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Breaking Views

Twitter: Pipe-dream or next big thing?

8 million users can't be wrong. If only it made some money.

By Jeff Segal, breakingviews.com

(breakingviews.com) -- What's the big deal with Twitter? The online instant update service has become a media sensation and a supposed target for the likes of Google and Facebook. But is it an over-hyped flash in the pan or a real business opportunity? The answer could be a bit of each.

Twitter lets people or organizations send messages to "followers" - fans, clients, employees or anyone who signs up. The updates, thoughts or reactions arrive instantly via cell phone or computer updates. They're limited to 140 characters each, so pithiness is vital. (All but one of the sentences in this article qualify.)

Twitter's 8 million users run the gamut from lovelorn teenagers to celebrities like Britney Spears to the New York Times. The last of these has more than 500,000 followers receiving its story links and news updates. Some members of the U.S. Congress use Twitter to fill in their constituents. A few have even been spotted tapping away on their mobile phones in the middle of President Barack Obama's speeches.

The celebrity presence has drawn millions of users and driven media attention, but it can seem pretty inane. British actor Stephen Fry has 382,000 followers tracking updates of his peculiar daily minutiae. One example: "Me in a sarong. The freedom and ease ... Mmmm could get to like x".

But scratch the surface, and Twitter does have potentially significant features. For a start, it's a burgeoning social networking site. That means its membership (or followership) is both growing and sticky. It benefits from a network effect - as more of people's friends and colleagues sign up, their own incentive to join increases. Then it's just a question of finding a way to make money from the traffic.

That may have eluded Twitter itself so far, but it could be what makes it interesting for potential acquirers. One key concept is real-time search, potentially a real technological advance. Google (GOOG, Fortune 500), Yahoo (YHOO, Fortune 500) and Microsoft (MSFT, Fortune 500) search engines work, generally speaking, with old material. A search of Twitter could be made to yield almost real-time information on news, events and users' opinions.

A search could track reactions to a just-released G20 communiqué, or employees' instant responses to a company announcement. Twitter could also theoretically be used to analyze trends - almost to create real-time opinion polls.

Twitter also has one other thing few companies except Google have achieved so quickly. It has become a verb. Twittering - the sending of "tweets" - has become second nature to its users. There's already a "twitiquette" for using the service, and some people are trying their hand at "twiterature," also known as "twitlit."

That could all help explain why Google might consider paying more than $250 million for Twitter, as technology blog Techcrunch suggested last week. A few months ago, news reports also suggested Facebook was interested. Either company could conceivably harness Twitter for profit by selling custom advertising based on a user's current activities or location, for instance.

For now, though, Twitter is nothing but potential from a business perspective. The Web site's unique visitors for February were up nearly fifteen-fold from a year earlier. But the service has only just started trying to bring in revenues, let alone earn money. Meanwhile, its investors have sunk $57 million into the company, including a $35 million injection which valued it at $250 million just two months ago.

So Twitter seems poised right on the line between Silicon Valley pipe-dream and the Next Big Thing. Its fame isn't yet accompanied by any level of financial success. And its big weakness is that, in theory, another group of Stanford engineers could easily make a competing - or better - service. But its story thus far does eerily echo that of another Silicon Valley hotshot: Google. And that may be the most important reason why Twitter's hype, while excessive, is worth ... well, following. To top of page

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