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  1. Business
8 October 2013updated 22 Oct 2020 3:55pm

Twitter floats. But there’s a problem

It won't make money as easily as Facebook.

By Rupert Staines

Late last week, Twitter officially revealed its plans for a $1 bn initial public offering. For an IPO of this size, alongside a valuation of $10 bn, even though it has never turned a profit, this is pretty punchy. One thing that is for sure, Twitter’s floatation is the most hotly anticipated since Facebook’s nearly 18 months ago. However, once the morning bell has been rung and the hype and frenzy calms down, you can bet there will be anxious stakeholders and investors, keen to see some rapid return.

Such is the scrutiny on it, Twitter has to justify this valuation. And fast. If it is going to be a financial success, it has to monetise its biggest asset, its audience. But this is where Twitter may come unstuck. Similarly to Facebook, it will likely look to advertising to its users to claim revenues – both on desktop and on mobile. It is clearly taking the latter especially seriously, with its recent $350 million acquisition of MoPub, which will certainly facilitate the process of advertising to its mobile userbase. It should also be noted that Twitter has undoubtedly done phenomenally well to recruit over 200 million users into its environment. However, the big difference is that its particular environment is not especially advertiser friendly.

Think how quickly tweets appear and then disappear on a timeline; consider the potentially intrusive nature of ads in your conversation stream. At a moment in time therefore, capturing engagement – so key to targeted advertising –  is limited, which puts the brakes on meaning, purpose and potential wastage.

The additional problem is that this is all happening within Twitter’s own four walls. A tweet can be there and gone within seconds within Twitter, but it can live on across the entire Web in a number of different forms – email, IM link, shortened URL. But Twitter, similar to other noteworthy social networks and portals, is currently not able to engage, target and therefore make money across the open Web, which makes the walled garden it sits in seem even more claustrophobic.

Another major pressure Twitter is facing is, quite simply, the affiliation with the word “social”. There is undoubtedly a sentiment, whether in the City or on Wall Street, that if you are a “social media business”, you are automatically going to be worth billions. The term seems to have become the sole domain of the major networks, such as Facebook, Twitter and Instagram. However, this is not a fair representation of social media. These sites certainly command a great deal of active users, but the truth is they only actually account for a relatively small percentage of what is actually being shared and communicated across the Web. Think how much is shared via other methods, such as copy and pasting, IM and even good old email (which is still by far and away the most used way to share content). The only entity that truly represents global social interaction is the Internet at large. And this needs to be considered when labelling a company as “social”, especially one that has to operate within its own confines. The sooner this recognition starts happening, the sooner the inordinate amount of pressure on networks, such as Twitter, to show instant return will ease.

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I’m not saying Twitter will not be highly successful but people have to stop over cooking the dish. This is the largest Silicon Valley offering since Facebook’s last year. And with the limitations it has, it is going to have to work very hard to appease anxious stakeholders wanting to see an early return. Let them exist and be happy as a very successful and smart business but don’t hype it and assume they have to make billions in ad dollars!

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