For a company with just about 6 months of money-making experience under its belt, Twitter might seem pretty lucky to be getting the rumored $4 billion valuation that’s floating around the blogs. I’ll take a look at the details of this valuation, and some of the reasons why Twitter might actually be worth this much below.
TechCrunch got the scoop from inside sources that Twitter was being valued at $4 billion by investor Kleiner Perkins. They assert that Kleiner Perkins is in the prime position to become Twitter’s next investor at this price as the deal unfolds in the coming weeks.
It’s tough to imagine where the $4 billion figure comes from, if you give Twitter a cursory glance. The company had next to no business model for the majority of its existence. It only began making money when it introduced Promoted Products in April of this year. And yet, the flurry of activity since that point, and the direction that newly appointed CEO Dick Costolo appears to be taking the company in, might indicate that they’re amping up to make that valuation ring true.
The first step in getting Twitter to make money was adding advertising. The company could have gone down the banner ad road, but instead they chose to innovate: Promoted Tweets, Trends and Accounts are really quite creative ways to integrate advertising without alienating their users.
Financials are being kept under tight wraps, but it’s rumored that a Promoted Trend which lasts for 24 hours costs about $80,000, and a Promoted Tweet costs $100,000. Although Twitter is still in the experimental phases of these products – and many, maybe even most, are not being bought or sold at this price just yet – the model could become a huge moneymaker for the company.
But what’s far more interesting, at least to me, is the news that Twitter will be selling its tweets to interested companies. For $360,000, they will sell half of all tweets in the network. And for an undisclosed amount, companies or individuals can purchase a stream of all tweets that include mentions of their username.
The tweets can only be used for data and analytics purposes, not for display, but it points to an interesting possible source of revenue for Twitter.
Wouldn’t nearly any company love to be in on who’s saying what about them, at all times? This data could be run through software that detects sentiment and tone, giving them an up-to-date pulse of the Twitter-verse.
Twitter could potentially make a lot of money from the sale of tweet data. Although there will no doubt be some concern from privacy advocates, financially, this is a viable source of income for the company that could be a large part of the reason for such a high valuation.
At $360,000 a pop, these datastream sales would be a shot in the arm for a company that has been notoriously anti-business and anti-money-making for some time.
Looking to the future, Twitter could see potential revenue streams from its re-positioning as a news network. Biz Stone made a comment recently that the company wanted to move in the direction of breaking news and journalism, and, although this was later tempered down, there is a lot of money to be made as the news industry adjusts to social media. If Twitter is at the forefront of this media shift, the company’s financials would no doubt benefit.
We’ll have to wait and see how the investment deals go down in the coming weeks, but I think that now’s the time for Twitter to go full steam ahead. They’ve got several potential revenue streams, interested investors, and they might just be worth the billions that rumors suggest.