Twitter Makes Money, Hell Freezes Over. Maybe.
It's been a long time coming, but according to a piece in Bloomberg BusinessWeek, Twitter is finally profitable, though even "making revenue" would have been astonishing enough. Reportedly, the social networking phenom is making $25 million from its multi-year deals to put user data on Google (GOOG) and Microsoft (MSFT) Bing, and the amount it's seen for 2009 is enough to put it in the black for this year.
In exchange for making short blogs, known as tweets, searchable on Google, Twitter will receive about $15 million, the two people say, adding that the Microsoft partnership is worth about $10 million. "The deals were huge," says one. "With two scoops of the pen, a lot of revenue came in."The other part of obtaining profitability was reducing telecom expenses by using its notoriety to bargain hard with the carriers, dropping those costs to essentially nothing. Now lets look at a few interesting points:
- As I noted in October, once Microsoft had a deal with Twitter, Google absolutely had to have one, no matter what the cost. In this case, the cost was a 50 percent premium over what Microsoft paid. It's still relative chicken feed to the company, but does show Google being on the defensive.
- When a company's books aren't open to the public, profitability is whatever it declares the condition to be. My guess is that in this case it's a pro forma profitability that looks at current operating expenses and not the sunk development and build-out costs that would be amortized over a number of years. In other words, it's small p profitability, not big P, like when Amazon had to conditionally talk about making money and not be able to state it without reservation. Making back the money for investors is probably going to take a lot longer at this rate than they wanted. VCs aren't looking to invest in companies whose potential plateaus at tens of millions. That means management needs to find some other ways of making serious bucks, pronto.
- The assumed value of the Twitter data is two-fold. On one hand, marketers want to see as much as possible about what people are saying and who's speaking, although a vast majority of the tweeting is done by a very small percentage of the users. In other words, there may be a lot less value in the insights than people expect. On the other, there's value in the real-time provision of information, with people providing what they know, to the advantage of others. However, we've already seen completely false rumors take off like wildfire. In other words, there may be a lot less value in the real-time information than many think. That's my way of saying that the assurance of a long-term business model in this information is pretty chancy.
- Although anecdotal and non-representative, I'm already seeing some backlash among some people that I know use Twitter. Given how user displeasure over privacy issues has pulled Facebook up short multiple times, I wonder whether this will begin to happen with Twitter after people start finding that their tweets become the first things that show up in searches of them. (And if the tweets don't show up high in the results, why would the search engines spend money to get them?)