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Twitter revenue: two points and a question

Posted on | December 22, 2009 | No Comments

Twitter has proven a bunch of people wrong by generating significant revenue from the service through data licensing deals with Google and Microsoft.

Twitter Inc., the San Francisco company that has popularized short but free texts known as tweets, is reportedly set to turn a small profit this year thanks to $25 million in Internet search deals signed with Google and Microsoft.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/12/21/BUTR1B7N0J.DTL&tsp=1#ixzz0aNh4RgSe

It’s a pretty simple model: sell data to search engines which can power SERPs. The search engines want people to visit them more because they generate revenue from keyword advertising, and more and more people are looking for real time results as the most relevant results. Twitter does not (yet) have a successful keyword advertising service, so they will generate revenue from other search engines that do.

Ok,this makes sense. And $25M in revenue, up from $0, now that’s progress. But clearly Twitter will need to develop a different revenue source in order to be a really big business and justify their recent valuations. They are piggybacking here and earning only a slice of the total revenue. Or at least, they will need to have a compelling story to tell about such a revenue source that gets big acquirers interested in buying.

Two points:

1) I don’t think it will be easy for search engines to avoid buying this data from Twitter because of the need for real time results. Bernoff (Forrester) suggests that G can just search Twitter in the article cited above, and I don’t think this is true. We’re talking about a high volume of data which could easily be capped by the Twitter API (assuming it can handle the load — which today is not the case). And the results of highest value are the freshest — results from the last minute or hour. You can’t crawl this efficiently — you need a continuous stream of real time data. And Twitter can completely control this as far as I can see. Which is probably why G and MS paid so much for the data in this deal.

2) Twitter appears to be creating an ecosystem for real time information which is different from the existing internet ecosystem. Why is this important?

This is how the big boys made a lot of money in the past — it is hard to do but so worthwhile! Look at MS: they created an OS as a foundation, then sold a lot of very profitable services on top of that worth billions. Yeah, that ecosystem is a bit tapped out now but it was a hell of a run. Look at Google: they are doing something similar but based on internet technologies.

So, this is kind of interesting. If Twitter can quickly build out an ecosystem for real time applications with a robust developer community, working economics in the form of data licensing or advertising models, and hold on to a defensible position in that ecosystem… that’s bigger than a couple of data licensing deals.

Now, a question:

Where the heck is Yahoo in this? You know they had the same conversations with Twitter as G and MS, but where’s the deal?

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