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Feathering the nest

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Would you like to own Twitter? I'm not selling it or anything, so don't reach for your cheque book just yet. But if you were richer than golden syrup, I'm guessing you might be tempted. Only, here's a note of caution Twitter has yet to make a penny in profit.

You'd be forgiven for thinking I'm playing a blogger's trick and will, in the next sentence or two, reveal it has made piles of lovely lolly, but I'm not. According to Alexa - the authority on these things Twitter is the world's 11th most popular website and has yet to make a red cent.

What is going wrong? A global, social media tool, employed by everyone from the BBC to Bill Gates, isn't a financial success? At a time when the creative and digital industries are struggling to make money, shouldn't this be costing us sleep?

Perhaps not. Because Twitter isn't actually struggling it is simply demonstrating a new business paradigm (yes, I know that's the kind of phrase that makes you want dangle bloggers from windows, but bear with me).

Here are some facts:

Just four years old, Twitter now has 105 million users, delivering 55 million tweets per day. It enjoys almost $60 million in venture funding and to date, the company has done very little to generate revenue. But that's the backwards business model of the digital age. Rather than hitting on a way to make money, then researching and launching it - this fresh strategy suggests you merely come up with a very, very good idea then give it away. If the idea is popular enough, a massive audience will gladly avail themselves of your free service (remember: making it free isn't enough to attract an audience in the digital market. Just put up a rubbish landing page on the net and watch the visitors stay away in droves, if you're in any doubt).

Now, although it was once a fact that money attracts money, it is now equally true that crowds attract cash. Link 105 million people together, let them express their opinions, tastes, thoughts and activities 55 million times a day and some very wealthy folk will be more than happy to share a frothy coffee with you. And then, they'll probably hand you an extraordinary amount of the folding stuff.

Sure, they're going to want it back at some point, but if you manage to extract no more than five quid per user at some point, that really won't be a problem. Naturally, you'll be planning on a figure considerably larger than that, but that doesn't seem to be immediately important. It's all about the demographics - the dollars can wait.

So this new battle plan goes something like this:

1) Good idea

2) Big crowd

3) Venture capital

4) Here comes the money from somewhere.

Sounds easy, doesn't it? But before we all rush to build social media tools and retire to the Maldives, there's a factor we shouldn't ignore:  fickleness. The web is more susceptible to trends, whims, fashions and mood swings than a spoilt teenager on a sugar rush.  And without the ˜big crowd' element of the four point campaign, we have a whole lot of nothing plus a cup of very cold frothy coffee.

When Rupert Murdoch plunged $580m into the purchase of MySpace in 2005, it was one of the hottest properties on the internet. Within months, many thousands of its subscribers had migrated to Facebook and with all the clout of News Corporation behind it, and a music-based rebrand, MySpace is losing users and still looks unlikely to make a return any time soon. Indeed, Mr. M is bucking the trend I have described and will soon be charging users for access to all his newspapers' sites.

So, is this just the Emperor's new digital clothes? A subprime mortgage market sitting on servers? Another fatal attempt to conjure profits out of thin air? The truth is, it may well be. But the genie is out of the bottle. The planet's most popular websites (Facebook, YouTube, Spotify, MSN and their ilk) are free to use - and whatever Murdoch might think, they really have to stay that way. But the pressure to make these services pay is building. Google led the way with an advertising model, but their success may well have closed the door on other sites seeking to achieve something similar.

Which brings us back to Twitter. It seems likely that, before long, we'll be enjoying some kind of contextual advertising along with our messages of love from Ashton Kutcher. Whether that will be enough to produce the kind of margins desired by its backers remains to be seen.

In fact, the writing may already be on the wall. The social network aimed at younger kids ˜Bebo', is being sold by AOL and if it fails to find a buyer, it will close having lost a great deal of money. It cost AOL $850m and it's yours for around $50m. Friends Reunited has already been sold at a big loss by ITV.

Clearly, this is not a brave new business utopia it's an incredibly fierce battle for online success, and while there will undoubtedly be incredible victories, there will also be a few more sorry casualties before any real money is made.


Magnus Shaw, copywriter, consultant and blogger.

www.magnusshaw.co.uk

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