E-commerce on Twitter, introducing the ‘’Buy Now’’ button.
Social media companies have always struggled with monetizing the big user base that they have. Especially Twitter, the social media platform that lets users send out 140-character messages, has been operating on investment money instead of profit. At the time of their IPO, Twitter was making $500 million dollars in revenue but did not make any profit.
Although Twitter is not profitable, it still had a valuation of $24.9 billion at the time of IPO. But, if there isn’t any profit, what is that valuation based on? The answer is innovation and the prospect of monetization. Many big companies have been outcompeted by startups that applied innovative business models. For instance, Blockbuster got replaced by Netflix and Barns & Noble got replaced by Amazon.
Social media are replacing our old ways of communicating. The reach and influence of Twitter has become enormous but profits are lacking behind. Still, Twitter is valued highly because investors predict that Twitter will find a way to monetize on their influential position in the social media world.
That moment of monetization might just be upon us now. Twitter is introducing their ‘’Buy Now’’ functionality. In September 2014, Twitter started testing a way to buy products directly from their site and app. Together with payment-startup Stripe, they have developed the Buy button. This button enables retailers to turn their Twitter account into a web shop. Consumers just add their credit card details to their account and click the Buy button whenever they see a product they like on Twitter. Of course, part of this revenue will go to Twitter.
Twitter is a great example of the value of the network effect. First, they created an enormous network of people relying on Twitter to stay up-to-date. Only after the massive user base was established does Twitter introduce ways to turn that network into large revenue.
The monetization will not end with the Buy button. Recently, a MKM Partners Internet analysist stated that Twitter can reach a $100 billion valuation if they find more ways to monetize and improve user experience. That statement alone made Twitter stocks rise significantly and Twitter will work hard to reach the ‘’unicorn status’’ that is a $100 billion valuation.
Although Twitter is finally monetizing, many still call Twitter and other startups overvalued. Do you think that Twitter is overvalued or not? Share your thoughts in the comments!