Rants And Ramblings About Mobile Technology

This is irrational to say the least, but I guess no one has claimed the financial market is rational in any way.

Twitter And The Revenue Dilemma

In short this note says that if you have a hard time getting a revenue, it can be better to have no revenue at all, than just a little, as your company can’t be valued using normal means, but instead analysts can just guess about the potential value, based on absolutely nothing.

Of course this applies mainly to Web services that have lots of users and are dominating in a certain niche, where somehow those users obtain a virtual value even though they are not paying anything for using your service.

Those that have invested in the company will do anything to inflate the value of it, so they can make a profitable exit (which of course is the goal for all investors). Meanwhile they will pump in money in the company, so that it survives. A dangerous game, and many investors have been fried (while the founders of the companies in question have laughed all the way to the bank), but nothing new per se.

It all sounds like a self-nurturing Ponzi scheme to me, and should be controlled somehow, but in a free capitalistic system anything goes, provided the company itself doesn’t lie about the situation, which seemingly is not the case for Twitter.

From the note: The result? Your valuation can actually go down once you turn on revenue. And if revenue isn’t as awesome as you think it might be, or you have other…cough…problems, you may be in real trouble.

It mentions a new revenue stream I’ve become aware of recently: Selling information to search engine companies, so they can better index content. In theory that wouldn’t be needed (search engines should be able to index everything that is public via their bots), but seemingly this is a big business for services with millions of users.

Posted by Anders Borg 11:20 | Permalink