A Wired.com reporter's question was apparently the straw that broke the Twitter camel's back the other day. Hearing what has become the inevitable question -- When is the company going to make money and how? -- Fred Wilson of Union Square Ventures, generally level-headed, based on what I've seen from his blogging, snapped, "It's like the stupidest question in the world: How's Twitter going to make money? It's like 'How was Google going to make money?'" Wilson did quickly wish he hadn't in a blog post he called "The Stupidest Answer in the World." But while chalking up his answer to being tired and irritated, he did reiterate that it wasn't the most important question facing Twitter at the moment. I'd have to disagree, because the time for that type of approach to business, whether you call the industry Web 2.0 or window washing, is over.
Wilson says that there are other issues that are even more critical facing the company:
Twitter has yet to cross the chasm to mainstream usage. It's not immediately obvious to anyone why they should use Twitter. Search and discovery doesn't work well on Twitter yet. There are a host of issues about the API and the developer ecosystem. Will recent reliability success continue? Can Twitter's architecture scale now? All of these questions loom large in my mind.But all of these questions are nothing but aspects of the most central one that can be asked: Does any given company have a potentially viable business? That has a number of aspects to it:
- Is there an audience for the service or product?
- Can the company get enough money from that audience or another to prosper?
- Has the company enough of a grasp on how to operate to cost-effectively deliver satisfaction?
- How does the company fare in comparison to competitors?
- Is there a defensible IP strategy?
- Does the company have sufficient capitalization?
This was the enormous problem looming during the dot com boom. Actually, back then things hit a psychotic mania, with otherwise sane businesspeople right and left declaring that the old laws of business were no longer valid and that everything was different. Some of them were hucksters looking to unload a cock-and-bull story onto the overly credulous; others were swept away by the communal euphoria. Yet clearly some of the worst habits do not die hard enough or thoroughly enough. If you have no idea how a service can make money, then you have a research project, not a business. And there's nothing wrong with that. Some ideas need gestation, and there are those who argue that U.S. commercial R&D does too much development and not enough research. If some group has the money to put into an idea that seems sufficiently interesting without an understanding of how, or if, it could become commercially viable, that is fine. Only call it research, not a business.
According to the Wired story, Bijan Sabet of Spark Capital said that Twitter was aiming for a business model by the first half of next year, giving them just over eight months to come up with an answer. That's not eight months to get into the black; it's eight months to figure out whether there is a good way to make money.
Perhaps some of the VC groups should get together and sponsor a real research lab, bringing in those who have ideas that sound sufficiently interesting. Then if there is something there, they could spin that off as an actual company. At least it might stop everyone from having to judge concepts as fully-formed businesses instead of what they too often really are: curious ideas that might have a future.