Is Twitter a House of Cards?

Last week I attended the “Twitter & Tonic” panel discussion moderated by Jen Abernethy of the Sales Lounge and hosted by Success In the City.  There were several excellent panelists, including Shashi Bellamkonda, Diana Kursfeld, Justin Hart, and Linda Messina.  Anyone not twittering when they walked into the event definitely walked out determined to start tweeting right away. What is amazing is the number of companies springing up overnight with products to support your twitter habit. People are getting business from Twitter, making new friends, and keeping on top of current events.

The impact that Twitter is making on people the world cannot be understated. In fact, the night I attended this workshop, Twitter shut down at 5pm for one hour of maintenance p. The shutdown, originally planned for midnight hours had been rescheduled at the specific request of the US State Department because Twitter was the only source for news coming out of Iran during the election protests.

Twitter has yet to figure out a revenue model. There are hundreds of companies springing up all around the world offering tools to help manage your twitter streams, tweet more effectively, tweet on your mobile device, the list goes on. So you have people either putting in their own money or taking the investment from someone else to build a product that supports a product that makes no money.

There is an ironic similarity between Twitter and the US auto industry. Both have millions of customers and can’t figure out how to generate a profit. Hundreds (if not thousands) of satellite companies exist to support both organizations. Will there come a time when Twitter is so integral to the way we communicate in the US that they’ll qualify for bail out funds just to stay online?

It was not that long ago that we saw millions and millions of dollars go up in smoke when the first round of dot com companies blew up. Back then nobody seemed concerned about building a company founded on sound business principles and a strong revenue/profit model. Instead, we wasted money on huge marketing budgets, ridiculous advertising campaigns and luxurious office accomodations. We kept telling ourselves we’d “make it up in volume.” Well, clearly that didn’t work.

This time round we still seem unconcerned about generating revenue, let alone a profit. Instead, it’s all about attracting users. Sure, we don’t see the wasteful marketing and advertising campaigns anymore. And today it’s less about having a fancy office and more about being able to telework from home. The investment dollars are getting spent on the infrastructure to support the thousands upon thousands of users these companies are attracting through viral marketing campaigns, word of mouth and smarter advertising.

But at some point don’t the Twitters of the world have to figure out how to make money? How many more millions of dollars will investors put into companies like this without figuring out a way to generate some sort of revenue? I’m definitely a Twitter fan although by no means a power user. I can grasp the incredible impact this tool has on our society. I love social media. But having been through one big dot com boom I would like to think we learned from our mistakes. The basics of business, no matter what business you’re in, remain the same. You have to generate revenue, manage your expenses and realize a reasonable profit. Otherwise you’re just building a house of cards. So where does that leave Twitter?