Is the game up?
Have people finally worked out companies need to make a profit to actually be worth anything?
Shares in Twitter fell more than 11 per cent today as the six month lock-up period for early investors and staff expired. The end of the lock-up period, restricting the sale of 82 per cent of the company's equity, introduces 470 million shares to the market. It comes at a time when Twitter's share price has been falling off …
Twitter's business model reminds me of Deja News from the old days. They also had the idea of trying to make money out of a discussion network (a web front end to Usenet), in their case by trying to turn it into a shopping site with Usenet posts as reviews. At the time "if you're not buying then you're the product" hadn't been coined but that was clearly the idea. However, as they found, a product is only worth what someone is prepared to pay for it. Even with the advanced data mining and aggregation techniques that we have now, there's a limit to how much money you can make by showing people adverts. Eventually Deja News sold off the shopping stuff to one company and the rest of the company to Google, where Google Groups is pretty well hidden unless you go looking for it. Unless Twitter does something different, I can see them ending up the same way.
"Let's open a website and make a pile of money."
"Ok. Where's the money come from."
"We'll let people send messages, call them something cute like Tweets."
"Ok. Where's the money come from."
"They can tell their friends what they're eating or doing."
"Ok. Where's the money come from."
"They can post cute kitten pictures."
"Ok. Where's the money come from."
"Don't worry, people will give us money for this. We'll make a killing on the IPO."
Ahem... yeah.... and so the stock starts it's downward spriral and some folks seem surprised.
Depressed. BBC News 24 runs adverts gushing about being the most popular news service on Twitter. All this massive free publicity from hacks using social networks to paper over the cracks of their lack of engagement and commitment to real journalism. And they still make a loss.
The most pointless and useless of the current versions of social networking.
This is the mistake that everyone has made (especially all those who bought the shares).
Twitter isn't really a social network. That's just a small part of it. It's really a media platform. The real value is not in letting you (the average Joe on the street) tell your friends what you're currently doing in under 140 characters. That is what Facebook is for.
The value in Twitter is to the celebrities. It's a simple way for them to broadcast messages to their fans, who are all following them, without having to pay attention to what any of those fans are doing, or asking back. And when they have something to sell, it's perfect direct marketing to the precise audience who are going to be buying it.
I actively use Twitter, reading tweets of people i'm interested in or sites who's news i want to follow. I don't tweet anything myself and only a couple of the people that i follow do i actually know in real life. and none of them really tweet anything either.
I think there is a real market for Twitter, if used for this kind of thing. and as such, it works well the way that the BBC and even El Reg make use of it. it's almost the inverse of Facebook. But unfortunatley it has been labelled a social network, so everyone assumes it's identical to Facebook.
Simple, if you OWN shares at market cap of 25B (even though they don't generate profit) then you can get loans from the bank, against this "Asset" probably at about 3% APR. you can then use this money to invest, spend, offset debts or buy real companies. Every one involved agrees that the shares are worth that initial 25B, and if some are sold at this rate, then that's proof enough. If you pay the finance house that manages the sale a few hundred million, they will price you high, and keep you there.
You can now lend to Greece for 8% APR return, if you can think of anything else to do with the cash
Everyone wins, 25B is magicked out of the air, real profits come in from the APR differences, and no one loses. genius........ ok someone somewhere loses eventually, maybe..
If they're not making a profit, then they HAVE to go back to the market for another round of share issuing, since that's the only place they can get their money from. Thus if you own shares from the original IPO, they are going to be de-valued as more shares hit the market.
This seems to be de rigueur these days. The people at the top enrich themselves via the IPO, rather than by selling stuff and making a profit. Eventually, when the share price heads south, the board will fire them, and they can feign disappointment whilst accepting a huge golden-handshake cheque and they're done. Then all they have to do is wait for the share sell ban period to elapse, and they can then start quietly selling their millions of privately held shares (assuming another member of the board hasn't approached them and made an offer for them at a pre-agreed price).
They've got balls. Gotta give 'em at least that much.