Thursday, September 24, 2009

Gambling on Twitter: Dollars to cents?

Q: How do you make $1 million in Technology?
A: Start with $100 million

Some have called Twitter narcissistic. Others, blogging for the attention deficit disordered. Many techies have called Twitter nothing more than a feature. Google's Eric Schmidt called it, the greatest social media tool since, well, email [not really, he called it "a poor man's email"...which I guess means all of us who aren't billionaires like Eric, Serge and Larry! Or was he talking about a deficit of substance? hmm]

But I digress. How about Twitter as a gamble? As a firm believer in the wisdom of the marketplace, I'll refer to what some gamblers venture capitalists have decided to call Twitter: a $158 million investment. [here]

What's Twitter really worth? Better yet, what's a follower for your brand's Twitter feed worth?

Following up on last week's calculation of web visitor worth [here] I apply the same misguided logic to the Twitter investment to conclude that a Twitter follower is worth...wait for it...$0.21 per month! (see math below)

At least, that's the revenue Twitter will have to generate off each unique visitor to pay back the VC investment over 3 years.

So What?

To get a 10x return on their investment over three years, the gamblers venturesome will need Twitter's unicorn-like powers to magically tweet $2.31 of additional cash money per user per month. Where do you think that $2.31 per month per visitor is going to come from? Subscription fees? Micropayments per tweet? The Federal Reserve?

Or is there another source? Say, hmm, I don't know, maybe, ADVERTISING!

Of course advertising is always the easy answer. It's probably the one VC's are counting on.

For a user, what kind of advertising am I paying attention to while busily crafting each and every one of the 140-character Twitter treats I'm tweeting to my tweet-toofed followers?

For a marketer, why would I pay to advertise on someone else's feed when I can engage potential customers directly on my own? Maybe that's what Twitter will do...charge companies a fee based on followers. If that's the case, then a marketer might want to look at $2.31 as an upper limit cost for a follower on Twitter.

And in figuring the metric, if I spend $5000 on my Twitter media presence, then I might consider 2164 followers a goal number...that's where the gamblin' smart money seems to have it valued anyway.

Of course, if you can get a follower to do more than follow (say visit an eCommerce site or Retweet for you) then you can figure your return on Twitter in a more nuanced manner. Which is to say, a manner driven by objectives, informed by measurement and, thus, a manner that has less of the appearance of a gamble.

Doing the math (please feel free to challenge this...I was not a math major):

Total VC investment: $158,000,000 [here]
Unique Monthly Visitors (Aug 09, comscore): 28,100,000
One month breakeven return per visitor: $7.68
Monthly breakeven return required per visitor, 1Year: $0.63
Expected breakeven term: 3 years
Expected Return on Investment: 10X
Necessary Revenue Enhancement per visitor per month to meet investment objectives: $2.31 (gotta pay back the original $0.21!)

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