The question of the day seems to be "Does Twitter have a business plan?". There's lots of chat in the blog sphere about how VC's invest in companies without business plans. (I think not).
Anyway, Scoble has this post on whether or not Twitter has a business plan. My take is that they do. What is it? I have no idea. The word on the street is that they just got $5m in Series A funding and traded 25% of the company. Wow - that's way outside what's considered the norm (a pre of $6 and a post of $8m).
Lets say they have a business plan. What are they going to do with the $5m. That's essentially enough runway for 2 years at $2.5m a year which is about 20 employees unless they ramp like crazy.
So what's the business model that's going to work here? The only thing I can think of right now is advertising. There's not much room in 160 characters to do that, so maybe their going to build an online Twitter social network that is similar to Facebook. Again I have no idea.
What I do know is that it's incredibly hard to monetize the sol called "Freemium" model. That's the model where they give it away and then charge customers for additional services. The conversion rate is usually about 1% or it can be as high as 3%. With a couple million users that amounts to 20,000 on the low side and 60,000 on the high side. Reality is probably somewhere in between. The next question becomes what are those 30,000 people going to pay for AND is that sustainable over a period of time?
Again I have no idea. Lots of smart people have stepped up for Twitter it's going to be really interesting watching how it plays out. Right now for a 10x return the VC's will be looking for a $250m exit which puts in right in the stratosphere of exits. Lets hope they come up with a measurable, sustainable, profitable revenue model from volume. If they do it will be a huge win for the investors.