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A Stupid Question?

Twitter
Since Twitter emerged as a communications tour de force with millions of users, the question has been: “How’s Twitter going to make money?”

Apparently, it’s a stupid question. In fact, it’s the stupidest question in the world.

According to Fred Wilson, whose venture capital firm, Union Square Ventures, has a stake in Twitter:

“It’s like the stupidest question in the world: How’s Twitter going to make money. It’s like ‘How was Google going to make money? Eventually Google was going to make money and they figured out how to do it and they figured out a great business, and I think the same thing is true with Twitter.”

With all due respect, Fred, that’s a dumb answer.

First, Google got lucky when it “borrowed” Bill Gross’ pay-per-click model that he was using at Overture. Until then, Google was scrambling to find a way to make its ultra-cool search engine into a business.

Second, asking how Twitter is going to make money is not a “stupid question”, especially within this environment when VCs are demanding their portfolio companies generate revenue and cash flow.

In my view, the longer Twitter waits to become a business, the more room it creates for people to get tired of Twitter, competitors (Yammer, Present.ly, QikCom, etc.) to emerge, etc.

Admittedly, Twitter may find itself swimming in cash when it unveils its business model – be it advertising, a white-label version for business users or a premium version with additional features (Twitter could pull a Google, and borrow some ideas from Pownce).

But to suggest that asking how Twitter is going to make money is a stupid question is off-base. It’s a logical, pragmatic question.

Think about it: How many other sectors are there in which you can launch a business with no clue about how to make money based on the idea if you get lots of “customers”, you can eventually figure out a way to generate revenue?

For more, check out Silicon Valley Insider where Henry Blodget also tackles the “stupid” issue. He suggests Twitter will thrive financially because people are “obsessed” with it.

To his credit, Fred Wilson offer a mea culpa for his quote: “It is not the stupidest question in the world. It’s a terribly important question. But I don’t think it’s the most important question facing Twitter right now. Twitter has yet to cross the chasm to mainstream usage. It’s not immediately obvious to anyone why they should use Twitter.”

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  • http://avc.com fred wilson

    it was a stupid quote. i was tired, annoyed at the questions i was getting, and said something i wish i hadn’t said. yes, i am tired of getting asked this question. it’s the only one anyone ever asks me about twitter. bijan had the right answer when he said that the you’ll all start seeing revenue initiatives next year.

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  • http://www.markevanstech.com Mark Evans

    Fred,

    Thanks for the comment. For what it’s worth, I’m firmly in the camp that Twitter has enormous revenue potential people it’s a service that people finding valuable and compelling.

    This is why I find it puzzling Twitter hasn’t monetized its popularity sooner – other than in Japan. If Twitter started running in-stream ads – let’s say one every 20 messages – I could easily live with that. It would also open up a way for Twitter to sell ad-free versions.

    I can appreciate how Twitter is getting into a position to accommodate growth with a better infrastructure. Now, it’s time to start capitalizing on its popularity.

  • Micro-Blog Crack?

    The only other business that gives away the “first taste” for free and calls their customers “users” are drug dealers.

    If I were an LP in union square, I would be getting nervous right now.

    Maybe a telco should acquire them for the increase in SMS traffic they produce?

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  • http://www.newmediamike.com newmediaMike

    I see parallels with Twitter and ICQ.

    When ICQ started out they had no business model. They were the only IM service to use. They ended up selling out to AOL of course and much to AOL’s credit they kept ICQ as a standalone brand even to this day.

    ICQ was totally free while with Mirabilis, then when AOL bought them out they introduced ads and other features such as games etc. ICQ also came out with an enterprise version but I believe it only lasted one version.

    Now look at Twitter.

    No business model? Check.

    Free? Check.

    Is Twitter considered to be THE microblogging platform? Check.

    Can anyone afford to buy Twitter right now? Probably not, but in 2009 sometime maybe, if Twitter can keep the churn down on the capital they have raised. The new owners would likely follow the ICQ model and start to introduce advertising and other “premium” services.

    Could Twitter come out with an enterprise version? They may have to if Yammer gets too big in the enterprise sector.

    It’ll be interesting to see how closely the Twitter story plays out in comparison to ICQ over the coming months.

  • dcostolo

    I think it’s a bad idea to force a business model before it requires one in a company and product that is otherwise booming and is ripe for further innovation. *IF* you can afford it, better to wait until the company’s ready to focus on revenue, and then start to iterate on several potential ideas.

    Since we’re in this tough economy right now, a bunch of people will snort at that suggestion and say something like companies without real business models blah blah blah death spiral blah blah blah. That’s not my point. The point is that once you attack a business model (or multiple potential models), you can’t necessarily keep innovating as quickly because you have to start doing things like hiring A/R folks, ad ops folks, have engineers work on Revenue aging reports, have engineers work on payment processing systems, etc.

    Why do that before you need to when there are still loads of things you’d like to be able to attack quickly while your burn rate doesn’t include 20 addl. headcount working on the $$ side of the equation?

    Of course companies that have limited access to funding have to find their models more quickly. Of course all companies eventually have to find their models. But it’s not necessarily true that it’s better to make money sooner than later. By attacking a business model too soon, you may end up underinvesting in innovation, customer adoption, and market penetration, and have yourself a nice small business that throws off a couple million in cash every year but that is otherwise uninteresting. If you have bigger plans, focus first on the product, then on the customers, and THEN on the business model.

    This will always be true, in a down or up economy.

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  • Dave Manley

    Yo, Mark. Listen up. Fred Wilson’s right. He must’ve read blodget’s remix of your article. What? Who’s blodget? Well, let’s just say he’s the guy who thought he’d figured out Web 1.0.

    Of course Twitter will give us value, I mean, virtual value (which is to say, Bullshi*). So what if twitter is a time-waster? Didn’t you know that for some people it is their primary source of key insights and social interaction. Say, when they wan to know what lame movie some turd is watching. Or, or, what leftovers they’re eating today. Useful but a little rough on the edge. Don’t you think?

    Oh, did I mention? You’re article’s headlining on Techmeme. That’s how I got here. Congratulations, you’re now in the virtual big league!

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  • http://republicofinternets.com Sachin Balagopalan

    Their business model won’t be pay-per-click …

    http://tinyurl.com/5pg7wx

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  • http://carrieanddanielle.com Daniel Gibbons

    I think the idea that Google got lucky by creating a business, and the Overture / Bill Gross stuff really misses the mark. Google redefined search as the cornerstone of all online activity, for which you can forgive them stumbling across the monetization strategy. Twitter is a great service, but it’s a peripheral utility for almost all Internet users.

    My point is Google was always going to figure out some form of fantastic monetization because they conceived of something simply indispensable to virtually all web users, and knocked it out of the park when it came to execution.

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  • BlodgetVictim

    Let’s be clear…what made Google great was the combo of ripping off Overture’s pay-per-click model (and paying for it later) and great marketing. The search results are just OK. Period.

    In case people haven’t noticed it’s getting harder to find “real” search results amid the “search result sales spam” that keeps popping up.

    And tell me why I should believe a WORD of what Blodget says…he’s the same guy who said CMGI stock was going to $300 a share. R-i-ight.

  • http://www.agriya.com Peter

    I know you wrote this two years ago but I notice that Twitter is still searching for a business model. Google looked and found the advertising model and then Facebook looked and found the advertising model, now Twitter have looked and are testing out – surprise-surprise – an advertising model. Hardly rocket science now was it!