The Internet's next big thing can be a big waste of time, but it's also a useful information source.
Twitter is an unusual beast. The 'micro-blogging' service has gone from geek toy to mainstream news, yet most people still have no idea what it is.
Many of its users aren't sure either!
Some of your fellow Fools will already be on-board, though -- London is the Twitter capital of the world, with more users than San Francisco.
Today we'll introduce Twitter, and briefly discuss its potential to make money in the future. Next week we'll suggest some people using Twitter who you might want to keep tabs on.
Twitter: How it works
Twitter's name disarms its critics before they've even mocked it. It usually takes a while for a service to get a deprecating nickname like 'Twitter', but Twitter's founders cut out the middlemen
The irreverent title is down to Twitter's experimental beginnings -- it emerged from a brainstorming session, where a few bright sparks wondered what would happen if they asked users "What are you doing?" and enabled them to briefly reply.
These essentials still make up the service today:
- As a Twitter user, you can post 140 character updates, called Tweets, on your own home page.
- Twitter users collect 'Followers', who choose to read their tweets.
- Twitter users also follow selected users, so creating a continually updated 'feed' of those users' latest tweets.
- Anyone can follow you and read your tweets (unless you block them).
- You can follow anyone, and read their tweets (unless they block you).
- You can reference individual users by typing @theirname in your tweet, but there is no guarantee they'll read it, let alone reply.
Twitter is clearly very different to other forms of communication such as letters, for example, where you can address a specific person, or newspapers, where you aim to reach many people but there's no interaction with the audience.
Twitter reminds me more of Fresher's Fair at university. Everyone sets up their stall, and tries to attract others to their club. At the same time, they sneak away to join other clubs. But there's no rule that says if you join a club then its members have to join yours, or vice-versa.
Why should you care?
For those who want to tell the world their views, Twitter has obvious appeal -- nobody gets writer's block typing 140 character messages.
Unfortunately that means there's a lot of guff posted on Twitter.
The service is at its best when there's an emergency or a news event -- there's nothing like up-to-the-second reports from the frontline, as recently demonstrated in the protests following the Iranian elections.
Mostly though, the best strategy for us investors is to selectively follow relevant Twitter users to create an information channel (a bit like a friendlier RSS feed).
There are loads of interesting people and institutions on Twitter, from private investors and company directors, to commercial outfits like Zopa and media like The Motley Fool and the BBC. Even the UK Treasury is tweeting!
The stereotypical Twitter post is about what someone had for breakfast, but the kind of Twitter users I suggest you follow are different -- most of their tweets are on-topic, and there's often a link to read more.
By carefully selecting who you follow and dropping anyone who strays, you can build up a private newsfeed of the latest financial stories and investing tips.
Is Twitter the next Google?
Some pundits are very enthusiastic about Twitter, and think it could reshape how companies and individuals communicate with each other.
Others think it's like listening to a hundred egotistical strangers babbling in a lift.
If you're in the former camp and want to invest in Twitter -- you're out of luck. It's an unlisted company, financed so far by venture capitalists who've put in more than $50 million.
If Twitter is ever to repay that investment -- or get floated -- it will obviously have to make money. It currently earns almost nothing, but analysts and insiders have speculated it could be making over $1 billion annually within a few years.
At first glance that seems unlikely, but then so did Google's revenues.
Here's how Twitter could generate an income:
- Direct sales -- Whenever users tweet a message mentioning a particular product (say a car or a book), Twitter could convert it into a link to buy the product, and take a small percentage of any sale.
- Advertising -- Twitter can see what its users like and what they're tweeting about, and deliver adverts accordingly.
- Data mining -- There's nothing else that gives such a timely snapshot of what people are interested in right NOW. Enabling commercial companies to tap into this data could be lucrative.
- Subscriptions -- Users could pay to tweet, probably via a premium option that turns off advertising. (Least likely in my view).
I'm not sure any of those revenues will materialise -- and it doesn't matter if you just want to use the service. But I suspect we'll hear more about Twitter's revenues in the future.
How to get started
The best way to understand Twitter is to try it out. The service is free, and it takes barely a minute to get going.
Simply go to the Twitter sign-up page, pick a name and add some details, and then find a few people to follow. (You'll be suggested some when you register).
We'll be back with ideas for Twitter users to follow next week. Until then, follow The Motley Fool!
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