Peter Kafka

Recent Posts by Peter Kafka

Twitter’s Ad Sales Are Booming, Says Gawker

Gawker’s Ryan Tate got his hands on what he believes are recent financials for Twitter. I assume that his numbers are correct, and applaud him for getting them out there. But I think he’s doing a bad job of reading them.

Twitter is the “biggest blown business opportunity in media or tech,” Tate says, because six years into it, it’s losing money, not minting it like Facebook.

It’s certainly no Facebook. It probably won’t ever be anything like Facebook.

But Tate’s numbers do describe Twitter as a rapidly growing media company.

In 2010, the year it started making tentative moves into advertising, it generated $28.5 million in revenue. In the first three months of 2011, it came close to matching all of the previous year’s revenue, with $23.8 million. If Twitter’s growth rate never budged after that, that would put it on track to do $95.2 million in 2011.

The pace of Twitter’s losses appears to have ramped up, too. Tate says it lost $67.8 million in 2010, and another $25.8 million in Q1 2011. Not a huge surprise, given that Twitter has been on a multiyear hiring binge.

So is that bad? Good? Hard to really say without taking a deeper dive into the numbers.

For instance, my hunch is that almost all of Twitter’s 2010 revenue came from data-licensing deals, not its ad business, and that most of its 2011 revenue came from ads, not data. If that’s the case, then its ad business is ramping even more rapidly than Tate’s numbers indicate. But I can’t tell from the outside, just like Tate can’t.

I do have a sense, based on my own reporting, that Twitter’s ad business was pretty much an experiment through most of 2010. “A work in progress,” I called it back in February 2011.

But if you watch what they’ve been doing in the last year, they certainly appear to be scaling up. They started pushing more ads, in more places, without any obvious signs that they were losing users as they did so.

And they’ve recently added a “self-serve” option for small advertisers. That’s a crucial step because it allows them to really pick up the pace of their ad sales (just like self-serve has done for, um, Facebook). It’s also a sign that they believe they finally have enough ad inventory to satisfy advertiser demand, a problem that held them back early on.

Given that advertising on Twitter isn’t a foregone conclusion at all — unlike Google, it doesn’t have an obvious way to figure out what its users are interested in buying, and unlike Facebook and other Web publishers, it doesn’t have a lot of real estate to jam with marketing messages — all of that seems pretty encouraging to me. (I really don’t like this pay-per-Tweet scheme, though.)

Okay. But what about Tate’s argument that Twitter’s been at this for years, and has cycled through multiple CEOs in the process? No argument there: Twitter’s corporate history has been messy, bloody and confusing to people in and outside of the company.

And Twitter’s original founders went out of their way to avoid the ad business for years, presumably in the hope that some less-icky way of generating revenue would show up.

But it’s no coincidence that plans for Twitter’s ad business started to come together around the time that Dick Costolo left Google and joined the company as COO, back in the fall of 2009. And that they really started speeding up by the time Costolo took the CEO spot in 2010.

Hard to blame current Twitter for the fact that old Twitter didn’t want to dive right into the ad business. You can blame current Twitter if they can’t build a business that justifies the $8 billion valuation they earned last year. Which, remember, needs to be much more than $8 billion for investors to see a return.

If they do get to that point, it will almost certainly involve a public offering, so we’ll all be able to pore over Twitter’s financials. And if not, Costolo and company will have much bigger problems than Gawker’s report.


Latest Video

View all videos »

Search »

There’s a lot of attention and PR around Marissa, but their product lineup just kind of blows.

— Om Malik on Bloomberg TV, talking about Yahoo, the September issue of Vogue Magazine, and our overdependence on Google