September 25, 2009
Twitter Appears Set to Raise $100 Million, Valuing It at $1 Billion
By BRAD STONE
SAN FRANCISCO — Twitter has trained people to compress their thoughts into 140 characters and given a public stage to both dissidents in Iran and voluble stars like Shaquille O’Neal.
Now the start-up appears to have chalked up another achievement. Twitter, which has no discernible revenue, is set to raise about $100 million of new funding that would value the company at around $1 billion, a person briefed on the company’s plans said Thursday.
For context, that is almost double the market capitalization of Domino’s Pizza, which has 10,500 employees and had $1.4 billion in sales last year. Twitter has some 60 employees, and although it is experimenting with running advertisements on its Web site, Biz Stone, a Twitter founder, said this week at an industry conference that the company had no plans to begin widely running ads until 2010.
But Twitter’s cash infusion and exospheric valuation are not easily reduced to the level of the blind bets of past dot-com bubbles. In its three and a half years, Twitter has become a magnet for media attention, and its Web site now attracts 54 million visitors a month, according to comScore, the tracking firm. Along with Facebook, it is helping to remake the Web as a forum for the perpetual sharing of even the most trivial bits of information about people’s lives.
“There have probably been less than five examples of companies that have grown like Twitter has,” said John Borthwick, the chief executive of Betaworks, which created the link-shortening service Bit.ly. (Betaworks also invested in Summize, a Twitter search engine that Twitter acquired last year, and it now owns a small stake in the company.)
Mr. Borthwick lists Google and Facebook as other examples. Twitter “represents a next layer of innovation on the Internet,” he said. “This investment is happening because it represents a shift.”
The new investors include Insight Venture Partners, a venture capital firm based in New York; T. Rowe Price, the mutual fund company, which is not normally known for placing such bets; and the current Twitter backers Spark Capital and Institutional Venture Partners.
The investment is likely to kick off more discussion about the heady valuations investors are assigning to some Internet start-ups, even as the United States economy struggles to emerge from a deep recession and the window for initial public offerings remains weak.
Twitter is what insiders charitably describe as pre-revenue, and the service has become known for going down periodically, although its reliability record has been improving lately.
To some, Twitter’s new valuation makes sense. Facebook, Google and Microsoft have all reportedly made entreaties to acquire the company, and its desirability to the Internet giants elevates its value.
Then there is the nonstop media attention, with everyone from Oprah Winfrey to local radio stations increasingly using the service to communicate with fans. “There is so much media hype around them, it was probably easy to go to mainstream investors and find someone who would be interested,” said Jeremiah Owyang, a social media analyst at the Altimeter Group.
Twitter has not yet commented on the investment, so it is not clear how it will use the new cash. The company does not appear to need the capital. It previously raised $55 million and has said it still has $25 million of that in the bank. But it is known to have wide aspirations to ultimately reach one billion users and become “the pulse of the planet,” according to internal documents that were illicitly obtained by a hacker and published on the blog TechCrunch earlier this year.
Twitter could use the investment to build the technology infrastructure required to grow to that scale. It also might use the cash to acquire one or more of the companies that are writing Twitter programs for mobile phones and computer desktops.
Twitter could even find a business model for itself if it were to buy one of the several start-ups devoted to helping companies manage their Twitter presence and monitor how their brands are being discussed.
But close followers of Twitter do not sense that the company is in any great rush to prove itself as a profitable venture.
“It would be trivially easy for them to turn on a revenue source today,” said Steve Broback, founder of the Parnassus Group, which runs conferences on Twitter and other business topics. “I don’t see that they are in a big hurry to start generating revenues, mostly because they want to minimize any sort of negative effect on their community.”
Twitter’s newly lined pockets may have the biggest impact on its chief rival, Facebook. Executives from the two companies often claim that their services do not quite overlap and can peacefully coexist. But both firms are essentially on the same mission: to allow people to share with friends and fans what they are doing now, in real life and on the Web.
Despite their protestations, the companies appear, especially recently, to be taking swipes at each other. Last week, when Facebook announced that it had signed up its 300 millionth member and that its finances were strengthening, executives used the occasion to play down any threat posed by Twitter. Chamath Palihapitiya, a Facebook vice president, told the technology blog VentureBeat that Twitter was now in “the rearview mirror.”
Even more pointedly, earlier this year Facebook redesigned the stream of updates from friends that each user sees to be more of a constant flow of information, similar to Twitter. And earlier this month, Facebook began allowing users to “tag” messages about particular friends with the @ symbol, a familiar convention on Twitter.
For its part, Twitter has previewed a new way to allow people to see when other Twitter users have “retweeted” or relayed their messages. The feature looks eerily similar to the display of friends who have commented on, or indicated that they liked, an update on Facebook.
Twitter’s ascension has clearly clouded Facebook’s aspirations to dominate the market for sharing over the Web, said Keith Rabois, an Internet entrepreneur and vice president of strategy at Slide, a Web social entertainment firm.
“Twitter is so likely to be successful at this point, it is almost impossible to envision a way in which Facebook can truly monopolize online content-sharing,” he said.
