The Sum of all Tweets: Evaluating the Valuation

Oct 09, 2009


The recent valuation of Twitter came in at approximately a billion dollars, according to news reports. It's a big figure based on a lot of other numbers: monthly visitors to the site, the daily number of tweets, repeat usage, and-most critically-the extraordinarily rapid rise of all those statistics in such a short time. The one thing we know for sure is Twitter's profit margin: zero.

For the most part, these numbers seem to be the sum of little more than rumor and speculation. Nielsen does not track Twitter and its traffic is only an estimate by Quantcast. ComScore is reporting numbers, as is TechCrunch, but no one can get them publicly verified by Twitter's management. There is no doubt devising tools to measure not just web traffic, but also uploads from mobile devices and other sites, is a daunting task. Still, it should be part of the requirements for a complete monetization model.

If we must speculate, let's move out of the realm of numbers and on to equally important questions about Twitter's role as a unique, culturally relevant, and sustainable communication tool. There are plenty of questions that still need to be answered. Will people be using Twitter 10 years from now? Does it fix a problem in the way we communicate that actually needed fixing? What role does it play in our interaction with each other? Do we really need to tweet?

Twitter takes time and effort. Not necessarily in composing 140 character tweets, but in following the "conversations" you want to follow. That's why there are Twitter decks to manage your feeds. Is this time, taken away from other activities, more rewarding, or useful in our lives? Does it provide timesaving benefits? Well, for reporters, customer service representatives, and pundits everywhere, it just might be. Twitter, after all, offers the ability to peruse a growing encyclopedic number of topics, opinions, (short) rants, and reviews. Let us not forget the companies that are rapidly adapting to Web 2.0 and using tools like Twitter to great marketing benefit.

While there may be plenty of reasons for one to use Twitter as a research or advertising tool, what makes it so compelling that even U.S. Senators like to Tweet while the President is speaking? At its heart, it's a simple personal broadcast medium for text. In essence, it sends your text messages out to the world in real-time-or at least to a world of your chosen tweeps. Therein lies the value: the immediacy.

When it comes to valuation, though, it would seem the real question is not whether Twitter is useful now, but whether investors believe that what it offers will continue to be compelling to its current user base and manage to keep growing. The valuation suggests investors would answer with a hardy "yes."

I worry that no one seems to be considering that Twitter could be the Cabbage Patch Kid of the tech generation. It can be argued that the recent growth is a result of a mass trial of a new product. Someone should be searching for the number of dormant Twitter accounts, or visitors who never interact. After all, we've seen this before. For years AOL would not report their abandon rates; its valuations in those years were good enough to help propel the Time Warner deal.

Similarly insightful is the average age of users. There have been reports that heavy Twitter users tend to be 35+. There is nothing wrong with that-in fact it's a bit refreshing-but this is a very different demographic than the usual first adopters of a new technology. This could bode well for Twitter, but it may not. It could mean almost anything. Perhaps Twitter isn't a rich enough experience for the average Facebook addict. Maybe it just lends itself better to more mature, business communications. Surely, though, it must mean something and is worth taking into consideration.

There is no doubt that Twitter is a unique experience. The value of that is as unquantifiable as the number of users. Those facts should raise many more questions about the valuation of just so many tweets.