How to be worth a lot of money, without making any money...

For those of you who don't know, Twitter is a micro-blogging site with approximately 50 million users (compared to facebooks 300 million). This year alone facebook is estimated to earn $500 million in revenue, pretty impressive since their only source of revenue is those advertisement you see on the side of your profile. This year Twitter is expected to generate $0 in revenue, because they have yet to implement an advertising program on their website.

So if a company doesn't earn any revenue why would investors dump nearly $100 million into the company? According to Scott Testa, a business professor at Cabrini College; tech companies are beginning to break away from the traditional means of measuring a company's worth. They are using criteria such as the websites popularity and traffic. This is ludicrous from an accounting point of view, traditional business practices tell us that you cannot appraise a company at a net worth of $1 billion if they do not generate any revenue.

It seems to me that Twitter's value is speculative, at best. That means that people are investing in the website based on the fact that they have the potential to make money, but for some reason they are choosing not to. I don’t know too many people who would dump money into an enterprise that hasn’t earned a dime. Either way, I think that the social networking sites are getting out of hand, using our profiles to generate demographic, geographic and psychographic information. This in turn assists marketers in their ultimate goal of making it impossible for us (the consumers) to escape their marketing communications messages. But that is an entirely different can of worms; I barely use my facebook account anymore, so I don't see myself getting onboard this Tweeting phenomenon any time soon.

Original article:

Ericka Morphy, (09, Sep 09). Twitter's $100M Funding Coup Prompts 'Bubble' Buzz. E-Commerce News, Retrieved from http://www.ecommercetimes.com/story/68224.html