Twitter spreads its wings: From harmless distraction to multibillion-dollar public offering

Everyone knew it was coming sooner or later, but the news that Twitter has filed for what will likely be a multibillion-dollar IPO still hit the tech sector like a fragmentation grenade on Thursday. Although the details of its financial status will remain confidential for some time — since it filed under the JOBS Act, which applies to companies with less than $1 billion in revenue — some estimate the company’s market value could be as high as $14 billion when it goes public.

More than anything, the announcement of its public offering reinforced just how far Twitter has come in its relatively short life.

By now, most of us have grown accustomed to thinking of Twitter as a key player in the world of real-time information, a crucial tool for politicians, celebrities and dissidents alike — and even armies — to get their message across. But when Om first got a look at what was then called Twttr in 2006, he thought it was a waste of time, and he wasn’t alone. That perception dogged the company for years, as people made cracks about how “no one wants to know what I had for lunch.”

The next big thing always starts as a toy

But as entrepreneur Chris Dixon once pointed out in a reworking of Clay Christensen’s Innovator’s Dilemma, the next big thing always starts out as a toy. Even as Twitter was being criticized for wasting people’s time — not to mention its inability to keep the network from crashing — the service was slowly becoming an indispensable part of the networked public sphere. For some, its abilities became obvious the moment Flight 1549 crashed in the Hudson River and a photo of the plane circled the globe. For others, it was the way Twitter was used in China or Haiti in the aftermath of an earthquake.

As more and more people started using the service — thanks in part to the evangelism of celebrity users like actor Ashton Kutcher, who had a race with CNN to get to a million followers, as well as TV star Oprah Winfrey — the utility of the network became increasingly obvious, following the rule set down by networking pioneer Robert Metcalfe. Soon, newsmakers were doing an end-run around the traditional media and posting their own news on Twitter, while others were committing what NPR staffer Andy Carvin called “random acts of journalism,” such as live-tweeting the death of Osama bin Laden.

The number of tweets sent every day mushroomed from millions to tens of millions, and then to hundreds of millions — a figure that is now well over half a billion. While Twitter doesn’t have anything close to the user base of Facebook, with its billion-plus registered accounts, it has a not-too-shabby 500 million or so. And after spending much of the $1 billion it has raised in venture financing on upgrading its network, the service no longer goes down whenever there’s an Apple product launch or a U.S. election.

Growing pains for the Twitter ecosystem

Twitter CEO Dick Costolo

With growth has come some growing pains, however: Twitter got rid of its CEO, visionary co-founder and initial financier Evan Williams, and replaced him with Dick Costolo, a hard-nosed business type who some felt was at odds with the slightly hippy-style qualities of Twitter in the early days. Under Costolo, the company shut down much of its formerly open ecosystem and seized the reins of its APIs, in a series of moves that some compared to “a drunk guy with an Uzi.”

The aim of all this was obvious: Twitter needed to monetize its network, and quickly, in order to justify the $10-billion market value implied by the investment of its VC backers. And doing so meant controlling the streams of data flowing through its servers — and finding ways of selling that data to advertisers and others. One of the first and most obvious targets was the TV market, where Twitter began making a concerted effort to form partnerships and promote its ability to analyze behavior.

That has also driven many of its acquisitions, including Bluefin Labs and the most recent deal: MoPub, a real-time bidding network for mobile ads. From a business point of view, Twitter is clearly jockeying with Facebook and Google to become the number one source of verified identity and user behavior for advertisers, and some believe that it has the ability to hit that goal.

An idea whose time had come


Until Twitter releases its public financial information, which according to the terms of the JOBS Act will likely happen several weeks before its stock is listed on an exchange, we have no way of knowing what its revenue looks like (although we know it is under $1 billion) or whether it is profitable. The company has over 3,000 employees — so many that it has had to build a new floor on top of the already massive building it uses as its headquarters in San Francisco — and that kind of infrastructure, on top of the servers and bandwidth to handle billions of tweets a day, doesn’t come cheap.

According to some recent estimates, the company’s advertising operation is growing fairly rapidly, and is expected to pull in about $500 million in revenue this year — driven in part by its “sponsored tweets” business, which Twitter claims is much more effective than other types of social advertising. Like its much larger social-networking competitor, Twitter will undoubtedly also face a massive amount of scrutiny over its financial status and its growth prospects, both of which kept Facebook’s stock under pressure for some time.

Will users like Twitter as much when it becomes an advertising-driven vehicle? That remains to be seen. But regardless of where it goes public, or how much the stock price increaseson that first day, it’s still worth noting that $15-billion businesses don’t come along every day — let alone businesses that started with a simple sketch on a piece of paper, a bizarre 140-character limit and a half-formed idea about changing the way we communicate. Whatever else you could say about Twitter, that idea has come true with a vengeance.

Post and thumbnail images courtesy of Shutterstock / TMore Campbell