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4 January  2009 ~

Twitter Stats and Valuation Insight It’s simple to use, takes only a few seconds to do and it is totally addicting.  No it is not a drug, it is Twitter.  This micro-blog/social network has been experiencing rapid growth & acceptance.  When the terror attacks happened in Mumbai, news started flowing almost immediately through Twitter.  The power of communication on Twitter is so strong, that Barack Obama used it during his campaign with over 160,000 followers who received his announcements.  Given all this exciting growth, perhaps it’s time to peel back the layers and begin to generate some insight into what this all means.

A logical starting point to develop some insight starts with Twitter’s valuation.  Just prior to all the economic uncertainty, Twitter completed a capital raise which valued the company at roughly $100 million.  Most recently they turned down an offer of roughly $500 million in Facebook stock.  It’s been asserted that Facebook’s real value has dropped to about 35% of the nearly $15 billion it was valued when Microsoft purchased an equity stake.  Using Facebook’s “lowered” valuation, its offer would come close to $170 million, which is a fair increase for an entity, that many view merely as an application, not a standalone company.

Given these valuations, let’s try to take a deeper look at the user base.  I just finished reading an insightful report by HubSpot which identified some very interesting statistics as they related to Twitter (see ).

An important thing to consider is the number of registered users on Twitter, yet clarity into that is still very foggy.  It’s unclear exactly how many users are registered and, even if you do obtain a number, many people register multiple accounts.  Since the numbers we are working with in this post aren’t precise, let’s go with the roughly 4 million number that HubSpot suggests.  One thing that is measurable is, Twitter earlier in 2008, became one of the Top 1000 sites as per Alexa. 

A simple ratio using Twitter’s “lowered” Facebook valuation ($170M) as the numerator and the number of registered users (4 million) as the denominator, suggests a valuation of $42.50 per user, which seems a little high considering Twitter really doesn’t have a revenue model.  In addition, when it is compared to LinkedIn, which is generating almost $100M in 2008 revenue, their ratio is roughly $33 per user.  In some ways, this could be considered similar to YouTube right around the time they were purchased by Google – an energetic and growing user base but uncertainty as to their commercialization path.

Let’s drill down deeper.  Per HubSpot, the average user has 69.5 followers although when looking at people with over 500 followers, the numbers are significantly skewed higher.  Perhaps there is another way to look at it.  If one were to assume that those with the most followers most likely do the most postings, HubSpot’s report showed that 8/10 of 1% had greater than 1000 followers, which interestingly enough is exactly in line with Jakob Neilsen’s Community Participation Pyramid.  This principle lays out a 90-9-1 rule in which 90% of the users are lurkers, 9% are infrequent contributors and 1% drive the participation in social media.  If we had more time to detail out HubSpot’s other stats, it would be apparent that they line up very nicely with this principle.  The biggest takeaway from a valuation perspective is that the bulk of the value is really being driven by roughly 32,000 people!  Conversely, from a user perspective, this highlights a “free” opportunity for a “little guy” to become a center of influence, which is very attractive, and will continue to draw more users.

Summary & Takeaways
While we can continue to drill into the stats, the lack of real clarity from the numbers would reduce additional insight to slightly more than educated speculation.  What we can see though is:

  • Twitter is growing exponentially, if nothing more than just in traffic (and a lot of their traffic is non web based!)
  • Businesswise, the current economic crisis and lack of a clear revenue model is going to impact their valuation
  • The value of their “heavy-contributors” is still evolving. Keeping up with Twitter posts is somewhat akin to a participating in a marathon of texts. Thus, the need for Twitter tools (and there are many, which we will cover in another post) will also provide external momentum that will have an impact on Twitter’s business model.

As we gather more data for trending and further analysis, we will continue to update this perspective.

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