I enjoyed Rafe Needleman’s post on CNET’s Webware blog last week, offering readers a vote on 11 business models for Twitter. Rafe makes a great point about business models — what they are, what they’re about.
Business model, frankly, is not my favorite term. It became fashionable in the late 1990s, I think, because that was a time when people didn’t have clear and obvious ways to make money from the traffic they had on their website. If that sounds familiar, that’s because — at least until the recession-or-whatever struck –there was still a lot of that around today.
Rafe looks at Twitter, which right now is free for the user, offering us (I use it and like it, by the way — you can follow me as timberry) a way to communicate with the rest of the world of Twitter users by way of 140-character text snippets. It’s a lot like IM, but broadcast, not one-on-one.
The business model point of this is that Twitter doesn’t have any obvious way to make money. It’s a free service. What it does have is traffic. Twitter has something like 1.5 million users. And it also has venture capital investment. A quick Google search indicates that the $15 million raised earlier this year was just the most recent round, and those investors valued it at $80 million.
So don’t get too hung-up on a non-business-model business model. Twitter doesn’t really not have a business model. After all, some very smart investors (among them Fred Wilson of Union Square Ventures, who–should you doubt his smarts — has one of the best VC blogs anywhere) are giving it millions of dollars. But then again, it has no revenue except investments.
And that, the lack of business model, makes Rafe nervous. Or maybe just interested. He suggests 11 different choices, including such things as putting up ads, charging some users for more volume, or decorations, selling private versions to enterprises and, last but not least:
Grow the user base and sell the company, perhaps to Facebook. It worked for ICQ, which was scooped up by AOL in 1998.
So that’s a good example of how the “business model” jargon works. It’s about getting money: money to pay the bills, money to grow (besides venture capital investment) and, maybe, money to give those investors a return on their investment.
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
