Twitter Profits (digitalmediabuzz)

The story below was posted on DigitalMediaBuzz.com in Oct. 2009. Story is posted here for archiving purposes only since original was lost when the site went down.

Twitter’s growth is unquestionable.

In 2008 alone, the service grew a massive 752 percent to a total of 4.43 million unique vistors. And by the end of this year, eMarketer believes Twitter’s user pool will reach 18 million – and on to 26 million in 2010.

The numbers could be even greater, but eMarketer senior analyst Paul Verna says the team is reluctant to include short-term users.

“There are indications that large numbers of users are abandoning Twitter after a short period of experimentation, and another sizable contingent seems to use the service only sporadically,” he said in a statement.

“With these trends in place, we felt it was prudent to take a conservative outlook on Twitter’s user growth over the next 18 months.”

Regardless, the number is large. And it’s certainly not easy to build that type of audience. And it’s even harder to predict how the servuce might utilize that audience – you know, how exactly will Twitter turn itself into a viable business. Now that’s something that is always in question.

So what are its options?

Possible scenarios brought forth by the masses include: Twitter leveraging its real-time web action to create the dominant real-time search client, complete with locally-focused advertising (and beating Facebook/FriendFeed and Google to the punch; Twitter developing a spam-free version for its users (at a cost); and the already confirmed business accounts.

The mystique behind Twitter, though, is the assumption that it will accomplish profitably. Even though no concrete plans exist as to how it will do so.

As evidenced by VC Expert’s Priavte Equity Data Center’s (PEDC) analysis of Twitter’s five financing rounds, which date back to July 2007, Twitter’s new estimated worth now rests at it being perceived as a $1billion business.

Mashable’s Ben Parr pointsout in the numbers that, as a $1 billion business, “Twitter has yet to make a single cent in profit.”

Those figures don’t add up to Jared O’Toole, of Under30CEO.

“I feel like companies like Twitter are valued way too high way too early,” he said. “Twitter and Facebook are some of the first examples ever of a company working like this. I don’t know the numbers, but I guarantee you Apple, Intel, Microsoft, Ford and Google were not valued in the billions or anywhere near it before they made a dime.”

The difference between those companies and Twitter, though, is that they had a product to sell up front.

“It’s easy to say ‘I sell computers’ or ‘I sell web desgin’ – pretty straight forward,” O’Toole said. “Then these companies go and try to find their audience.

“Twitter has their audience, yet no product to sell.”

So, and as comments throughout the blogosphere suggest, it’ll be up to Twitter to actually capitalize on the audience its built. The potential and investment dollars are in place, but now it must compete with the “big boys” of the search world – Microsoft/Yahoo!, Google and Facebook/FriendFeed.

Though Facebook posseses even more of a userbase, it currently doesn’t have the real-time action that Twitter does. And its recent acquisiton of FriendFeed cements the fact that integrating the core functions into users’ feeds is a major step toward real-time search.

Google Wave, also, is slowly beginning to carve a niche of its own to further its main company’s advertising reach. But as other companies try to attain the audience, Twitter has the one leg up, focusing on using its already built-in audience.

Even with the head start, will Twitter be the first (or even the best) at connecting advertisers and consumers in the real-time world?

“I really don’t know what the future holds, but to me it just doesn’t feel good,” O’Toole said. “Doing things as backwards as something like Twitter has just doesn’t seem to add up in the long run.”

Time will certainly tell with Twitter and this battle.