May 20, 2009

Why Is Twitter Free?

I was once trying to sell my house, but decided to take it off the market. My neighbor, who was a real estate agent, asked me why. I told him there were no buyers.

He laughed and called me an idiot.

Then he asked about the price. I said $400,000. He said, if you were asking 5 bucks do you think you could sell it? I said, of course. Then the problem, he said, is not that there are no buyers, the problem is you're asking the wrong price.

His point was that somewhere there was a true value for my home which someone would pay. I could have quickly discovered what that value was by lowering the price until someone was willing to pay it. But I took my home off the market because I didn't really want to know what the true value was.

This got me thinking, recently, about why Twitter is free.

Does it have no value? Or do they not want to know what the value is?

It's obvious to me that it has some value because millions of people are using it. It's not like news sites which can't charge because they are essentially commodities. And it's clearly better to make money than to not make money. So why do they refuse to charge?

I believe that the longer Twitter goes without charging, the harder it will be to ever charge. And as time goes by, the more likely they are to lose their competitive advantage (as MySpace did.)

You may not be willing to pay $1 a tweet, but you'd certainly be willing to pay a penny for a lifetime of tweets. Somewhere between those two extremes lies the basis for the true value of Twitter.

I'm sure they have all kinds of business school/web 2.0/futurama rationales for not charging. But my guess is the real reason they're not charging is because despite all the hype right now they don't really want to know.

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