If you were to believe the media, Twitter is the greatest thing since slice bread replacing last year’s greatest thing since slice bread, Facebook, which replaced the iPhone etc. etc. The question becomes, if Twitter is so great, would you invest in it if you had an opportunity? Much like my previous post on Facebook, the question is not whether you believe in the utility of Twitter but whether you believe in the business model enough to put your money into it.

The answer, again, is no.

For those who have managed to escape the media onslaught, Twitter is Morse code for the internet. A subscriber sends messages, known as Tweets, of up to 140 characters and anyone subscribing to the subscriber receives their tweets. Thus, Twitter has been described as a micro-blog for its analogous characteristics to the blog but in 140 character jolts.

Why would I take a pass on Twitter?

1. Twitter has no business plan or model. Yes, that’s right. One of the outrageous aspects of Twitter as a business is that it has no business plan.  Venture capitalist firms have invested more than $50 million in a business with no business plan or obvious business model. Imagine you are an institution investing in a venture capital fund and the manager of the fund said “we want to invest your money in a business with no business plan or model and we are in no rush to generate revenue either” (the revenue passage- not profit, revenue- was said by one of the vc funds that invested in Twitter). Now you know why the financial system is broken. The people managing money have lost all common sense.
2. What problem is it exactly solving? This is related to the first point but good substainable businesses solve problems.  For example, Craig’s List lets you buy and sell stuff. What problem is Twitter solving? A narcissistic need to let people know what you are doing all the time is not exactly a need dying to be addressed (unless you are Paris Hilton).
3. It is hard to monetize. Usage is free and there is no advertising. The basic rule of business is that it is easier to move down in price than up. It is going to be hard for Twitter to move from a free to some type of pay per use system. If you want proof on how hard it will be for Twitter to start generating revenue, Facebook has a group called “We will not pay to use Facebook. We are gone if this happens.” There are over 1 million members in this group- and growing. With respect to advertising, it has the same issue as all non business to business social media. People are there to connect socially first and foremost and not to shop.
4. Media gushes. Main street- not so much. I asked two small business owners who use social media and the internet to advertise and generate revenue about Twitter and the comments I got were along the lines of “lots of work for very little return.” One wonders if Twitter is just media hype main street will ignore with the passage of time.
5. Trying to turn a social tool into a business tool as well is tough. Linked In turned a profit within 3 years of launch. But this tool doesn’t pretend to be anything other than what it is- a business tool that is free for limited features and then charges for additional features. It defines its niche well and makes money off of it. Twitter and Facebook have the same issue; its a social/personal tool that big business is trying to turn into a money maker; it is hard to be all things to all people successfully.

I like the utility of the tool. I just would not invest my money, or anyone else’s money, in it.

If there is a moral of my review of Facebook and Twitter, it is this: media hype and buzz does not equate good investments. Companies that concentrate on profits and not market share, solve a common problem, and dominate a niche (to use the Buffet terminology, they have developed an economic moat) tend to be better long term investments. For those in active investing, ignore the hype and pursue the substance.

Anyone care to share their experiences with Twitter?