Mr Otter asked a pretty interesting question, which to my modification, I could not answer. I just assumed that with many entrenched users, Twitter must be making money. I was also told by Mr. Otter that Facebook is not making money from the advertisements, despite the seemingly high valuation that most popular social networking site received. Strangely, the “unprofitable” social networking site went and made an offer of $500 million for Twitter just a few months ago.
Twitter’s investor Institutional Venture Partners is unfazed. Its General Partner Todd Chaffee said, “We’ve got tons of cash.” With a loss of $50 million on its balance sheet, Twitter definitely needs lots of cash.
So What is Twitter’s business model?
Chaffee’s approach is “if you build it they will eventually pay.”
You definitely need tons of cash with a business plan like that. Build something first, get loads of users, then think of monetizing the service later, while bleeding money for a number of years. As we speak, they are seeking a second round of funding.
