The Recession Could Make This Company Rich

Who needs eBay (Nasdaq: EBAY  ) when you have Twitter? Dell (Nasdaq: DELL  ) recently sold $500,000 worth of refurbished PCs using Twitter.

What's interesting is that there are plenty more stories like this. Twitter -- once little more than digital heroin -- has become an incredibly useful tool for businesses like The Motley Fool. (We hopped aboard the Twitter train in September.)

The value of a movement
President-elect Barack Obama punched his Twitter ticket in April 2007. By March of this year, he had become the service's most popular poster. GOP candidate John McCain waited until September to join Twitter.

Meanwhile, Obama's digital followers -- more than 140,000 strong versus 5,500 for McCain -- used the service aggressively. Grassroots site ohboyobama.com was posting about using Twitter to get out the vote in late summer. Then, toward the end of the campaign, a second post spoke of using the service to combat "talking points."

How large a role the technology played in Obama's victory is unclear. What we do know is that the president-elect embraced technology like no other candidate before him. His Twitter following reflects that.

And his network is worth tens of thousands -- $41,150 specifically, according to Twitter follower TweetValue. No one else gets close. Certainly not me, whose meager following merits just $22. (Come on, Fools!) Not even top-five-ranked Twitterer Guy Kawasaki is within spitting distance. His 29,000-strong network is worth just north of $10,000.

Building a business via Twitter
That's saying something. Kawasaki, once Apple's (Nasdaq: AAPL  ) chief evangelist for the Mac and co-founder of venture capital firm Garage.com, depends on Twitter for his latest venture, Alltop.com.

Think of it as an online magazine rack. Kawasaki calls it an alternative to Google (Nasdaq: GOOG  ) , which he says is excellent when you want an answer to a specific question. Alltop is for browsers; Twitter provides the needed network effects.

"Twitter is the most important factor in Alltop," Kawasaki said when I and several other members of the Motley Fool Rule Breakers team interviewed him and other big thinkers during our recent Innovation Tour of Silicon Valley.

Kawasaki is referring to a partnering program where 170 or so Alltop fans re-tweet the site's Twitter posts. "100,000 or so people see our stuff every time we blog," Kawasaki says.

Twitter, in other words, creates network effects for Alltop since the site itself has no social component. Rather, it is an easy-to-read collection of RSS links. Call it RSS for those who'd rather not bother with code or with a reader. "Alltop" refers to how the site's categories are organized: the top stories for the top feeds, organized by topic.

But it's the network that interests me. Alltop already has a network of sorts via the sites it tracks. But its usefulness is enhanced by those of us who browse for posts worth reading, people who arrive at Alltop via one of Kawasaki's near-constant tweets.

The value of connectedness
Ethernet pioneer Bob Metcalfe first described the value of network effects in the '90s. His "law" says that the value of a communications network is proportional to the square of the number of connected users.

Knowing this is, I think, what led Microsoft (Nasdaq: MSFT  ) to invest $240 million in Facebook, whose population now dwarfs France. I also believe it's why News Corp. (NYSE: NWS  ) paid $580 million for MySpace.

What's Twitter worth? Let's review what we know:

  • Directory site twitdir.com has identified 3.3 million Twitter accounts.
  • Kawasaki found in a recent survey of Twitterers that roughly half would pay to keep the service, with most paying $5 per month.
  • Amazon's (Nasdaq: AMZN  ) Jeff Bezos recently invested $15 million in Twitter.

So, assuming Kawasaki is right, at least 1.65 million users would pay $5 a month to keep Twitter. That's $99 million in annual revenue before ads or any other monetization scheme.

But surveys can tell you only what might be. We won't know what is 'til Twitter reveals its plan to generate revenue. For now, all we have is Bezos. My best guess is that Mr. Kindle's stake equals 5%-10% of the outstanding shares, valuing the business between $150 million and $300 million. TechCrunch's Michael Arrington reported in April that venture firms bidding for Twitter were valuing the company between $60 million and $150 million.

Either way, Twitter is for real. A bona fide Rule Breaker that's helping the Web's wallflowers get social and create network effects on the cheap. And it'll be made more valuable by a recession that's forcing firms to spend creatively.

Think I'm wrong? Post your thoughts in the comments box below, or reply with a tweet to @milehighfool.

Amazon, Apple, and eBay are Stock Advisor selections. Dell and Microsoft are Inside Value picks. Google is a Rule Breakers recommendation. Try any of these market-beating services free for 30 days. There's no obligation to subscribe.

Fool contributor Tim Beyers had stock and options positions in Apple and Google at the time of publication. The Motley Fool's disclosure policy is Twitterific.


Read/Post Comments (8) | Recommend This Article (17)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 24, 2008, at 12:02 PM, Buffetisbest wrote:

    So is Twitter a private company and who has a majority stake in it?

  • Report this Comment On November 24, 2008, at 12:15 PM, TMFMileHigh wrote:

    Hello Buffetisbest. Twitter is, indeed, private. Bezos is a big shareholder as is Union Square Ventures. More: http://www.techcrunch.com/2007/07/26/twitter-gets-their-vent...

  • Report this Comment On November 24, 2008, at 3:56 PM, j2xl wrote:

    I work at Amazon. During a lunch break last March I wrote a simple bot that posts Amazon's deal of the day to Twitter. Since then I've added Lightning Deals throughout the day. The bot now has close to 3,000 bargain-hunting followers and drives all sorts of orders every day. Add it to the list of Twitter success stories.

    Check it out at http://twitter.com/amazondeals .

  • Report this Comment On November 24, 2008, at 10:14 PM, jayaho1001 wrote:

    So as a Sales and Marketing consultant, I'm a skeptical Twitter participant. I read the suggestions of Kawasaki, and it honestly doesn't make much sense. I follow some forty people, and I can hardly keep up with their "tweets" (comments/posts). If you have 500 followers, there is no way to engage in bi-directional conversation. Kawasaki has 26,000 followers and he follows about the same number. If everyone is simply working to grow their Twitter following, who ever has time to listen?

    So who cares if 100,000 people see his posts. One of them from today was How to Make a Sandwich. What business value does that have to anyone but him, the leader of a glorified search engine for people "browsing".

    At the end of the day, it will probably prove a great investment, but I'm still trying to find real business value in Twitter. Do you know the answer? If so, come set me straight at www.twitter.com/jayaho.

    Jay Aho

    Chief Executive

    www.Gen18.com

  • Report this Comment On November 25, 2008, at 1:18 AM, Q4Sales wrote:

    @milehighfool

    Tim, i loved this post. I have interacted with Guy a number of times and one can't help but be amazed at his use of the Twitter ecosystem. I think the Twitter-on-Steroids version of these superusers misses the point for us mortals, though. If i can influence 200, 300, maybe 2,000 people as i grow my twitter efforts, then i'll have the ability to get the word out about things that are important to me or my clients.

    For example, i tweeted about a recent Dun & Bradstreet blog post on Give the Worker Control -- about online scheduling for a SaaS startup called: http://www.shiftboard.com/index.html?m and got a bunch of emails and tweets related to it. Was my goal to change the world, as Mr. Kawasaki says? Well, no, it was simply to increase readership.

    Another example, I compile and post research reports for small biz owners over at Anita Campbell's http://www.SmallBizTrends.com/research site and Twitter gives me a way to let people know quickly that i've posted something cool over there.

    I appreciate Jay's comments here and no doubt think there's some validity, but essentially, the listening possible at Twitter is only there because its short and sweet... Tweet on! Thanks for a solid post.

    http://www.twitter.com/TJMcCue

  • Report this Comment On November 25, 2008, at 11:56 AM, guyKawasaki wrote:

    Jay,

    It may not make sense to you, but Twitter is an incredible broadcast mechanism for me. I can reach 29,000 people for free. If you add this https://twitterfeed.com/alltop to the mix, I can reach 129,000 for free.

    Ask your marketing person if he/she could reach 129,000 people for free, instantly if that would be useful. :-)

    Guy

  • Report this Comment On November 25, 2008, at 12:27 PM, GerardMclean wrote:

    About 2 months ago, we write a bot for http://www.narms.com to send out retail merchandising jobs when they are also aggregated out to partner RSS feeds like SimplyHired.com and Indeed.com using Twitter http://twitter.com/narmsjobs

    In this time, Twitter has become our #2 refer with over 1.5 million job listings being pushed out at various intervals during the day. The time between listing and filing the jobs for our members has gone from days to hours, sometimes minutes.

  • Report this Comment On December 18, 2008, at 6:52 PM, petequily wrote:

    Jay Aho "At the end of the day, it will probably prove a great investment, but I'm still trying to find real business value in Twitter."

    Here's an example of real business value for you Jay.

    I did a detailed blog post nov 5 comparing Barack Obama vs. John McCain in 29 social media & SEO metrics including Twitter.

    Guy Kawasaki tweeted it, and among other links I got from that his tweet, I was mentioned in an article by Brian Solis in Techcrunch and in the New York Times.

    I get most of my adult ADHD coaching clients from my website and my blog so getting a link from a popular PR 8 blog and an NY Times one helps with traffic and SEO.

    One thing to note, In my case study

    http://adultaddstrengths.com/2008/11/05/obama-vs-mccain-soci...

    I found out that John McCain last tweet was October 24th, he didn't even bother to send a a get out the vote tweet. So if you get on Twitter it's important to know how to use it, or at least know what not to do.

    For example supporters of a Vancouver mayoral candidate twitterjacked their opponent who wasn't digitally literate enough to get his own name on twitter, and did it so badly. This backfired on them with the local twitterati. See

    http://adultaddstrengths.com/2008/11/18/social-media-and-seo...

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