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After blowing a quarter of its last funding on one acquisition, Twitter seeks new funding
Twitter is in the process of raising hundreds of millions of dollars in new funding, according to a source close to The Wall Street Journal. The rumored round is estimated to value the microblogging site at $7 billion, or double the company’s valuation from about half a year ago.
Back in December, Twitter closed a $200 million round of financing led by Kleiner Perkins Caufield & Byers, at a valuation of $3.7 billion.
Though $200 million sounds like a lot of money to burn through in six or seven months, we have to remember that Twitter is a lot more data-intensive than it has ever been. The site now processes 200 million tweets every day, more than double the quantity from a year ago.
Furthermore, its acquisition of TweetDeck in May wasn’t exactly a steal. The deal, which sources say went down for as much as $50 million, was a necessary purchase for Twitter, however. UberMedia, a major third-party purveyor of Twitter services, would have been responsible for a large portion of Twitter usage had they won the battle over TweetDeck, giving them huge leverage in terms of revenue and advertising dollars.
If high data demand and acquisitions aren’t enough to explain why Twitter would be seeking a new round, then look no further than the recent batch of IPOs. Twitter is by no means ready to hit the public market, but all those social media companies that have gone (and are going) public--including Renren, LinkedIn and Zynga--have made investors more excited about the prospects of social than ever before, hard numbers be damned.
That’s largely why Twitter’s valuation has nearly doubled too. Social media has been attracting eyes and dollars for several years now, but lately, that attraction has hit new heights. After all, it’s not really apparent that Twitter has earned a valuation so high.
Advertising revenue for the site is expected to hit $150 million in 2011, according to an eMarketer report from earlier this year. Whether that’s taking into account the possibility of in-stream advertising tweets is unclear.
Twitter has declined to comment on the report.
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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.