IMO, Twitter is the poster child for the tech bubble. They have users, which is their only claim to viability, but notably, they have never made a profit. Currently valued at around $10 billion with 350 million active users, that's about $29 per user. You'd be hard-pressed to find an investor so foolish that they would invest $29 in each of their users and hope to make it back if it were stated in those terms, but people have rushed to invest in a company which only has users, and whose attempts to monetize users through advertising have correlated strongly with loss of users. There can be little argument that Twitter's price has become entirely detached from its value.
That doesn't of course, mean you couldn't make money by investing in Twitter. You can make money by investing in overvalued companies as long as you don't hold onto your share until it busts. One profitable route would be if Twitter does get bought by a larger company. The market as a whole will lose on Twitter, but local maxima can be more profitable than the whole.
But at a personal level, don't be naive about this. A lot of people are investing, not just money, but time and energy, in Twitter or startups like Twitter. If you find yourself thinking that Twitter is a company with any real value, you should take a step back and evaluate whether you're being wise, or whether you've fallen prey to the unbridled optimism of the tech bubble. Twitter's position as poster child for the tech bubble makes it a good litmus test for people's understanding of the industry, and I suspect it will correlate very strongly with who loses everything when the tech bubble collapses.
Agreed on poor finances. But Twitter has one thing that no one else has - they are in the center of the zeitgeist. Every political candidate is on Twitter. Every news network discusses Twitter happenings everyday. NFL broadcasts list players' Twitter handles. Half the commercials on TV advertise hashtags. South Park just did a whole episode about Twitter. The cost to embed your brand in the minds of Americans like that would be far greater than $10B. The question is can some larger company capitalize on that mindshare.
This. Also, not only does Twitter have great brand recognition but also individual tweets can have far greater reach than Twitter's user numbers might suggest. A lot of non-users see Tweets - embedded in news stories, shared around the internet, or shown on TV. And lots of non-users hear about things that happen on Twitter.
That said, while that brand recognition and reach is scarce and hard to reproduce, it's not necessarily something anyone would want to pay a lot of money for. How would anyone monetize it? Twitter can't really control how many non-users see a tweet.
Problem #2: It's expensive to support millions of users who post shit
Problem #3: Twitter's revenue base is too small for its cost base
Solution: Eliminate advertising and charge $20 per 1000 tweets. Free to read, costs a tiny bit to tweet.
People who post shit will disappear. People who have an audience and something to say won't bat an eye at this low cost.
If this weeds out 80% of the shit while keeping 80% of the good stuff, Twitter will simultaneously shrink their costs while growing revenues to become a sustainable business.
With this model, Twitter is a $1 billion per year profitable business [2] with a much higher signal-to-noise ratio. [3]
Improve the signal-to-noise ratio and Twitter becomes THE place to be for all kinds of communities. That means a return to growth and higher rates per 1000 tweets.
[2] Start with 200 billion tweets per year. 90% are shit, and 80% of these go away, leaving 36 billion shitty tweets. 10% are good, and 80% of these stay, leaving 16 billion good tweets. 52 billion tweets in total, monetized at $20 per thousand is a billion bucks a year.
[3] Signal-to-noise ratio before is 1:9, after it's 1:2.
Disagree, I don't follow people who "post shit", I follow a few hundred people in the tech space (developers, devops, VCs, CTOs etc..) that I think are interesting (and dont post shit) and thus my twitter feed has very little overall shit. You curate your own feed based on who you follow, if you don't want to listen to whiney SJWs, or people twisting every word of Hillary or Trump then don't follow them (or unfollow them)..
> Problem #2: It's expensive to support millions of users who post shit
Is it? I always assumed all their money was plowed into moonshot development to try to find something, ANYTHING to make a billion dollar company (stuff they throw away within 12 months, like Twitter #Music)
Just supporting their core functionality could be done with a fraction of the workforce, and could probably be profitable (although it would never satisfy the investor valuation)
You could add a "tip jar" to allow followers to support someone by buying Tweets for them, so that high-signal accounts would seldom have to pay that fee.
Introducing mandatory charges for tweeting will probably hurt their user base and they'll lose some value. But they could always make a combined approach, having first 5 to X tweets per month for free.
Maybe popular tweets inline with and advertisers brand could be sponsored; "@jonwhoever from Colorado tweets 'I have never had such a popular tweet about the mobile phone industry' brought to you by blackberry".
Oddball idea: If all these news outlets, and other organizations, benefit from it, maybe they could finance it. The same way the Linux Foundation is sponsored by large tech companies.
No shit! They should charge companies and news agencies, and anyone representing companies per tweet(1k per tweet or similar). They provide a valuable service - why should they give it to corporations for free?
fb doesn't do that. Twitter can follow what fb does. Right now twitter is very light weight, un-cluttered. It can change UI/UX to advertise more. Of-course there has to be value for advertisers as well - which I think is there (350M users).
Yeah. Twitter is a broadcasting platform. It is different from FB. FB feed has your mom and their friends' posts. Twitter doesn't, unless you explicitly ask for it. Not everything should be about advertising. Twitter can stay as it has, and just charge people with money, money.
What is algorithm-driven in my twitter feed? The 'While you were away' stuff at the top? Other than that, as far as I know it's always been a chronological feed of whoever I want.
Wow, didn't know that either. But I don't "follow" people. Rather, I simply add them to different lists (finance, news, science, tech, right, left, etc.) and use tweetdeck to follow the multiple lists.
I wonder if they're also messing with the lists... In any case, as far as I can tell, I seem to be getting all the tweets of people in the list in chronological order.
Twitter's basic problem is that they opened up to third party clients back while they were still growing, and those third party clients quickly outpaced them in new usage features.
Twitter has been trying to reign that in since (various things their official client can do is not accessible via the public APIs), but they can't just drop their third party support or they would see the usage rates dwindle in no time flat.
The two platforms are completely different. The users of FB (and LinkedIn) put their real information on the website, allowing advertisers to target effectively which raises the average ad value on the website. Intuitively, revenue = ad value * # impressions.
Twitter is in between anonymous forums (unfortunately they all died) and FB/LinkedIn in terms of ability of advertisers to target users. They're living off of high impressions, and they've basically already saturated the market. Now they need to somehow raise ad value, which would mean integrating hundreds of free, quality services to gather data like Google or tying Twitter accounts to real identities (like the Google+ attempt)
Yes, the anonymous accounts are a problem - but mostly because of the trolling, not the lack of identity. Snapchat and Instagram both have anonymous accounts and don't have a problem.
Yet Twitter has people like Kim Kardashian selling tweets for $200K/tweet[1] (so there's your measurement of ad-value), and yet Twitter can't make money.
Meanwhile, people are moving to Snapchat stories which is exactly the product Twitter should have built. Twitter, on the other-hand make the ground breaking decision to not include URLs in the 140 char tweet count.
Different yes but it's not that hard to look at the people you follow, the content you consume and generate what Twitter called the "taste graph". I'm not privy to what the issues are but I feel Twitter should/could've had a lot more success in terms of ads
> The cost to embed your brand in the minds of Americans like that would be far greater than $10B.
Just because something costs money doesn't mean it's valuable. Being at the center of the zeitgeist definitely seems like it would be profitable, but de facto it hasn't been for 10 years, so it probably just isn't.
Being in the center of the zeitgeist isn't a substitute for making a profit.
There are plenty of people who use Facebook and don't use Twitter. Facebook is certainly more ubiquitous, it's just not quite as easy to tell you where someone's FB page is the way you can just have "@BarackObama" in the ticker.
The way that Twitter has become so pervasive despite not really solving the profitability problem makes me think of how a lot of the original constructors of skyscrapers end up building icons and then losing their shirts and being forced to sell it to someone who ultimately sees it realize the initial promise.
You really couldn't. Yes, people who were online recognized AOL keywords the way they do URLs today, but it never had the pervasiveness that Twitter does. News channels show tweets and hashtags. A large fraction of news shows up on Twitter before it hits other sources of news. It's the platform for putting up a smoke signal, a firsthand account, or a story as it develops.
and people like Elon Musk and Tim Cook are on Twitter. It's incredibly interesting to read what they do and say day-to-day. I'd call myself a passive user because I only read notification on my phone if few of these people tweet something.
Be careful conflating "never made a profit" with not having a business. They made $710M in revenue last quarter, up 48% yoy. Their expenses might be high, but they can address that. Companies like Amazon didn't make a profit for years, and are rightfully quite valuable in the eyes of the market.
A $29 valuation per MAU is low if anything. Facebook is almost 10x that (and deserves to be). Early stage startups often get 50x that or higher.
Why the hell is their expense that high? 350 million users, sure it's a lot. Plus they have to store the messages for a long time and it's not like a text message but more like a group chat. Still, most of their expense can't be going towards their tech stack but headcount. Anyone that takes over the company is going to be doing massive layoffs. They should do it their self and become profitable or else someone is going to do it and run of their good folks in the process. They are about to become the new Yahoo if they don't turn themselves around quickly.
>Why the hell is their expense that high? 350 million users, sure it's a lot. Plus they have to store the messages for a long time and it's not like a text message but more like a group chat. Still, most of their expense can't be going towards their tech stack but headcount.
yep. I don't think the difference between WhatsApp and Twitter in features explain such a difference in headcount and expenses.
Every time I've looked at their reports, stock-based compensation is significantly greater than the total net loss. It seems like the classic tech bubble company where there's a solid large company which is at risk because they're spending like a profitable huge company.
Maybe. But at the same time, with over 3,000 employees and a small set of products, that's not only a lot to take on but much of which is likely redundant. With so many surely they hold a fair amount of under performers as well.
What other work? Is there a company out there that actually has 3,000 employees-worth of work to get done, but nobody to do it? I thought we were in general facing the opposite problem: Lots of bodies but not enough work, leading to under-employment.
You would think that, but honestly the site is broken more often than not for me. Right this very moment all pic.twitter links are just redirecting to "https//" URLs.
I haven't done a formal study but their t.co url shortener (which is forced on anyone who posts any url) is often broken or extremely slow. Twitter seems like a company where hardcore systems engineers probably take a backseat to "visionary product managers"
One of the best ways to resolve issues in a project is simplifying. You don't need so many if you are going to simplify. Though, anecdotally, I haven't had any issues with the site or service for a few years now. So I can't imagine they have many production issues that affect all the users.
Their annual revenue is about $6 per user [1]. The problem isn't absolute failure to monetize, it's massive costs. If you thought you could run twitter without their ~4000 employees, you might have a chance of pulling some cash out of there.
The problem is, it's hard to simultaneously clamp down on costs and push for growth. In SV, anything other than growth is an admission of failure. If you aren't flinging money into R&D, everyone will assume it's the start of a downward spiral.
[That, and you can't buy twitter without outbidding all the True Believers]
Have an up-vote. That's the big problem isn't it? It's no longer acceptable to simply get control of costs, make the ink black instead of red, and milk your product for a nice steady profit--then, once that happens, figure out if it's appropriate to grow from there.
People always write them off, but I do wonder if it's more of an emotional write off or the fact that as non twitter users, they refuse to see value because they personally don't see value. I'm not a twitter user or advocate but:
106.31M
316.93M
664.89M
1.4B
2.22B
That's their revenue over the past 5 years. Their R&D cost last year was over 800M.
I'm not saying they are Google, I'm not saying they are LinkedIn, but there is definitely big money at play here at a scale investors love (hundreds of millions of users, over 300M at last check) so it might be premature to completely dismiss them.
Yes, I think a large part of the hate that Twitter gets is from people who see Twitter as a silly product, like Snapchat or something.
Yes, Twitter has challenges in monetizing, and yes, Twitter is weird, and yes, Twitter hasn't made a profit yet. But fundamentally, Twitter is still the preferred platform for following media, celebrities, politicians, internet-famous-people, and quick ad-hoc public communication with those people. And just like how Facebook's success is that all your friends are there, Twitter's success is that every public figure you're interested in is there, even the geeky small nuts-and-bolts types like writers and programmers and artists.
It has become the public plaza of the Internet.
If I want to post pictures of my kids, I'll do it on Facebook. If I want to pick a fight with my city councillor about a decision he made or get in touch with a script-writer of my favourite movie, I'll do it on Twitter.
Yup. Twitter carries the implicit threat of "satisfy me or I'll make a public stink". It's the closest we non-journos can do to putting a mic in their face and demanding answers on camera.
The only reason revenue, users, scale, investor love, patents, staff, infrastructure, etc. matter is that they usually are indicators of potential for profit. Profit is the entire point of investing in a company.
But the greater indicator of potential for profit here is that Twitter has existed for 10 years and has never turned a profit.
Given this, I think that revenue, users, scale, investor love, patents, staff, infrastructure, etc. have all become disconnected from Twitter's actual profit potential. They haven't made a profit, they aren't going to make a profit. I think that the only logical choice is to dismiss the idea that Twitter has value.
But, as I noted, perceived value can be as profitable as real value for an investor. Just don't be naive and mistake the perceived value for real value--naivety will lose you money.
This is the wrong question to ask if you're investing, and I've already explained in the parent comment why this is the wrong question to be asking. Usually these things are indicators of profit potential, but they aren't in Twitter's case.
There is no way Twitter couldn't turn a profit on $2B in revenue. But that's not their focus at the moment. Instead they really want to grow the revenue numbers even higher, worrying about the profit later. However they may not be able to increase revenue much higher, and investors aren't really interested in a profitable but stagnant Twitter. But if they wanted a profit they certainly could, starting by right sizing the company rather than pouring hundreds of millions of dollars into R&D that is barely moving the needle.
I think Salesforce have never had profit. Neither Youtube for Google. The problem with twitter is that people do not believe they could make big money alone and for a long time without be destroyed for someone else in a garage. They still see a company that needs a cash cow that could financial the cost of innovation.
You make a great point, Twitter's revenue has been growing for the last five years. The market cap of Twitter is supposed to reflect its future value and this is where things get complicated. With a no longer growing user base, limited additional real estate to show ads, strong 3rd party ecosystem which doesn't display ads, they're in a much tougher position than they were 3 years ago.
You mean the same Arab Spring that sparked 4 or 5 civil wars (depending how you count), led to the rise of IS, and in the civil wars aftermaths caused more civil wars in neighbor countries that were invaded by foreign guerrilla fighters?
When I made some napkin calculations some time ago, Arab Spring and its fallout so far killed about 300.000 people and displaced millions. Is the positive non monetary value enough to compensate that much deaths and destruction?
> You mean the same Arab Spring that sparked 4 or 5 civil wars (depending how you count), led to the rise of IS
The rise of the group now called the Islamic State as an armed force controlling substantial territory started well before the Arab Spring, and is a pretty direct result of the US invasion and occupation of Iraq, and particular policy choices made during that occupation.
Admittedly, then it was just called the "Islamic State in Iraq". If you want to blame the Arab Spring for contributing the situation in which occasioned its next two name changes and its expansion into Syria, sure, but if it hadn't felt secure enough in Iraq to form separate groups to go fight in Syria rather than worrying about holding on to its (at the time) core territory, it couldn't have exploited that opportunity.
The Arab Spring revolution became the Syrian Civil War, which became IS. Don't take away the agency of people in other countries to be evil, just because you believe the US is.
> The Arab Spring revolution became the Syrian Civil War, which became IS.
No, the Islamic State in Iraq, which arose in Iraq before the Arab Spring, became the Islamic State in Iraq and the Levant (and later simply the Islamic State) after sending offshoots to fight in the Syrian Civil War, and then reintegrating those offshoots. But it is a mistake to say that the Syrian Civil War "became" IS; before the Arab Spring and Syrian Civil War, the Islamic State in Iraq was already a substantial armed force holding territory and heavy weapons, most of which were taken from the Iraqi military, which it became as it grew up fueled largely by resistance to the US occupation (and, for a while, its temporary attachment to the al-Qaeda brand as "al-Qaeda in Iraq", which was useful when al-Qaeda was the most visible brand in Islamist opposition to the U.S., though eventually they outgrew the need to be a franchise of a foreign brand.)
>Sorry but I call bullshit on saying that "the arab spring" is the cause of ISIS and the syrian war.
do you see a lot of difference between Iran's revolution and Arab Spring?
>The sectarian corrupt violent syrian state and the U.S. invasion of Irak are much better suspects
Granted similar elements - a major group of population dissatisfied with the governing power as well as US hand cooperating with the side/power opposing to that group - were present in Iran too. One can see how religious extremists hijack that dissatisfaction and use US' involvement to fuel it. So the US' involvement is a catalyst, not the root cause.
And that was started by a rise in grain prices thanks to crap harvests.
If anything, Facebook and Twitter kept a lid on things. Only when the governments cut the national net connections did things really hit the fan.
This likely because now people had to actually go out and talk to their neighbors to figure out what was happening, and thus were more easily pulled along.
The first two sentences of your link: "The role played by social media during the Arab Spring as a revolutionary wave of demonstrations and protests (both non-violent and violent), riots, and civil wars in the Arab world represents a highly controversial issue. The impact of social media on the events in the Middle East and North Africa as a factor of political uprising and turmoil is highly debatable and fostered both criticism and approval."
Given Twitter's complicity in freedom-of-speech curtailing activities in the US, France, Israel, and Turkey, Twitter's non-monetary value only goes as far as that non-monetary value provides them monetary value. I don't think this is worth considering from either an investment or ethical perspective. Twitter, like most corporations, is an amoral entity.
I wouldn't be too quick to cast a positive on Arab Spring. Most of those countries have yet to recover and it is arguable that it was a precursor to the current migrant crisis.
I would agree that the democratic organizing power of twitter is impressive.
Because mind-share is sometimes more important than mere $. I'm not necessarily implying that buying Twitter for $10B is a good deal, but I can see why some market players would pay that money.
Twitter has its light side (Arab Spring) and dark side because Twitter is also number one platform on which spreading terrorism happen and for terrorist recruiting.
Twitter is also pretty heavy-handed on its censorship of US politics. For instance by blacklisting trending topics such as #WhichHillary when it had gained momentum. (when the protester went to her event with the quote about 'super predators' + #WhichHillary on a banner)
Arab spring might have had CIA interventions. But twitter surely played a big role in making Urban India vote for Mr. Modi throwing a corrupt government out pretty badly.
Personally it was Twitter that educated me about some of the horrendous laws that the Indian government passes/planning to passed.
I don't think that they are that overvalued. To me, better examples are companies that get very high valuations in a short time that aren't justified. Twitter has had significant sustained usage and has monetized somewhat effectively.
> 350 million active users, that's about $29 per user
Name one other platform which has Obama, Trump, Hillary, Beiber, JK Rowling, Pope, United Airlines, Marc Anderseen, Borrat, Bozo the Clown all engaging in two way communication with their fans and haters ?
I think an investor should worry less about $29 per user metric and worry more about the incompetence of the top management which has failed to generate revenue out of this.
> Obama, Trump, Hillary, Beiber, JK Rowling, Pope, United Airlines, Marc Anderseen, Borrat, Bozo the Clown
With the likely exception of Andreesen, all you're getting are particularly fragmented and discombobulated press releases from 'their people' (in house or consultant PRs).
They have invested in their tech team which is both infrastructure and expense. How much of the ~$10 billion it's worth is up for debate, but zeroing it's value is absurd.
$29 per user doesn't seem that out of line from other companies I've worked for. Of course it totally depends on the business but it comes down to the expected revenue each of those users will generate.
Your comment actually sort of explains the question I asked. Would you still maintain this view if either
a) advertisers reduce their spend on FB because of poor results and the usual problem with saturation of any advertising channel and start looking at other options, or
b) more events play out in the future where Twitter's place as the "other social network that people actually care about" becomes more important/relevant - e.g. one more mass hysteria event surrounding some censorship from FB, or
c) anything happens to block FB from being able to show ads inside WhatsApp?
> advertisers reduce their spend on FB because of poor results
The problem I see is that FaceBook's news feed is a driver of traffic to other websites, as people click those links, whereas Twitter doesn't seem to drive much traffic. I know sites that get 40% of their traffic from m.facebook, and another 30% from www.facebook.com month in, month out. I don't know many (if any?) sites where Twitter is ONE OF the major source of traffic, let alone THE major source of traffic.
That makes Twitter's product far less advertiser useful than even companies like Outbrain and Taboola.
I just think the way things have panned out, it is a source of interesting comments, but not really a place to find interesting stuff. Both FaceBook and Google are the roads that lead to destinations, whereas Twitter is the destination. Sadly, for an advertising play, being the road is more profitable.
In the long run, I don't think that Twitter's problem is one of competition from FB or any other competitor. They have enough users that they could turn a profit even if they could monetize those users, regardless of competition. But they haven't turned a profit, which after 10 years is a strong indicator that they can't turn a profit.
If Twitter is able to time an addition of ads with a major event that damages FB's user base, the influx of users from FB might cancel out the loss of users from the addition of ads, and Twitter might be able to turn a profit. But that effect is a) temporary, and b) fairly unlikely. Even if they managed to eat into their competitors' user bases, they have failed to monetize their existing hundreds of millions of users, so there's no reason to believe they'd be able to monetize future hypothetical users.
Whenever people discuss Twitter's finances I wonder what they'd look like if there was a paid tier. Just a few bucks a year to mark your account as Supportin' Twitter. Without necessarily having any other perks. Except maybe "not having any fucking ads". I'd probably do it; I was a paid user of Livejournal for many years when it was Where All My Friends Were.
But no. It's always "monetize by becoming another goddamn channel to advertise to people through".
I agree with the "not have any ads which follow you around the internet" as an appeal for the more privacy conscious folks which is probably an idea which is going to get more traction in the coming days...
Even better, actively mock Facebook/Google's privacy track record (while peddling the paid Twitter accounts) like the way Apple did to Microsoft. If you are going down anyway, why not go out with a resounding bang? :-) But you will burn all your bridges. Very few folks have the kind of chutzpah that Steve Jobs had.
> They have enough users that they could turn a profit even if they could monetize those users, regardless of competition.
That's an excellent point. I started this discussion wondering "Is the company in such bad shape that it needs to find a buyer?" and I think you might have just convinced me that it needs at least some kind of joint venture , if not be bought outright.
That's symptomatic of the problem, not causal. Despite leadership changes, Twitter has build a solid infrastructure, raised money, etc.--all the things that would make them a profit if their business model were at all profitable. Leadership keeps changing because nobody knows how to make it profitable, and we've tried enough approaches now that I think we can conclude it won't be profitable.
Bing tried this - they offered users cash for searching on Bing and buying things.
What resulted is that everybody searched on Google to find the thing they were interested in, then searched for that specific item on Bing, collected the cash, and quickly went back to Google. You don't change habits with a dollar or even $29, and consumer habits are immensely valuable.
Personally, I have found the ads on Twitter to be the most relevant. (Google search is too. However, I prefer organic results while searching and I scroll through to the results almost always.)
The number I cited was their claimed active users.
I'm not sure why you consider $29 per human user a steal. There are two sides to a transaction--what you pay and what you get for it. What exactly do you think investors are getting for their money here?
That's exactly why we're in a bubble. "Because other people are paying even more" is a really bad reason to pay too much for something. But that's the entire basis of Twitter's price--it's people investing in Twitter because other people are investing in Twitter (and other such companies) with no concern for whether that investment will ever return a profit.
No. Look at the citations others have made within this thread. A rule of thumb is generally anywhere from $50 to $200 per head for social network type applications. See also: Facebook, MySpace, Instagram, etc.
Sure, but they are also growing incredibly fast at ~50% yoy with over $2 billion in revenue. I think that they have a fantastic revenue generating capability which justifies the valuation.
One man's garbage is another man's gold. I believe that the suitors will be able to make more value of the data from Twitter, than Twitter could by itself.
Hell, are they even active users? I know I probably signed up for twitter long ago when it started, maybe tweeted once or twice, and never used it again, finding it useless. Do their "user counts" count me?
> whose attempts to monetize users through advertising have correlated strongly with loss of users.
I don't know if that's true, or how strong the correlation is, but if it's there and you as a founder can detect it before others, that's a good sign you should sell the company rather than stay independent.
That doesn't of course, mean you couldn't make money by investing in Twitter. You can make money by investing in overvalued companies as long as you don't hold onto your share until it busts. One profitable route would be if Twitter does get bought by a larger company. The market as a whole will lose on Twitter, but local maxima can be more profitable than the whole.
But at a personal level, don't be naive about this. A lot of people are investing, not just money, but time and energy, in Twitter or startups like Twitter. If you find yourself thinking that Twitter is a company with any real value, you should take a step back and evaluate whether you're being wise, or whether you've fallen prey to the unbridled optimism of the tech bubble. Twitter's position as poster child for the tech bubble makes it a good litmus test for people's understanding of the industry, and I suspect it will correlate very strongly with who loses everything when the tech bubble collapses.