Like it or don’t, worldwide, we live pretty much in an imperfect but dynamic capitalist society. Money, in one form or another, makes the world go around. Buy parts, build parts, sell something, collect money. If what you collect is more than the cost to build and distribute, you make money. So, how do digital entities like YouTube and Twitter make money? Answer: they don’t.
Traffic and Potential
Web sites make money, for the most part, via advertising. The more visitors a site has, the more potential for generating sponsorships and advertising. More traffic often equates to greater revenue.
As with many digital startups, it is commonly thought that the founders of YouTube and Twitter took a calculated risk that their initial and ongoing cost of building their product and corresponding infrastructure (server farms, bandwidth, facilities, promotion, management, etc.) would be overcome by the value of growing traffic and that some kind of revenue stream would or could be developed.
Risk and reward, right? Not so fast.
YouTube epitomizes the model. Tens of millions of dollars went into building YouTube and the result was tremendous traffic as internet users flocked to the site to upload and view video clips.
The amount of daily traffic to the site—completely without a revenue stream, let alone profit—was staggering, and sufficient to attract a few deep pockets. Google was the high bidder and bought YouTube.
Except for one component, the circle was complete. What’s missing? Revenue? Profit? Google paid for the upfront purchase, and inherited the ongoing cost. The company struggles to come up with a revenue model to help pay back the price of their investment, and sufficient profits to overcome ongoing expense.
On the other hand, in the Risk and Reward model, YouTube’s original owners have been rewarded for their risk. Google has not.
The Model Redux
How is Twitter different than YouTube? It’s not.
Twitter is another social and technical phenomenon, with tens of millions of members, all driving messages back and forth, here and there, and hundreds of millions of times each day.
Twitter’s founders understand the risk and reward model. Will Twitter’s buyers? Twitter has no revenue. Worse than YouTube, Twitter doesn’t have a singular traffic generating location. I use Twitter but seldom use the Twitter web site, opting instead for a Twitter client, arguably easier and more efficient than using Twitter in a web browser window.
Twitter’s founders have spent tens of millions on infrastructure, management, and promotion to drive mind share, user growth and use, with little apparent regard to the potential issue that is make or break—revenue that exceeds cost.
The Man Behind The Green Curtain
The Wizard of Oz epitomizes YouTube and Twitter’s founders, able to create a facade of value, power, potential and worth, only to succumb to the relentless pursuit brought about by reality (Dorothy).
In 21st century capitalist societies, the relentless pursuit is profit, the difference between revenue that is greater than cost. Google hasn’t found that formula with YouTube. Can Twitter?
Are Twitter’s owners merely opportunistic men behind the green curtain?
The Wizards of Twitter
Twitter co-founder Biz Stone says Twitter, Inc. plans to add services for businesses that will generate revenue for the company.
Revenue? What about profit? Twitter’s wizards don’t care about the potential revenue and sustaining profit of the company. They care about shareholder value, the smoke and mirror opposite of profit. The idea of Twitter is not to create a social phenomenon, a tool for the masses to micro-blog their way into false personal communication.
The idea for Twitter’s founders is the same as it was for The Wizard of Oz. To cash out at the right time. A revenue model is only important as a tool to drive up the selling price.