Twitter VC Laughs at the Idea that Twitter Has No Business Model | Hacker News Reader

Twitter VC Laughs at the Idea that Twitter Has No Business Model

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26 pointsmcxx24 comments

Were you expecting him to say:

"Actually, Twitter has no business model, and their mindshare will evaporate as soon as they start charging. We're truly boned, and our only hope of profitably exiting this deal is to unload it on a bigger sucker. Sadly the big suckers are hurting for money at the moment, and unlikely to try running another major site as a public utility, which is annoying because despite the fact that the web part is nearly free those SMS charges for 180 character messages are nearly killing us. So basically we have to keep up a facade to justify our valuation per user of about $75, which is about equivalent to the present value of, say, a WoW player, despite the fact that they have proven their willingness to pay money every month, are intensely engaged with the service, and have low churn rates -- absolutely none of which we can boast of. Oh, God, somebody please hand me a martini."

They don't have to charge per user to make money. The customer support aspect is already huge, and each brand would pay to get better tools to reach their customers. That's just one obvious application.

They don't have to charge per user to make money.

They really do, actually. The only thing your proposal changes from my analysis is what pocket the money comes out of.

A Twitter account simply doesn't have $75 of economic value, to anybody -- and they need that to be true of every man, woman, child, and bot on the service. You can dice that $75 into $5 from Tropicana and $10 from BoA and $10 from Slicehost and... if you want. Is keeping a single marginally more happy worth $10 to BoA, when a phone call would only cost them $8, a chat on their website costs them about $1.50, and the average value of the free checking account that the disproportionately young and poor Twitter audience carries is only about $100 a year (mostly in overdraft fees which, haha, guess what they're probably complaining on Twitter about)? [Edit to add: $8 and $1.50 are numbers from a non-bank company who I was a CSR for, circa 2000, for response from a human in North America.]

I actually wrote that jab about the overdraft fees before realizing, hey, why not check to see if my assumptions are accurate.

http://search.twitter.com/search?q=bank+of+america

[Closing my Bank of America BOA account tomorrow due to being hounded to sign up for a credit card I don't want/need & because of their fees.]

[Watching "Bank of America: Bad for America" VERY compelling http://tinyurl.com/bujr38]

[really hates Bank of America. Probably the sorriest excuse for a banking institution. Ever.]

Can you see the director of marketing just salivating over the opportunity to pay $10 to tweet these people? "I suppose I could be buying a click from AdWords on the keyword [i am a rich man looking for a credit card], but why use a scalable way to reach great customers when I could use a labor-intensive way to reach poor ones!" I'm not seeing it.

I'm also not seeing Twitter users putting up with automated and outsourced tweets, which are an absolute requirement if it is going to be used as anything but a toy for customer service.

@boacustomer: You just mentioned BoA in a tweet. Can we help you with anything?

@boacustomer: Thank you sirs i am truly regretful that you had a disfortunate experience with the bank. Can I be helping you today?

I'm going to argue your point that Twitter users are poor or an undesirable demographic.

According to Aug '08 Hitwise data: - 63% male - 57% from California - 25.9% 35-44 year olds - 14.7% "stable career" type (young, metro areas) - 12.3% "young cosmopolitan" (40-somethings, income > $250k)

I'm not an advertising expert, but some of those seem to be desirable demographics.

You're example of searching for BofA also doesn't make sense to me. If I worked for BofA, I wouldn't buy AdWords on my own name–if someone is already searching for me, they know who I am.

For every BofA complaint, you can probably also find someone looking for a new bank (or complaining about WaMu, Citi, Wells Fargo):

http://twitter.com/AliciaSkimbit/statuses/1265772120

http://twitter.com/JoDuxbury/statuses/1252926236

The business model may not look just like AdWords, but I definitely think it's there.

They don't have to make the service less accessible to the massed by charging per user. That was my original point, countering your point that they'd need to.

Customer service is just one example of making money. I think there are clear advantages to Twitter over Facebook related to the issue.

But there are certainly other ways. Freemium, content sales, live events, payments, etc.

Twitter can monetize anytime. They have a huge number of options, because the size of the userbase makes it possible. Even silly things will work.

For example, let's say it costs $1 to write a twit that snoop dogg will actually see. A percentage of his fans will do so. Spread that across the thousands of people who have a huge number of fans, and you already have a revenue stream. Combine with a number of other things, and it here will all become quite profitable.

This is the same faulty logic that's killed hundreds of web startups during both the web booms.

Massive user base does not autotmatically translate into profit. In fact, what a massive user base does do is to create so much cost in running the service that it's hard to find a way to make a profit.

Twitter's already $55 million dollars down which shows just how much it costs to run the service. So even if every one of Snoop Dogg's 25,000 followers were willing to pay a dollar (unlikely) and Twitter got all the profit from it the money wouldn't make a dent in the cost of running such a massive operation.

Do you have any example that web startups which had massive user base died during the web boom?

But, I don't think that I have to show any startup example which had a lot of money but died during the web boom, right?

Lycos maybe? Excite? Go.com? (hit or miss)

Twitter has one thing going against it that is virtually unique: costs are super-scalar to the number of users, whereas in almost any other content-based website they are logarithmic.

The reason is SMS charges. Every user who signs up for SMS costs Twitter real cash money to service at the margin, and their cost increases as the size of that person's personal network increases. If Joe SmartPhone signs up to follow me on Twitter, every one of my status updates starts costing them money, too, despite the fact that I only use their web interface.

There is literally no other web service I use that costs my provider a per-use fee, except my brokerage account -- and they, quite sensibly, pass that per-use fee and then some straight to me.

They've hit such a chord with the mainstream that they'd have to be morons to screw it up at this point. I'm sure they will do fine.

Why hasn't that business model worked with any other form of communication? Lack of verifiability and the fact that anyone someone would pay money to talk to probably has better things to do than getting paid $3 / hour reading tweets.

Why should SMS cost twitter anything, when cellular providers make so much money charging consumers for SMS because of twitter? They are a large enough source of astronomically profitable SMS messages sent by cell phone users that the cell phone companies should be paying twitter a piece of the SMS action, and may already be?

So why haven't they implemented it already? If its something so genius, what are they waiting for?

For such widespread adoption, that people have to continue to use it, no matter what the option is. Pay sites grow slower than free sites. Twitter has money in the bank, so it can afford to stay free for a while, thus growing. So when it's big already, it starts monetizing. If it starts monetizing too early, growth will slow.

That's a ridiculous notion, though. If not paying for the service still allows you to do everything twitter provides save for a small subset of features, it doesn't prevent folks from joining and seeing the value of it.

Being afraid to generate revenue before hitting critical mass sets this silly precedent that you can't flip the switch until you reach a mythical number of users.

I'm not saying Twitter couldn't make a bunch of money, but for every YouTube and Twitter waiting to hit it big, there are 1000's of companies thinking this is a viable solution to their problems and failing because of it.

So the negative effect of Twitter not having a publicly announced business is felt primarily by other companies, companies that aren't able to think for themselves?

I'm not sure I buy that. There are plenty of companies, like your own, that understand what their business needs. And there are always going to be plenty of other companies that behave like sheep. If it wasn't Twitter, they'd find some other trend to misapply.

This is what LinkedIn did. It became such a valuable tool for recruiters that many are paying members.

Paying big time, too. And not just for premium memberships that allowed more InMail -- IIRC their recruiter-tailored service runs at $25K a year. I pitched hard for it when I was a recruiter, but we were stuck in the cold-calling age. I lasted about another 2 months.

Well, if I were them I would want to get my uptime a little more solid before I took on too many contractual obligations.

When was the last time you saw twitter down? Last time I remember seeing the fail whale is probably back in October or earlier. They did have major uptime issues but I think that's mostly in the past. I'm not on 100% of the time so it's quite possible I missed a few sightings but back in the summer and fall it would go down a lot whereas now it's a rare occurrence.

I see the fail whale almost every day, and every single time I do things like change my avatar.

The idea that they want to keep growing as fast as possible, and they don't want to retard growth by monetizing makes a lot of sense to me. It especially makes sense because people are using the product in ways that the Twitter guys never even imagined. They don't even have to figure out new ways to use Twitter, their users are doing the creative stuff for them, they just have to pay attention. But if you monetize in the wrong way, it can have the unintended consequence of preventing some awesome-currently-unimagined use of Twitter. And that is much worse than a change to an abstract growth curve.

The other thing I wonder about is if their monetization strategy involves some technical challenge. Remember, their product is relatively straightforward from a technical standpoint, not to trivialize what they've done at all, just to make the point that they have gotten here in a short period of time with a very small number of guys. What if their preferred method of monetization involves solving some technical problem that they just haven't resolved yet?

The web these days is full of applications that do cool things but don't provide a hint of value to end-users that makes it worthwhile to pay. One suggested option for Twitter to monetize on was charging for premium membership (http://calacanis.com/2008/01/02/the-three-business-models-th...), the one option so far that seems to be in line with traditional business models: provide a service that people are willing to pay for. The blog post suggests 1-5% of users might subscribe to some kind of premium membership...I think more along the lines of 1-5% of active users, which drastically cuts the number of potential subscribers down. Bottom line: advertising might be Twitter's only hope, but I predict limited success (in the long-run) unless Twitter finds a way to produce a service they can put a price tag on.

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