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by Stephen Logan on 2nd October 2009
The $100million Twitter raised last week in venture capital appears to highlight two important things. Firstly, Twitter is still regarded as a growing business worthy of heavy investment. And secondly, it is still unable to monetise itself effectively enough to create its own revenue.
The social media site’s stance against integrating advertising is a bold one, but is it ultimately going to doom Twitter to financial failure?
We reported last month that Facebook has turned cash positive; however, the bulk of their income had come through their highly targeted sponsored advertising, powered by Microsoft. Twitter, whilst extremely popular, lacks the sheer volume of membership that Facebook enjoys, with latest figures showing the latter to have 300million active users. So what can they do? Charge for corporate accounts? Create a subscription service for the most popular celebrities in the Twitterverse? There are options, but what they need is a solution.
Whilst the $100million may come as welcome investment, how much longer will venture capitalists consider pouring their money into a financial black hole? Twitter is at a very important stage of its development. It has grown at an unprecedented pace over the last 12 months and has had its fair share of problems dealing with those swelling numbers. Whilst the concept is good and the platform is popular, investors can’t take a company seriously if they can’t turn a profit.
The light at the end of the tunnel may come in the form of YouTube. For years it was considered a financial joke; the $1.65billion that Google threw at it (which is still far too much, just as Twitter’s $1billion valuation currently) was deemed to have been lost in a vortex of hefty expenses and limited income. Like Twitter, YouTube was hugely popular but couldn’t find a way of converting visitors into hard cash. That was until they introduced targeted sponsored advertising, and now have begun posting profits (as documented in our July 17th post Facebook Reaches 250 Million Users Whilst YouTube on Verge of Making a Profit).
The bosses at Twitter will be fully aware of the predicament they find themselves. On the one hand they need to find a way to monetise the service, with sponsored advertising being the most obvious solutions; on the other, they’ve promised not to make money through advertising. This leaves them in quite a quandary.
Expect some news though in the coming months from Twitter HQ regarding finances, or the generation thereof. Investors don’t tend to be frivolous with their cash and will have almost certainly required assurances as to the future monetising of the service. How soon any announcement will be is anybody’s guess, but surely Twitter need more than just capital, they need ready revenue and soon.
Stephen Logan is our Senior Content Marketer at Koozai. With four years experience writing exclusively for the search engine marketing industry, he has amassed a wealth of industry related knowledge. He will be breaking news stories and contributing compelling SEO related stories.