Twitter: Can a company with no business model be worth $8bn?

The big news this week is that Twitter has succeeded in closing an $800 million funding deal. SiliconValley.com is calling it “largest venture capital investment in history”. The round was led by Russian VCs DST Global and, although Twitter wouldn’t confirm numbers simply calling the deal “significant”, if SiliconValley’s sources and maths are right, this values the start-up at $8 billion. That’s double its valuation in December when it closed its last round of funding. But how can a tech start-up with no serious visible business model be worth $8bn? [caption id=“attachment_52887” align=“alignleft” width=“380” caption=“Twitter isn’t exactly rolling in money. Christopher Furlong/Getty Images”]  [/caption] Four years ago, when Twitter was still blossoming, early adopters suffered outage after outage. The iconic ‘fail whale’ graphic that adorned the error page knocked the edges off the frustration, but only slightly. Like many others, within just a few weeks of joining, I realised what a great tool it was and how important it was going to be to me. And like many others who endured Twitter’s ongoing disruptions, I publicly stated I was willing to pay. Indeed, after one particularly egregious outage, people were begging Twitter to let us give them money, to have some sort of way of paying for a service we had so quickly learnt to love. Twitter, inexplicably, pooh-poohed the idea. Over the intervening time, Twitter has grown into the mainstream and has attracted millions of devoted users. Yet despite its popularity, it still appears to have failed to find a business model worth having. Unlike Flickr, Viddler, Dipity, WordPress, or LinkedIn, there is no premium account. For a while, it seemed that they were going to let the ecosystem grow some awesome apps, add-ons and clients, buy the best, and then use sales of that as one income stream. Instead, they bought Tweetie and then pretty much killed it. For a while, it seemed that they would see the popularity of services like TwitPic or TwitVid and build a premium offering around media sharing. Or maybe they were going to archive the world’s Tweets and use them to research market demographics. Instead they trashed their archive and made search almost useless. Or perhaps they would create some business-focused products. Business are, after all, increasingly relying on Twitter to monitor sentiment, find and respond to customer feedback, and promote their products and services. Instead, we have Twitter for Business, which is no more than a few guides and an advertising product based on promoted Tweets, trends and accounts. The really juicy tools and services they could build and charge for have been left to third parties. The problem is, the more funding that Twitter takes, the bigger the need for a massive payout in the end. The more focused Twitter is on that payout, the less likely it is to bother with piddling little revenue streams like premium personal accounts, business account, and paid-for tools. But perhaps if Twitter had taken those ideas seriously in the first place, they’d have a viable business now, instead of needing another round of funding. Twitter isn’t exactly rolling in money. In January, digital research firm eMarketer produced a report saying that ad spending on Twitter in 2010 was estimated at $45 million, and that it would rise to $150 million in 2011. Of course, that doesn’t include whatever Twitter is making by selling its data sets - it did deals with Bing and Google in 2009. Equity research firm Hudson Square estimated that Twitter’s total yearly revenue sits at $200 million. If eMarketer is right, then that means only $50 million comes from data sales, not enough to fill the gaps in Twitter’s coffers. But even if ad revenue hits $250 million, as eMarketer predicted for 2012, and even if its new brand pages option, rumoured back in April, take off, revenues will still be far too low. Maybe Twitter’s endgame is simply to get themselves bought and let someone else worry about what the business model is. But a giant exit that would satisfy investors is going to become harder and harder to come by, especially for a company with such a poor track record on revenue.