Twitter Overvalued?

N/A • 12 Oct 2009 • EDITORIAL

Twitter recently received a private equity investment valuing the company at around $1 billion. Given the sudden popularity and ubiquity of Twitter, one might consider the valuation well deserved. But, what is Twitter really? Is Twitter a new communications medium or is it a social network? Or is just another form of social bookmarking? And what are its long term prospects? Is Twitter a losing proposition that will wind up in the “Whatever happened to…” file? Will it fall as dramatically as it rose to stardom? Does Twitter need to make significant changes in its core business in order to avoid a slow and painful death?

Before we delve into these topics, I should admit one important fact: I am not a regular Twitter user. I just don’t see what it has that I don’t already get elsewhere. I get my fill of the mundane via FaceBook. From the limited Twitter experiences I have endured, it appears that 25% of Twitter traffic focuses on real-time information about users’ pets. 74.99% consists of content self-promotion. And the remaining 0.01% is a deluge of cryptic and limited information on the corrupt election in Iran. But even that I read about in the New York Times.

Take that into consideration as we get back to the matter at hand. Is Twitter a new form of communication, a social destination, or a “best of” social bookmarking tool? And why in any of these cases might it be a flash in the pan? Put simply, I am a skeptic. I see Twitter as one part new communication medium, one part social network, one part social bookmarking. But the reality is it’s not enough of any of these. It sits at the crossroads of these industries but doesn’t establish enough unique ground to become anything more than a temporary diversion. Let’s take a look at Twitter’s risks in each area:

Twitter as a new form of communication:

1.    Many Twitter supporters assert that it is a new means of communicating to friends and like minded individuals in a succinct and simple way. While there is some truth to this, is it enough? All successfully established communications mediums have truly unique characteristics that provide real value. E-mail provides a much faster and more immediate alternative to letter writing. The web is our window to the online world. The mobile phone lets us make phone calls from almost anywhere. SMS provides us with a means to unobtrusively succinctly communicate from anywhere right to our friends’ pockets.  Twitter on the other hand is an add-on to SMS merged with blogging and RSS subscriptions. You could call it SMS blogging or micro-blogging. It’s cute, novel, and it currently has many fans. While it fills an interesting gap, does it really warrant a wholly new means of communication? I would argue the value is not strong enough or unique enough to stand on its own. Other already established means of communications provide much of what it does.

2.    All successful communications mediums are based on open standards and are heavily supported by many powerful industry players. E-mail, web, mobile phones, and SMS are all good examples. Twitter is a single privately held company with some proprietary technologies. Even with $1 billion in its valuation, Twitter needs significant backing from a large number of heavy hitters to propagate its technology on a long term basis. Look at the ubiquity of e-mail, web, mobile, and SMS enabled technology. Getting airtime on Oprah is not enough to last the long term as an established form of communication. As it stands now, I see Twitter following a similar path as AOL Instant Messenger, the product that originally put instant messaging on all of our desktops. Today, AIM is still around but is slowly dying a death by 1,000 cuts with a dwindling user base and little revenue. IM as a communications medium never did find a unified standard and is still fragmented across numerous proprietary platforms, much to its detriment. It is popular but you still can’t pick up any phone in the store and expect it to support IM out of the box. That is a deal breaker in most cases.

Twitter as yet another Social Network:

3.    As a social network, Twitter is anemic and transient. Maybe you sign up to follow somebody’s tweets. But ultimately, if you get to know them, you will connect on FaceBook, LinkedIn, e-mail, mobile, etc. That leaves little need to communicate with them on Twitter. Twitter has one use case. A good half of the tweets I’ve seen are links that take you away from Twitter because Twitter doesn’t support what the user wants to communicate. FaceBook provides dozens of social activities all within one user environment. It’s the same general rule that limits the success of Picasa or Ofoto. Why use them when you can tag your friends, make comments and notify your friends to take a look all in the same place?

4.    Twitter has no IP. There is nothing technically unique about it. One could replicate the core functionality in a week’s time without violating any intellectual property rights. Social networks that already have reasons to exist can duplicate Twitter functionality with little effort. Again, FaceBook has pretty much done this already by allowing users to opt-in to receive SMS status updates from select friends. They could easily extend it further and pretty much have a carbon copy of Twitter. Likewise, blogging services can easily add SMS notifications to their already existing rich set of tools and pretty much replicate Twitter without any hard work.

5.    Twitter is a fashion trend. What Twitter has done that is very hard to replicate is to propel their name into the core of pop culture awareness. In very short order, Twitter has its name all over TV, radio, and press without spending any advertising dollars. Very clever. From a marketing standpoint, it will be studied for years. But, I can’t help but think it has the same ephemeral shelf life of other pop culture icons. Twitter is like Paris Hilton: cute, entertaining to a point, but mostly without purpose. We eventually get bored and move on. Most fashions tend not to last very long without real value and/or unique purpose.

6.    Social fatigue will sideline Twitter for the majority. Social networking is still new and novel for the vast majority of users. But with increasing competition, some users are already showing signs of social fatigue. It’s the idea that you can get too much of a good thing and need to dial it back a bit. In the hectic day to day world where information overload is commonplace, users are already paring back their daily online habits in order to keep them manageable. This means limiting the number of different networks and information sources they frequent and limiting how often they check-in. Inevitably they will choose the ones that serve the majority of their needs in one place and let the fringe ones go. Twitter with its limited and less than unique capability will lose out to the rich functionally of the competition.

7.    If you focus this a bit more to social bookmarking or social micro-blogging, the question becomes “Why bother?” Do we really need another Digg or Delicious? Wouldn’t WordPress or Blogger be in a better position to provide this type of service? Much of Twitter is similar to these types of services. Most tweets are links that users want to share or publicize.

Finally, Twitter as a revenue generator:

This is where I am very much in the dark. I don’t see any advertising on Twitter’s site. I don’t think they advertise in their SMS messages. They don’t charge their users. So where’s the revenue? Twitter will never be able to charge their customers to use it so that leaves advertising. Online advertising depends on getting as many eyeballs to your site, looking at as many pages as possible, as many times as they can per day. With all the publicity now, it’s a shame Twitter is not taking advantage of what could possibly be their peak traffic. Soon people will realize they can just as easily do their micro-blogging style tweeting from Facebook and other places. Soon the novelty will wear off. Twitter may get a couple of impressions per day from their loyal base but the majority will trail off to one or two impressions per week or per month.

The big variable in all this is what we don’t know. Maybe Twitter is quietly teaching their pony another trick that will silence critics like me and justify their billion dollar valuation. Maybe they will use their notoriety and new cash infusion to become a fully functional social network with some sort of unique twist in mobility and information dissemination. Maybe Twitter will set the unified standard and try to make tweeting a new form of communication. Maybe Twitter buys a major blogging service to make itself more than just a collection of links to someone else’s content.
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