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Ask HN: The Economics of Twitter?
According to CrunchBoard, Twitter has raised $20.4M in venture funding so far. As far as I can tell, they don't have a business plan or revenue. Unlike Facebook, YouTube and Digg, they don't even advertise.
My intuition says not to try to start a company like this but their lure to VCs is over my head. Even a lot of people on HackerNews say don't do it -- too much of a gamble.
What's really going on here? How do the economics work for a company like Twitter? Are VCs investing because of the company's potential to generate revenue? Or are they investing because they think Twitter will eventually be acquired by some internet powerhouse? ("Twiggle!")
On a related note, if a company doesn't get acquired and doesn't IPO, how do VC's make money?
- byrneseyeview 18y agoGoogle's chief economist, Hal Varian, says that the way to get rich is to own an expensive good that's complimentary to a free good (if you have a monopoly on right shoes, and left shoes cost nothing you're going to do pretty well). My guess is that Twitter is engineering the supply by making tiny messages to all of your friends ubiquitous. I don't know what expensive analogue they'll create -- perhaps analytics, perhaps ads or product placement -- but it's pretty hard to end up with nothing when you have a huge customer base and you keep expenses low. In financial terms, that's a low-cost option on whatever business model might eventually show up to take advantage of the situation.
- nostrademons 18y agoThey're betting that with 10 million users, Twitter will find some way to monetize them. Historically, this is a pretty good bet: it worked for Netscape, Google, HotOrNot, MySpace, and FaceBook. In interviews, Ev's said that the plan is basically to charge for commercial usage of Twitter, probably based off of number of followers. Several companies are now Twittering product announcements and status information to customers; this is fairly readily monetizable, since they have deep pockets and gain a commercial benefit from it.
- alaskamiller 18y ago1. They have some amount of advertising revenue with Twitter Japan 2. Then don't. There's plenty of Twitter-clones out there, in itself it not necessarily a complex software to make -- the engineering challenges would be scaling it. 3. Why VCs investing into it? Because of the team (Evan Williams primarily) and because of the network effect already growing. Unless you are Evan Williams or have a chart showing more and more users each day, your ability to garner VC money is hindered greatly. 4. What's the exit strategy? Ubiquity can lead to some very interesting things. As an utility, it's appealing to a service provider (Verizon, ATT, Tmobile). As a social network, it's appealing to a web company (Goog, Yhoo, Msft). As an advertising platform, it's appealing directly to advertisers (AdSense, SEM, PltA).