Twitter Is Profitable. Your Argument Is Invalid.

→ by Nick Douglas < @nick >
at 3:25pm Dec 22, 2009

Oh. Thank. God. Twitter’s deals with Google and Microsoft (letting the two companies search Twitter in real-time) total $25 million and make the company profitable for 2009, according to BusinessWeek. This finally ends the stupidest line of commentary of the past few years: “How will Twitter survive without making money?” There are three reasons this is so stupid:

1. Google did it too: Three years to profit isn’t new. Twitter launched in 2006. They possibly turned a profit in under three years. Google took just as long – even if you count back to its 1998 incorporation and not to the site’s beginning as a research project in 1996.

As late as 2000, BusinessWeek wondered how Google would make money: “The privately held company’s business remains limited compared with its competitors’.” BW writer Kalpana Mohan predicted Google would be forced to take pay-for-placement deals if it wanted to avoid banner ads. (Instead, of course, Google’s keyword system took over the market and gave it the highest revenue per search in the industry.)

The same thing happened with Twitter:

  • Saul Hansell, NYT Bits Blog, 1/3/2008: “Twitter has two ideas, neither of which naturally create a big enterprise…. It doesn’t have a lot of direct contact with users on its site or software on which it can place ads…. I’m not saying there is no business at all here. Users might put up with a certain number of ads… It will be valuable to Yahoo or some other site that wants to weave it into a broader offering.”
  • Sanford Bernstein analyst report, week of 3/8/2008: The company that buys Twitter “will likely have to operate it at a loss in perpetuity, or until the next cool Web 2.0 social networking concept comes along and Twitter tweets no more.”
  • Bill Snyder, The Industry Standard, 3/28/2008: “And how is it supposed to make money?”
  • Charles Arthur, Guardian, 7/31/2009: “I wish that Evan Williams would figure out how the hell he’s going to make Twitter cover its costs.”

And then Evan figured it out. This is why Twitter investor Fred Wilson called it the stupidest question in the world. Investor-commentator Paul Kedrosky agreed.

2. MySpace did it too: Lucrative search deals aren’t new. So far, commentators focused on two possible revenue streams for Twitter: Ads and pro services. But search deals with other companies? That’s nothing you could expect paid tech journalists to think up. Except for Facebook’s two deals with Microsoft, or the $900-million MySpace-Google deal of mid-2006.

The MySpace deal, which let Google power the searches on MySpace and collect the ad revenue, was similar to the current deal, in which Microsoft and Google get access to Twitter’s real-time feeds (and thus include Twitter results on their own ad-run sites). Anyway, MySpace’s deal instantly turned a profit for News Corp (which had paid $580 million for the site).

It was reported everywhere, including the New York Times and The Guardian. I’ll assume no one quoted above has followed tech news for the last four years, because it’s even more embarrassing if they simply lacked the critical thinking skills to apply MySpace economics to Twitter. But that’s the real answer, because:

3. The press and the analysts are morons: Secrecy not new. I’m not even citing sources here. This is siimple: Businesses don’t tell all their plans to the public.

Brilliant, right? Businesses don’t tell all their plans to the public.

Of course Twitter had ideas for how to make money. They also had competitors, competing vendors, third-party profiteers, and everyone else to deal with. They knew there were ways to make money, they knew they didn’t have to tell anyone, and they didn’t know the consequences of tipping their hand. So they didn’t. They win. They have a million other ways to make money next year, and they don’t have to tell us.

Well, they might now, says TechCrunch editor Michael Arrington, since a company with revenue gets judged differently. Especially if they IPO, as Paul Kedrosky thinks they might.

Or sooner: The press are ready to stupid it up from Day 1. CNET’s Caroline McCarthy, while explaining why Twitter’s costs are going down, speculates that Twitter’s costs are going up.

Oh my god, people. Shut up and read. Maybe you’ll learn something. Or in the words of 4chan: Lurk more.

About the Author: Nick Douglas

My book was so bad it destroyed publishing. What have you done?