I believe in the microblogging service Twitter. I believe it's recession-resistant, a better source for breaking news, and worth $1 billion.
Rewind to fast forward
Fools won't be surprised by my enthusiasm. In late 2008, I predicted that Twitter would be the Big Money pick for the year ahead:
If I have to make just one prediction for 2009, let it be that next year will be the year of the platform. But not just any platform -- a platform that's simple, accessible, and a springboard for entrepreneurs and investors alike. Twitter, in other words. 2009 is your year.
So far, so good. Late Friday, company co-founder Biz Stone announced in a blog post that Twitter had accepted new funding from Institutional Venture Partners and Benchmark Capital.
"We weren't actively seeking more funding because significant capital from last year's partnership with Bijan and his team at Spark [Capital] is still in the bank," Stone wrote. "Nevertheless, our strong growth attracted interest and we decided to accept a unique opportunity to make Twitter even stronger with a very attractive offer."
Benchmark Capital partner Bill Gurley tweeted the news shortly after. Gurley, you may remember, is extremely bullish on cloud computing services in general and Amazon.com's (Nasdaq: AMZN ) Web Services (AWS), in particular. Twitter, like IBM (NYSE: IBM ) , is an AWS client, so it's entirely unsurprising that he and his partners are investing now.
Why $250 million is lowballing it
Stone's language and a post subtitle -- "An Offer We Couldn't Refuse" -- strongly suggest that earlier reports of Twitter being valued at $250 million were likely accurate. But I wonder whether those estimates weren't conservative. Twitter could command $1 billion in a public offering, right now, legitimately.
Sound crazy? Probably. Twitter has roughly 6 million active users today; a $1 billion valuation implies that each of those users is worth $167, or 42 times the approximate value of a Facebook profile.
That's troubling math. Facebook is growing at an astounding pace, and it was due to book at least $300 million in 2008 revenue. Twitter, whose user base is up 900% year over year, was scheduled to book ... none. The company has yet to publish its revenue model.
If your head hurts at this point, you're not alone. Venture capital investors -- or, in Foolish parlance, Rule Breakers -- divine conclusions from incomplete data, using history and relative benchmarks to handicap the odds of success.
Here, the best benchmark is a focus group -- a small group of individuals whose responses inform researchers hoping to understand the opinions, intent, and purchasing habits of a market. Online sources I consulted say that marketers often spend $3,000-$6,000 to establish one, or at least $300 per participant if you assume a 10-person group.
The trouble with focus groups is that they're hypothetical. Twitter, on the other hand, is a collection of conversations -- a digital "thought stream," as TechCrunch's Erick Schonfeld wrote on Sunday. Twitter allows marketers to divine both intent and action. Suddenly, $167 per user doesn't sound so crazy, does it?
Schonfeld's thesis is interesting. He reasons that Twitter is a better search engine than Google (Nasdaq: GOOG ) or IAC's (Nasdaq: IACI ) Ask.com for "thoughts and events that are happening right now." He's right.
It's unclear whether Google knows this. In January 2008, during an interview with VentureBeat, company vice president Marissa Mayer gave a very different description of what constitutes social search, as you might call it.
"So if we took Web History and allowed that data to influence rankings, such that pages that your friends have visited were now bumped up in your search ranking, that that might be a good augmentation to something like personalized search. In essence, it's a fusion of personalized and social search," Mayer said then.
Surely that would be valuable. It may even be the Holy Grail for Microsoft (Nasdaq: MSFT ) and search-sensitive social networks like Facebook, LinkedIn, and News Corp.'s (NYSE: NWS ) MySpace. But if enthusiasm for Akamai's (Nasdaq: AKAM ) real-time ad-delivery services is any indicator, marketers want more: instant pitches presented at the moment when they most matter to you. Twitter supplies the thought stream to enable that.
How to monetize it? Tune in tomorrow for my ideas. If you have comments in the meantime, email me here or sound off in the box below.