The saying goes “you should never argue with a drunk or a fool”

It’s good advice.  I should be following it.  But this post was so ignorant and it was written in such an insulting manner that I just couldn’t help myself.  With that said, here’s the premise…

Oh. Thank. God. Twitter’s deals with Google and Microsoft (letting the two companies search Twitter in real-time) total $25 million and make the company profitable for 2009, according to BusinessWeek. This finally ends the stupidest line of commentary of the past few years: “How will Twitter survive without making money?”  There are three reasons this is so stupid

Now before I even begin with his justification points let me clarify a few things…

1.  Bloomberg’s source is anonymous and Twitter doesn’t make it’s financials public.  So we don’t know if any of this is true (though for the duration of this post I’ll assume it is)

2.  These are multi-year deals.  So if these payments are making Twitter profitable it’s a finance trick.  They’re counting the whole payment on this balance sheet rather than distributing it across the years.   This seems likely since Twitter’s own internal estimates put every twitter user costing the company $1 per year and the Wall Street Journal reported in May that the service had reached 32.1 million users (I assume the $1 has gone down substantially but they still have to be close to $25 million per year)

3.  Any renewal of these deals depends on Twitter becoming a viable long term company.  So there’s a chicken/egg problem here.  Twitter is popular right now because they’ve been using VC money to keep running.  That’s why search engines are willing to give them an additional revenue source.  But in order to keep that relationship going they’ll have to replace the VC money with actual revenue.  So the search deal’s future is dependent on finding another revenue source.

4. It remains to be seen whether Google and Microsoft will continue to pay for information that is essentially free to the public.  They’re doing so now because the amount of money to get it is so small.  But they are clearly the power players in the relationship and they could just as easily dictate better terms in the future.  Especially if Twitter’s active user base drops.

All that said let me address his points…

1. Google did it too: Three years to profit isn’t new. Twitter launched in 2006. They possibly turned a profit in under three years. Google took just as long – even if you count back to its 1998 incorporation and not to the site’s beginning as a research project in 1996.

The Google point really isn’t valid.  Google got lucky in that another company stumbled upon the idea of AdSense and they were able to acquire it.  So while it’s possible other companies might get equally as lucky you can’t really call this a strategy. 

2. MySpace did it too: Lucrative search deals aren’t new. So far, commentators focused on two possible revenue streams for Twitter: Ads and pro services. But search deals with other companies? That’s nothing you could expect paid tech journalists to think up. Except for Facebook’s two deals with Microsoft, or the $900-million MySpace-Google deal of mid-2006.

Yes except that the Myspace-Google deal of 2006 was completely different.  In that deal Google became the exclusive search engine for MySpace AND (far more importantly) became the exclusive provider of text based advertising.  The only thing it had in common with the Twitter search deal is the fact that “search” was in the title.

More to the point it seems clear that neither Google nor Microsoft were willing to offer Twitter a deal like the one Myspace struck (since it would be foolish to invalidate the chance at a $900 million deal for a $25 million dollar one)

3. The press and the analysts are morons: Secrecy not new. I’m not even citing sources here. This is siimple: Businesses don’t tell all their plans to the public.

Brilliant, right? Businesses don’t tell all their plans to the public.

Secrecy is not new but a couple of things make Twitter’s secrecy different.  First, a massive amount of their internal documents were leaked not too long ago.  Those documents revealed revenue projections that didn’t seem realistic.  Two, Twitter’s service is still failing periodically making the need for revenue more of a focus.  In other words they don’t appear to have a secret revenue plan and if they do than now would be the time to use it because their service isn’t reliable.

So in the end we’re left where we started which is that Twitter has no clear road to profitability.  But in saying that I want to make one final point. 

All the discussion about Twitter’s ability to become profitable is just a way for people to help the company find a way to become profitable.

The author of the quoted piece attacks people like Caroline McCarthy (of CNet) and Michael Arrington (of TechCrunch) while missing the fact that both are supporters and avid users or Twitter.  No one, not even Twitter detractors like myself, is hoping the company will fail.  Everyone is on their side.

Which is why this snide attack post was out of line and why I felt the need to reply to it (against the good advice I mentioned at the beginning)