Whether it is a welcome bit of techno optimism in an otherwise dour market, or the enduring legacy of denial on the Web, San Francisco-based microblogging service Twitter is living the online vida loca. Twitter - founded in 2006 by Jack Dorsey, Biz Stone and Evan Williams - leapt into the No. 3 spot for all social networks in February, right behind giants Facebook and MySpace, according to TNS's Compete.com.
Twitter made the jump from ranking 22 - sites like tickle.com and fubar.com litter this part of the Web. The formula has captured the national zeitgeist, after becoming a fixture of the Obama election campaign. Most media outlets now support active Twitter feeds, and major advertisers from Dell to Zappos now market with the service.
All this hype has caught the imagination of otherwise reluctant investors. At the end of January, rumors began to circulate of a $250 million valuation of the business, on reports of $35 million raised. Twitter declined to comment directly. But a spokesperson for Institutional Venture Partners, a Menlo Park, Calif.-based later-stage investment firm, confirmed it has invested in the company - as did Andrew Parker, an associate at Union Square Ventures, a New York-based investment company.
The magic or lunacy of Twitter - depending on your perspective - is that for all the buzz, the company is not only not profitable, it is not even clear on how it will make money at all.
"They need to consider potential revenue models," Parker says. "I can't disclose Twitter's revenue plans. But it is one of the priorities they are working on, amongst others."
Marketers and industry watchers are divided on Twitter's trajectory. Some dig Twitter's ability to connect one user to many followers, effectively making it a Web-based mini-broadcasting platform - but with an effective talk-back mechanism.
"Twitter is a conversational platform," says Tyler Willis, director of marketing at Involver, a San Francisco-based video marketing platform for sns. Willis points out that even though big companies like Comcast use the service, there is an actual person at the other end of the system who engages customers in a chat. And good advertising will come from that dialogue.
"If a company does not view it as a two-way street, they won't be successful," Willis says.
But others are dubious. Rob Enderle, president and principal analyst of the San Jose, Calif.-based Enderle Group, says that Twitter, with only 6 million users, probably can't turn a profit running traditional advertising, and that it will remain far too small for some time to be an effective marketing platform. And the service also is a poor fit for sponsored messages, since it's based on open-source software, which is difficult to monetize. But Enderle does see opportunities in marketers capturing the preferences Twitter users express while using the service, essentially using it as another real-time data tracking tool.
The value is in the information Twitter provides," says Enderle. "You are not going to get there with ads."