Twitter: The hunt for a business model

It’s been a Twitterific kind of week, in a lot of ways. Not just because Ev Williams seized the reins of power (such as they are) at the startup — which led to lots of theorizing about why Jack Dorsey, who originally came up with the idea for Twitter, was so suddenly sidelined — but because Twitter is probably the classic example right now of a Web 2.0-type service that has plenty of users, but still no actual business model. With the U.S. and even the global economy in a state of upheaval and layoffs sweeping through Silicon Valley, what happens to such a company?

Twitter investor Fred Wilson seems to be getting more and more exasperated with the question about the company’s business model, but as my friend Mark Evans notes, it’s a question that has become a lot more pertinent than it was even a few months ago. Another investor, Bijan Sabet of Spark Capital, says Twitter will introduce a business model of some kind next year, and Henry Blodget at Silicon Alley Insider believes that the company could eventually be worth $1-billion once it figures out how to translate a devoted user base into actually dollars and cents.

Fred’s comment — about how Google “eventually figured out how to make money,” and therefore Twitter will too — strikes right at the heart of the problem. Anyone who argues that building a user base and figuring out how to monetize it later is a dumb way to run a business has to deal with the fact that Google did exactly that, and that doing so hasn’t just worked out for the company, but has been spectacularly, mind-bogglingly successful. Does that mean anyone can do it, or was Google somehow special and/or lucky? I don’t think anyone really knows the answer to that.

Is Twitter the same as Google, in any fundamental way that matters? It’s true that Twitter has a large user base, but at the moment it’s primarily geeks and techies and social-media consultants. Can it go “mainstream” in the same way that Google did? I’m not sure. The need that Twitter fulfills isn’t quite as obvious as it was with Google, and the way in which Twitter is better than existing methods of communication isn’t obvious either. That said, the fact that it’s showing up on the evening news and even inside companies is a sign that mainstream use might not be all that far away.

What remains to be seen is whether the business models or revenue streams that Bijan Sabet is talking about interfere with what has made Twitter so popular. Will people care if there are giant ads in the stream, or if sending more than a certain number of updates costs money?

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