Valuing companies that aren’t making money yet is part of what makes investing so fun. It’s also the reason a lot of us lose money as investors. It’s impossible to know in advance if you’re looking at the next Google, Inc. (NASDAQ:GOOG) or the next MySpace.
Now that more tech companies are staying private long after they’ve reached global scale (think Facebook and Twitter), investors have been struggling to find ways to value those companies without a close look at their books. The general sense is that given enough scale, a Web-based company will hold appeal to advertisers – a fact that should eventually translate into positive cash flow. In the case of Twitter, though, investors still seem confused about how the company will make money.
Sure, Twitter’s valued at $3.7 billion, but News Corporation (NASDAQ:NWSA) bought MySpace for $580 million in 2005, and now there are rumors the whole site could get shuttered. It appears Twitter’s finally serious about finding ways to make money, but it wasn’t until I thought about Twitter’s widgets that I really started getting optimistic about the future of the company.
Once you start noticing Twitter’s widgets, you realize they’re everywhere. From CNN and ESPN’s sites to tiny conspiratorial blog sites, everyone has a Twitter widget embedded on their site (we’ve even got one on TradingStocks.me – just take a glance at the right-hand sidebar on this page). What if Twitter started giving advertisers the ability to place ads inside those widgets then taking a cut of the income and pushing the rest of the profits into the hands of the Web publishers who run those sites?
The ads could be contextually targeted to the keywords in the tweets users have sent out, and the widget itself could search the individual site’s content for relevant keywords. It would give advertisers nearly real-time access to whatever fashion, music or movie topics are trending up on the Web, and it would give Web site publishers even more incentive to push their Twitter widgets as legitimate news sources.
Facebook, of course, could do the same, and they likely will with their “Facebook Like” boxes, which show a regular stream of updates from company and individual Facebook pages. Both could prove fertile ground for new advertising revenue, and they could end up challenging Google’s online advertising hegemony.
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