuation of Facebook/Skype.

There is an interesting multi/tens of-billion dollar market cap adjunct driver here too, that the iPhone will accelerate hardware players need to creep much further into the great mobile web services on your cell space. Apple's weakness is it doesn't own/control the youtube/google maps type services on the phone, so telco and hardware players with twitter like offerings (integrated at the hardware/OS and billing level, can compete by changing the whole silo'd sms, email + social networking on the phone experience. I luv my Blackberry, but there should be a better solution than m.twitter or having twitter as a sms contact. Wonder if Motorola/Nokia are interested in the Union Square/Charles/Angels' Twitter funding ?

2. Targeted viral direct mobile behaviourial advertising, blah blah - yup. Tacoda meets Twitter on your phone, kewl. Ad feed inserts, hyperlocal geo-targeted coupons, product placement robots, all that stuff. Yellowpages/Plazes stuff.

3. The Rivers of Rich SMS Texting. My bet is over time, twitter sees sms traffic as a revenue clipping the ticket driver, not a cost. Billions of messages, millions of dollars. Just as AT+T pay Apple a $200 bounty for new iPhone customers, telcos/yellowpages biz' will pay and invest in new twitter type services as a means of customer acquisition/retention. Gesturenomics is going to drive merged email/sms/status type applications. And who doesn't want to deal with the network effectd leader. The rest will get pownced.

4. Enterprise Blog/Collaboration/CRM Applications - If twitter is just a feature within a Automattic/SixApart world, then blog platforms (as they already have) will start having "What are you doing now?" mobile phone plug-ins. Wonder when the Newsgatorish commercial twitter API and professional services business will come out. I know I have customers for it. And then there is the whole wiki collaboration, salesforce light, crm on the road thing. I'd be amazed if there isn't a developer somewhere creating an on the road CRM app on the twitter api which could do to Salesforce what they did to Siebel if they're not careful. Salespeople never liked PDA CRM apps, 140 characters as a maximum I'd sure they'd grok.

5. Wall Street Journal Twitterings - In a Fox Business Channel on Cable with Wall Street Journal meets MySpace and the Twitter world, the closest interface with the customer is the mobile phone : When Twitter (and its developers) goes Shozu and extends twittergramming, pictureblogging, as well as structured tweets about their stockpickr, wesabe, yaptas and so on, there will be alot of commercial transactions that Twitter can make money from. Basically another layer on web services. Media companies sense they have already "lost" the conversation, and want to get it back. Twitter gives them mobile content contributors, and allows their readers to interact with the news of the day while on the train ride home.

A good example of twitter today in my little universe, is in Melbourne, Australia where I live (for Sydney inclined check stedmonds lab podcasts from the first twitter meetup there this week); Our premier's (equivalent to a Governor) son a fortnight ago crashed his car and was caught drink driving. Premier was shamed, and son who had bad pr advisors, left his myspace page public for the first few days, which the press proceeded to feed on and publish in the weekend papers. Today the premier resigned. I found out about it on twitter, as did many other people, and ironically the paper of the day's website: The Age, went down at the same time. Twitter gets you the news from your friends, and yours back to them, before anywhere else, in your pocket, in a 140 characters or less.

So it's a good to great investment, depending on valuation ? (any guesses/range....) I would guess $75M or 1% of Facebook. Maybe more these days, it is a Ning $200m + post private equity money 2007 not a buy flickr for $35m pre 2005 after all. Not sure what prices they pay there in NY! Some nice arbitrage to be had though once users are scaled, ruby tech platforms stabilised, salesforce hired, and the offer goes out to the general public who outside Mountain View, are still generally unaware of what it is. Compared to an iPhone that is. That may change too.