Twitter: Phenomenon, Yes. But A Sustainable Business?

Facebook’s IPO may be round the corner, but that is definitely not pushing Twitter into IPO mode. For now, Twitter seems to prefer to watch the market’s reaction to Facebook’s going public and focus on expanding their capabilities. Twitter has made several acquisitions as it builds up momentum for their own IPO expected next year.

Twitter’s Financials
Twitter is still comparatively much smaller than Facebook. Reports estimate that they have more than 554 million registered users and are projected to cross 600 million registered users within the next two months. Analysts estimate that by the end of the year, Twitter will have 900 million registered users, of which nearly 250 million will be active users.

Twitter ended 2011 with revenues of $139.5 million. But they continue to bleed: According to this Forbes report, during the first quarter of 2011, Twitter is estimated to have earned $23.8 million revenues and lost $49.2 million. Compare that with a net loss of $67.8 million in 2010. Analysts do believe that Twitter’s revenues will grow to $259 million this year because of advertising revenue gains. According to eMarketer, their revenues will grow to $400 million by next year and $540 million by 2015. Whether or not they will turn profitable, remains a question mark. Recently, when their CEO, Dick Costello, was asked if the company would become profitable this year, he avoided answering the question citing their policy of not discussing financials.

Twitter’s Self-Service Ads
Last month, Twitter launched the availability of self-service ads for small and medium businesses. These ads are currently available through a tie-up with American Express. As part of the agreement, American Express is selecting a few merchants and offering them the ability to access Twitter’s platform to create Promoted Accounts and Promoted Tweets. The number of users will continue to grow over the next few months. Promoted Accounts see their Twitter accounts referred to users with interests similar to those who are following the brand, and Promoted Tweets take an existing Tweet from a brand’s account and promotes it in search results. Small businesses pay only when their accounts are followed or someone engages with their promoted Tweet.

Twitter’s Acquisitions
For now, Twitter is investing heavily in acquisitions. Earlier this year they announced the acquisition of Posterous, a blogging platform, and social aggregation service, Summify. Founded in 2008, Posterous is known for well-designed digital media-sharing interface. The company is said to be a pioneer in the microblogging segment by enabling users to post content that is longer than the 140-character limit of a Tweet and yet shorter than that of a traditional blog. They also focus on mobile blogging enabling users to post using email and upload media, including photos, streaming content, and documents.

Summify is a social aggregation service that collates information across a user’s social networks and summarizes it. Earlier last year, Summify launched an e-mail summary product that provided a user with the top five news stories based on what that user’s social networks were looking at. Twitter has not clarified how they plan to integrate Summify’s services into their own, but are expecting to be able to use Summify’s capabilities to help people connect and engage using relevant news.

Twitter also acquired anti-malware company Dasient. Dasient was founded in 2008 and released their Web anti-malware platform to help protect sites from malware ads in 2010. Their service will now help Twitter strengthen their own security portfolio by preventing malicious links on their site and stopping scams and high-profile attacks on user accounts. The move is also expected to help Twitter build confidence in their advertising capabilities. The ability to filter out malicious ads is also a much-needed tool for Twitter’s recently launched self-service ads.

All this being said, monetization remains disproportionately small compared to the size of the audience for this Silicon Valley phenomenon. It is, most certainly, a phenomenon. Is it, however, ever going to become a solid, sustainable business?

This segment is a part in the series : Twitter