With the countdown to Twitter’s IPO underway, it is curious to see how many supposed experts believe this company is well positioned to become the next Google. While the odds are that will not happen, there are many others who believeTwitter will easily surpass the stock performance of Facebook, Linkedin and other recent technology companies.
Yet, anyone thinking this should take a step back and critically examine what Twitter, in its current form, really needs to do to make money. Yes, advertising holds the key for generating revenue, especially in the short-run. But that has to make some investors nervous. In fact, perhaps more nervous than when they invested in Facebook a couple years ago. At least with Facebook, many users visit this social media site on computers or tablets, where ads of different sizes can be seen. While for Twitter, many access the service on relatively small smartphone screens.
Additionally, Facebook has a base of users whose age demographic includes many who are over 30 years old and have money to spend. The Twitter demographic seems to be skewed younger, and while these folks may have money to spend, the breadth of spending is not as broad as spending by those over 30. For instance, there may not be enough Twitter users falling into the target market for purchasing minivans to convince Honda to promote its Odyssey brand. However, Facebook’s more balanced age demographic may appeal to Honda and other advertisers seeking older target markets.
But the age demographic of users is not Twitters’ only challenge. According to this New York Times story, the company also faces problems in getting customers outside the United States to respond to ads. As the story notes, while 75 percent of Twitter users are outside the U.S., these markets generate only 26 percent of revenue. Additionally, the company faces competition in some important global markets, such as in Japan, where local social media firms maintain a strong position.
Overall, a good story for anyone thinking about investing in this high flying social media company.
Image by Rosaura Ochoa