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Possible Futures For Twitter

|Includes: Twitter, Inc. (TWTR)

Twitter (NYSE:TWTR) has existed as a service and as a going concern for nearly a decade, but has only begun to realize its potential in the past two years. "Realizing potential" is problematic. Part of what makes Twitter useful is its lack of commercialization and its unique status as an Internet company immune from certain aspects of international law. However, many of the most useful aspects of Twitter are stubbornly resistant to "monetization", despite management's efforts.

Value and virtue

Twitter serves as an egalitarian means of communication. If one has something to say, or wishes to directly get the attention of an individual who is distant, far removed socially or economically, Twitter offers a unique opportunity.

Twitter is a micro-blogging service, not merely instant messaging. In fact, Twitter is more robust than most micro-blogging services. Each public Twitter communique is assigned a unique URL which is retrievable from numerous sources, although Twitter has repeatedly chosen to restrict programmatic access via API. The Library of Congress and DataSift are the two most well-known organizations to archive Twitter content, all of it. The fact that one is a rather stable U.S. governmental entity and the other is a commercial, privately-owned company provides additional reassurance of URL persistence. Topsy, a Japanese company, also offered access to Twitter content since 2006, but it was recently acquired by Apple.

Twitter is not open source, but it is free to use and does not require users to self-identify. This offers privacy assurance, in a general sense. In a specific sense, Twitter has more successfully resisted government requests for information disclosure than other electronic communication platforms. There are numerous levels of complexity though. Some in the United States perceive this positively at the moment, in light of recent controversy regarding surveillance of private communication.

As a counter-example, consider a 2012 incident in France, when Twitter refused to co-operate with the French government's request for information to assist efforts to prevent a series of public building bombings.

Twitter defies monetization

Twitter is well-known for its search for a functional business model. There is Twitter for Business, Promoted Tweets, Vine (a five second recording), embedded audiovisual and still shot functionality, white-listed re-purposing lists and more. Whether any of these have succeeded in generating significant revenue streams for Twitter is uncertain. One way to judge whether a feature is successful is if continues to exist. Twitter has not retired Promoted Tweets, which are likely to be its most direct source of revenue.

Implausible valuations for Internet companies will continue. Amazon is a fine example. However, Groupon and Zynga continue to unravel and are not so easily put out of mind.

In the press

Hiring a financial reporting manager in September 2013 did not necessarily mean that Twitter was preparing for an IPO. Perhaps Twitter made the responsible decision that it needed a Certified Public Accountant as a de facto CFO, unlike Facebook (NASDAQ:FB).

Mr. Eberhard is CFO of Facebook. He is not a CPA. For nearly a year following the Facebook IPO, Mr. Eberhard was both CFO and had reporting responsibility for all technology functions at Facebook. Facebook's Chief Technology Officer resigned within a few weeks of the May 2012 Facebook IPO, and was not replaced until March 2013. Even if Twitter had remained a private company, it would have been prudent to have a CFO who was, or had direct support from, a CPA-credentialed staff member.

GigaOm commentary is reasonably credible, especially if written by Om Malik. According to an August 2013 GigaOm post, Twitter's fire hose is confusing, even to technically sophisticated users.

Intellectual property treasure?

In January 2014, Twitter purchased a stunning treasure trove of IBM intellectual property, specifically, $36 million for over 900 patents. IBM's motivation for this sale is not obvious. Most sources claim it was done preemptively, in order to avoid a lawsuit. That seems unlikely to me, given that IBM had threatened to sue Twitter over only three patents in November 2013. Also, over 95% of Twitter's patent portfolio consists of the patents purchased from IBM.

The real surprise becomes apparent only after drilling down into the details of Twitter's 943 patent acquisition, which included semiconductor, handwriting recognition and disaster response patents.

Disclosure: I have been an enthusiastic Twitter user since June 2010.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.