Why is Twitter in a hurry to rake in piles of greenbacks now? Because the signs suggest that its management and backers know that the jig is almost up. If Twitter can't find a well-heeled suitor or sugar daddy, it faces a distinct possibility of being unable to bring in revenue at a pace that would justify all the investment it has received.
As I mentioned last week, the microblogging market looks like it will blow up, and Twitter is a prime example of the problem. It's received around $160 million in venture funding. And while the company has started to roll out some forms of advertising and did get $25 million for multi-year deals with Microsoft (MSFT) and Google (GOOG), it remains unclear how much money it can possibly make.
Do people pay attention to the paid-for trends, in which Twitter charges advertisers to sponsor a trending discussion topic? How many people actually see, let alone pay attention, to paid messages? The average daily time on site is under 8 minutes, according to Alexa.com. It's not as though the company has Facebook's advantage of more than 30 minutes a day with customers. Twitter also lacks a significant patent portfolio that might offer value in a different form.
This is a bail-out situation done with an eye to Twitter's current high profile. That's why some details of who is interested and, in the case of DST, how much is potentially in play come out at all. The collection of information in the All Things Digital story smacks of insiders mentioning the DST bid to establish a $4 billion valuation and then bringing up both Google and Facebook to heighten the interest.
Chances are that Twitter will succeed in getting acquired with a significant upside for the VCs that funded it. And it could be that Tumblr, too, will eventually be purchased, even though it hasn't demonstrated strong revenue potential. And yet, the bubble still remains in microblogging specifically and social networking more generally. Too many start-ups rely on demonstrating audience, not income. Already some savvy investors are talking about some acquisitions being spun as success, when actually they were failures.
If anything, an acquisition of Twitter, combined with Facebook's success (one that would be almost impossible to duplicate), will serve to fuel the deal fever bubbling in Silicon Valley -- and elsewhere -- without correcting the common lack of business model.
- Tweetie Acquisition Finally Gives Twitter a Patent Application
- Another Look at Tumblr: More Users, but Its Business Model Is Still Iffy
- When Will the Microblogging Market Blow Up? Probably Soon
- Twitter Makes Money, Hell Freezes Over. Maybe.