Money for nothing?
The WSJ has reported that micro blogging service Twitter is in the process of raising $100 million in funding, which will value it at over a billion dollars.
Such a valuation may not come as a surprise, given the ubiquity of the service these days, but it is remarkable that a company that doesn't even seem to have a business plan, let alone generate a profit or even revenue, should be valued so highly.
In some ways this is reminiscent of the dotcom bubble, in which nascent websites were given huge valuations based almost entirely on their perceived potential. The bubble burst when people realised that merely putting ‘.com' at the end of a company name didn't necessarily guarantee its success.
Where the massive valuations of companies like Twitter and Facebook differs from that period of speculative delirium is that, while they might not make any money, they do attract huge traffic - 54 million per month in Twitter's case.
The whole basis of the non e-commerce Internet business model is that you build traffic first, and then work out how to monetise it. The best example of a company that has done this to spectacular effect is Google, which effectively charges advertisers for access to some of its users.
It seems to be universally accepted that everyone now wants to share everything they do, or even think, with everyone else, so there's no reason to assume that the traffic to social networking sites like Twitter and Facebook will not continue to grow. And so, by the logic of the Internet, will their value.
