When a company like Twitter raises a large B round at a giant valuation for a pre-revenue company it tends to send ripples of scorn through the tech community. People were similarly bewildered and upset when Slide got their $550 million valuation and of course livid when Microsoft’s strategic investment in Facebook valued the social network at $15 billion.
As Mathew Ingram points out, Twitter is clearly worth something if only because of its feverishly passionate users. Most likely it will get bought well before the pressure to make money really begins. But I think all of the anxiety about these success stories (and they are truly successes, exits or not) is more than a little misguided. The problem isn’t Twitter so much as it is the legion of me-too start-ups trying to build something with the kind of viral appeal of Twitter so they too can get funded and have exits.
Don’t get me wrong, I don’t think there’s anything remotely wrong with wanting to build something so great that it becomes an overnight viral success, but it only will be one if it emerges from a desire to create real value and utility for users.
The Twitter funding news reminded me of Paul Kedrosky’s excellent, although admittedly tongue-in-cheek piece on why business models get in the way of securing early stage venture funding. They bring the discussion down abruptly to earth, from “this thing is a wild success” to “your business model can never make money”. Irony or not, I think the point stands that for the current generation of web businesses it’s creating value for users that really matters in the beginning. But what’s also true is that no-one should be discouraged from building Twitter; instead they ought to be discouraged from trying to build “the next Twitter” rather than something of genuine and unique value.
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