October 22, 2009
Twitter profitable, thanks to search deals
Agreements with Google & Bing garnered $25 million, put Twitter in the black for '09, "sources" say
Twitter raked in $25 million from Micorosft and Google in deals announced in October, according to Business Week's Spencer E. Ante The much-hyped agreements to include Twitter’s data in search results cost Microsoft $10 million and Google $15 million, and was enough to make Twitter profitable in 2009, according to Ante's sources. The leak is well-timed for the IPO rumor mill, and is hard to imagine as coming from anywhere other than the company's leadership.
This is good news for one of the hottest IPO prospects in 2010, but it’s a bit of a stretch to stamp Twitter profitable until we know how long the “multi-year” agreements are for, and how recurring that revenue might be. Two big one-time checks are not the same as steady income, which may be why the company has been talking up plans for advertising and commercial accounts more than the deals with the search giants. To convince public investors, Twitter has to overcome the perception it's a case of growth-over-revenue.
The profitability claim is based on operating cost estimates of around $20-$25 million a year. It was able to slash costs this year by renegotiating deals with Telecoms, who are now more eager to incorporate the service, Ante says. The company keeps a slim staff (slightly over 100 if a count on the company’s About Us page is an accurate estimate) by essentially outsourcing new-feature development for nothing to volunteers via its API.
BusinessWeek’s sources are “two people familiar with the company's finances, who asked to remain anonymous because Twitter's books are not a matter of public record.” You have to be pretty deep inside a company to look at the books and get details on telecom deals, so this seems to me like an intentional leak, which would suggest positioning for IPO this year. Expect more announcements, official or otherwise, about Twitter’s finances to make headlines in the next few months. Twitter did not immediately respond to a request for comments.
A $100 million Series D round in September of this year that included institutional investor T. Rowe Price and late-stage kingpings valued the company at $1 billion.
image credit: https://buzzup.com
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What is Twitter?
Twitter is an online information network that allows anyone with an account to post 140 character messages, called tweets. It is free to sign up. Users then follow other accounts which they are interested in, and view the tweets of everyone they follow in their "timeline." Most Twitter accounts are public, where one does not need to approve a request to follow, or need to follow back. This makes Twitter a powerful "one to many" broadcast platform where individuals, companies or organizations can reach millions of followers with a single message. Twitter is accessible from Twitter.com, our mobile website, SMS, our mobile apps for iPhone, Android, Blackberry, our iPad application, or 3rd party clients built by outside developers using our API. Twitter accounts can also be private, where the owner must approve follower requests.
Where did the idea for Twitter come from?
Twitter started as an internal project within the podcasting company Odeo. Jack Dorsey, and engineer, had long been interested in status updates. Jack developed the idea, along with Biz Stone, and the first prototype was built in two weeks in March 2006 and launched publicly in August of 2006. The service grew popular very quickly and it soon made sense for Twitter to move outside of Odea. In May 2007, Twitter Inc was founded.
How is Twitter built?
Our engineering team works with a web application framework called Ruby on Rails. We all work on Apple computers except for testing purposes.
We built Twitter using Ruby on Rails because it allows us to work quickly and easily--our team likes to deploy features and changes multiple times per day. Rails provides skeleton code frameworks so we don't have to re-invent the wheel every time we want to add something simple like a sign in form or a picture upload feature.
How do you make money from Twitter?
There are a few ways that Twitter makes money. We have licensing deals in place with Google, Yahoo!, and Microsoft's Bing to give them access to the "firehose" - a stream of tweets so that they can more easily incorporate those tweets into their search results.
In Summer 2010, we launched our Promoted Tweets product. Promoted Tweets are a special kind of tweet which appear at the top of search results within Twitter.com, if a company has bid on that keyword. Unlike search results in search engines, Promoted Tweets are normal tweets from a business, so they are as interactive as any other tweet - you can @reply, favorite or retweet a Promoted Tweet.
At the same time, we launched Promoted Trends, where companies can place a trend (clearly marked Promoted) within Twitter's Trending Topics. These are especially effective for upcoming launches, like a movie or album release.
Lastly, we started a Twitter account called @earlybird where we partner with other companies to provide users with a special, short-term deal. For example, we partnered with Virgin America for a special day of fares on Virginamerica.com that were only accessible through the link in the @earlybird tweet.
What's next for Twitter?
We continue to focus on building a product that provides value for users.
We're building Twitter, Inc into a successful, revenue-generating company that attracts world-class talent with an inspiring culture and attitude towards doing business.
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