The Value of Twitter

Twitter recently signed a term sheet with a VC firm for a reported $20+ million at a $250 million valuation. According to Silicon Alley Insider, the lofty valuation implies that each of the billion or so tweets is worth $0.20. Perhaps more telling is the $40 average attributed to Twitter's 6 million users.

Justified? Maybe, but how? That's the 250-million-dollar question these days. How will Twitter make money?

Twitter probably poses the toughest monetization challenge we've ever seen on the web. For those who would say that Facebook faces similar challenges, let me point out that many of Twitter's most avid users never visit the website. Advertisements would not reach people who text their tweets. Also, factoring in the fickle nature of many Twitter users, you might just alienate too many people with an ad campaign that might not monetize well on a CPM basis, anyway.

What about the data that Twitter provides? That must be valuable, right? Yes, it is of great value to marketers, but who is going to pay for something that is already largely available? There are plenty of web tools out there that can help make sense out of Twitter data, presenting it in all sorts of different ways. Also, big businesses pay top-flight marketing companies like Networked Insights to make sense of the chatter surrounding their brands on websites like Twitter. The information that Twitter provides is already public, open to Google and all sorts of start-ups that offer insight into what happens on the micro-blogging site. What will Twitter do--make information only viewable behind a log-in, preventing Google's spiders from indexing it? This would go against the spirit of Twitter and its millions of users...which is a bad idea.

As for other options, Silicon Alley Insider once again offers some insight with its recent Twitter Business Model Contest. The "Twitter Antenna" program proposed by the contest winner resembles a paid data program, except that it allows companies to have direct correspondence with select groups of "tweeters" about their brands. The Antenna program would be optional, and among the main reasons for people to opt in is the desire to be heard. While few would doubt that this very human desire strikes at the heart of Twitter, it's unclear whether a conscious effort to profit from it will be met with anything but suspicion (to put it lightly). People like to spout off and vent--especially when someone is listening--but most tweeters aren't in it to make (other) companies rich. Case in point: many people refuse to reciprocate a follow from a company, especially if that company appears too self-serving in its tweets.

With that said, many companies do find value in Twitter. Dell attributed millions of dollars worth of sales to Twitter on Super Bowl Sunday. (Check out how Networked Insights ranked Super Bowl advertisers on "social ROI".) By simply shooting out promo codes for computer deals on the DellOutlet micro-blog, Dell was able to generate huge extremely low-cost sales from viral "re-tweet-style" (What is a re-tweet?) marketing.

As it appears, Twitter does create some real value. But for whom? Dell has harnessed the power of Twitter to boost sales. Guy Kawasaki, perhaps the most influential user, seems to be sold on the concept. What about Twitter itself? How do they cash in? We should see the beginning of this answer (if there is one) in 2009.