Why did Institutional Venture Partners and Benchmark Capital just plow $35 million into Twitter? I talked today with Todd Chaffee, the partner at IVP behind the deal, and asked him just that. His answer:
Our model is to find the winners and market leaders that are going to grow at a disproportionate level. Twitter falls in that category. Twitter is bigger than a lot of people realize and growing faster than a lot of people realize, but it has not hit the mainstream yet. It is just starting.
To Chaffee, Twitter is a new type of media property, pure and simple. He (conveniently) puts it in the same category as YouTube or Facebook. The bigger it can grow and the more addictive it can become, the more opportunities there will be for revenues from advertising and other sources. He says:
From a business perspective, it is a media property that is growing very quickly. These newer media properties that have emerged are massive compared to older media properties.
[Some people say] Twitter is whatever you want it to be. But at the end of the day you have this open, one-to-many network, and to enable that is this platform. But who cares? The reality is that it is a network/platform which has millions of users and thousands of applications.
Twitter does three things. It facilitates social connections with friends, colleagues, writers, and celebrities. The second is knowledge transfer. It is a real-time mechanism for tapping the wisdom of millions of people. The third is social expression. It is a mechanism for the global community to express itself.
Sounds good, but how will it make money? Chaffee is not so worried about that just yet:
I love that here is this cry for revenue generation out of a company not even two years old, Relax, it is coming.
But what gave him the confidence to invest? He ticked off four characteristics of Twitter that make it a potential game-changer.
- Open. That makes it easy for others to build on top of Twitter and it also makes it searchable.
- Real time. It is a huge database of what is happening right now.
- Ubiquitous. You can get to it from just about any device.
- Scalable. (Don’t laugh)
- Persistent. It allows for an archive of what is happening and what has happened, which is searchable (see No. 1).
Chaffee says:
[Twitter is] the only thing we’ve found that has all of those things. None of the other things out there—Facebook, YouTube, LinkedIn—has all of those variables. That is why Facebook tried to buy them.
With more than $35 million in extra cash now in the bank, Twitter has a lot more time to figure out which business opportunities to pursue. For now, it’s investors just want it to keep growing as fast as it can and make the jump from early adopters and celebrity users to the mainstream. But there are several money-making avenues it can pursue, from real-time search to premium marketing services for brands.