Does Twitter Make Sense?
February 9, 2010
There is a wonderful Warren Buffet quote which we believe can aptly be applied to Twitter and its pending 2011 IPO. "Time is the friend of the wonderful company, the enemy of the mediocre."
We believe potential investors in Twitter should ponder over the Sage of Ohmaha's sound advice before committing their hard earned money.
We have written before regarding the demographic position of Twitter and Facebook.
Market Watch: Demographically Facebook sits in a sweeter spot than Twitter. The U.S 31- to 35- and 36- to 40-year-old age brackets will grow by 23.2 percent and 14.5 percent respectively over the next 15 years. While the 16- to 20- and 21- to 25-year-old age brackets will both only grow by about five percent. However, from a technological standpoint Twitter holds the high ground as more young users adopt mobile devices as the primary means of going online and as an upgrade from texting.
The problem for both services is how to monetize their consumer base. Twitter seems to have a bigger problem, as Generation Y is very value conscious and we believe would not pay for a fee based Twitter service when you can text or Skype for 'Free.' Therefore in summary the multimillion dollar revenue dream of Twitter is a fad not a long-term viable businesses.
Market Watch: Bloomberg reported in late December that as a result of that deal, Twitter made a slight profit in 2009, based on an estimated $25 million in revenue it generated from the search deals.
"By the end of 2010, Twitter will either have a business model capable of generating $100 million in revenue or it will get bought," Bernoff predicted. "This is not a company whose ambition is to be small and profitable," he said, recalling internal Twitter documents leaked by a hacker to bloggers. "They are looking at a world where one billion people are Twittering. You have to be able to make money from that." See column on Twitter's internal documents here.
Right now, analysts can only estimate how many active users Twitter has. Some people sign up for the service, and then never return to tweet after a few initial bursts of activity. Many users also sign up for multiple accounts, causing further confusion. Bernoff estimates Twitter has somewhere between 14 million and 20 million users a month.
For further information : Pew Internet Survey.
