...and it just may be cheap at $1 billion
There's already a sense of déjà vu about Twitter being worth $1 billion, which is pretty weird, considering it's growing at a phenomenal rate.
That's the problem: Twitter is only a phenomenon in the old world — in internet terms, we've been here before, with My Space, Bebo, LinkedIn, You Tube, Friends Reunited...
They all came up with an idea that exploded in popularity but have so far failed to match that promise with soaring profits.
Like Facebook. It has 300 million users around the world (Twitter is up to 54 million). In May, Facebook received a $200 million investment from Russia's Digital Sky Technologies that valued the social networking site at $10 billion. Twitter may be cheap: Facebook has 300 million and is worth $10 billion, Twitter has 54 million and is priced at $1 billion.
Facebook, like Twitter, has also never made $1 of profit. But the signs are encouraging. Mark Zuckerberg, the Facebook founder, was predicting his site would be cash-flow positive "sometime in 2010". That's been hastily revised and Facebook is declaring it is now cash-flow positive. That's nowhere near the same as making a profit but the signs are encouraging.
It all depends on scale. Facebook is far ahead but Twitter is climbing fast. The theory goes that the more members they attract, the more advertisers will be persuaded to turn to them.
They're also looking at other ways of earning revenue. As well as the web, Twitter relies on SMS messaging. The bigger Twitter gets, the more SMS traffic increases. At some point, a line may be crossed where Twitter can dictate terms to the mobile networks and handset manufacturers to become its partner, and then the dollars may pour in.
What all investors are hoping for, of course, is that they've found the next Google. However, Google is not a social networking site. It's a search engine, and its paid-for-search model is a money-making machine.
And while investors in Twitter wait for the profits to come, they must also be consumed by another fear — that a new internet phenomenon will appear and sweep all before it.
