Twitter and the art of business farming

The more I read about Jason Calacanis, the more I start to like him, despite being pretty rude to him in the past. That seems to be the trigger that makes him say something that completely resets the count, though. I’ll try to spare you an entire recap of Jason’s post about Twitter today. In summary, he gives 3 examples of why Twitter is en route to becoming a billion dollar company, despite not having a revenue model.

I guess if you’re running on investment money, it’s not that big of a deal. I do feel, however, as the CEO of Mahalo, that I should give Jason some advice; Businesses exist to make money. The time for Twitter to roll out a revenue model has come and gone. This is, however, typical of the pump and dump routine that recent websites have been giving. Pump your site up, make no revenue, sell it as a feature to another site.

In fact, I run a site that is free, and collects very little revenue. As an experiment I said the site was for sale. You know what happened? TechCrunch deadpooled it. In a way, they’re right. Despite little success (1600 users at the time; it now has well over 6000), Skinnyr was not profitable and therefore has no value on it’s own. Having value is, in my mind, the only reason for a business (note: I didn’t say website) to exist. The only value that Skinnyr possesses with it’s current implementation is supplementing another service or product. Major players in the industry with existing revenue models (Google, Yahoo) can get away with owning properties like these. Twitter can not.

Reaching “critical mass” is only useful if you’re selling a feature, not a business. Twitter is a useful feature, not a standalone businesses. Twitter could never be the next Google. The best Twitter can hope to be is on the level with MySpace, which made a measly 10 million dollar profit in mid 2007.

If that is indeed the goal of Twitter, happy hunting. A million dollars doesn’t last nearly as long as it did in the times of the dot-com bubble. The smart option is not to take an investment, not waste peoples time, and prove that your company can be profitable on it’s own two feet. If you do that, then when you sell your business you walk away with all of the money, not a small percentage of it.

Feed advertising is out of the question for Twitter. It would slice their userbase in half. Contextual advertising most likely would not even turn a profit. The only chance Twitter has for successful revenue is to add new features under a value added subscription plan. This would mean current users experience no difference in service, while paying customers receive extras. This is the only way, and there would still be the proverbial next guy who would offer those services for free.

Right here, I was about to point to classmates.com as a success story of using a value added subscription model, until further research indicated that classmates was losing money prior to being acquired in 2004.

In essence, I’ve just proven that what Jason said about Twitter’s route to profitability was wrong. Twitter has no route to profit. The only hope Twitter has is to “reach critical mass” and then get itself acquired. Either latch on to a bigger service like Wikipedia and Mozilla have done and like Wikia is hoping to do, or get acquired by a larger service.

A business should never need bailing out.

In short, you need a business model to run a business. You need profit to make that business worthwhile. Otherwise, you’re just rolling the dice.