Twitter plateaus and after the sugar rush of funding

While a lot of the talk in the past week has been about the new round of funding for Twitter that saw them getting an infusion of $100 million – which is on top of their previous $35 million raised in March – one of the other subjects this week was the idea that Twitter has peaked. In post on ReadWriteWeb yesterday Frederic Lardinois asked if Twitter has peaked

The question, of course, is if this is just a temporary slowdown or part of a larger trend. Maybe everybody who was going to join Twitter has already joined and the rest of the potential users are simply happy to use Facebook instead?

While I am sure that there a more than a few people who are rubbing their hands together over the idea that this might be the case I don’t think so. I say this because I am of the belief that Twitter has become ingrained in our modern media world to the point that it is slowly becoming part of the Internet plumbing much like IM, email, IRC, and NNTP did before it.

Unlike instant messaging, IRC networks, and NNTP newsgroups before it Twitter is a single network that anyone can access without having to choose where they want to hang out. Regardless of the attempts to create a federated version of Twitter the fact is that the numbers continue to side with Twitter mainly because of the simplicity of the service.

However it is a service that still has its problems with uptime and a growing surge of spammers, questionable marketers, and malware authors who have found a new playground. Because of this Twitter has always seemed to be fighting a rear-guard action to shore up its service while at the same time having to deal with a tidal wave of new legitimate users.

Where some would suggest that the recent numbers from Hitwise suggests that Twitter has peaked and will either see a slower growth forward or even a decline I think that this could also be seen as a much needed plateau for the company. During this ‘lull’ in new people signing up Twitter has the perfect opportunity to take a breather and solidify their technology. This is the time when they can go back over their systems, see what works and improve on, find what is causing problems and fix them without having to deal with the crush of new traffic.

It is really hard as a developer to deal with old problems when you are faced with having to deal at the same time with building out your service in order to meet the needs of increasing numbers of users. So any time you can step back, take a deep breath and regroup it is a good thing for a company especially for companies that see a meteoric rise in a what is really a short space of time as Twitter has.

In Twitter’s case though their problems are compounded by the fact that they have no “real” business model and yet everyone is wanting to throw money at them – huge amounts of money. With a valuation now of $1 billion and over a $100 million in the bank the questions about making money are only going to get louder as the months go by.

As David Worthington at Technologizer noted

Also, Twitter would not receive financing if it did not have plans to spend it. I’m sure that AOL had grandiose plans for ICQ too. Instant messaging became a generic technology, and nothing has convinced me that the same thing will not happen to Twitter.

In regard to being a generic messaging system I would suggest that Twitter is already there to a large extent. The one thing that will tip it over the edge in that regard is if they provide a way through their already rich API for developers of 3rd party Twitter clients to let users sign-up to Twitter through the clients. Now I haven’t looked at their API in over a year so they could already have it in place but I doubt it or developers like Seesmic and TweetDeck would have incorporated it.

But what about all that money?

Some are suggesting that this kind of insanity of investing a hundred million dollars in a company with no business model is just a sign of a new tech bubble that is going to burst. Other like Kevin Kelleher at GigaOM don’t think that it is so crazy

In the meantime, the Twitter investment does not herald another tech bubble. The IPO market is shifting into a higher gear this week, but valuations of tech IPOs like Vitacost.com — an online retailer trading at two times revenue — are nowhere near the insane levels of 1999. Similarly, as PricewaterhouseCoopers and the NVCA noted recently, venture investments in 2009 will be on par with those of 1996, well before the dot-com bubble. Twitter may be a one-company bubble, but that doesn’t mean it’s a regrettable investment.

So what is Twitter going to do with all that money?

This is a question a lot of people are probably asking themselves and while some of it will probably go to improving their infrastructure I wouldn’t be at all shocked if they didn’t have some plans for it that will surprise more than a few people. As I said to Sean P. Aune in a recent podcast about this I think we could actually see Twitter go on a bit of a buying spree albeit a small dollar one – well relative to what they have in their war chest.

The problem is that as Twitter becomes more integrated into the plumbing of the Internet the harder it is going to be for them to make money from their core service. Just about every day we see other companies coming out with services to make money off of Twitter and yet Twitter itself seems to sit on the sidelines. Well we might think they are on the sidelines but they have already suggested that part of their business plans is to provide their own “additional” services that are built on top of the Twitter core.

However that can sometimes be an expensive proposal both in developer hours and in other related expenses. Now one of the things Twitter has talked about is providing an analytical service for Twitter so rather than spending valuable time and money on creating their own why not just buy a company that is already doing this – say …. bit.ly.

The other thing they have talked about as well is a corporate team interface service to Twitter. This isn’t something that they could do overnight so why not buy a company that has already worked out all the bugs of a workable interface – say …. coTweet.

Why would these types of companies be willing to be purchased by Twitter?

Simple – without Twitter they wouldn’t have a business. Granted bit.ly has more of a survival factor but given that the majority of it’s growth happened after Twitter made it the default URL shortener it would make sense for it to take the exit if Twitter offered it. As far as other companies that are building off of the Twitter backbone one has to ask what kind of business exits do they expect because after all without Twitter they have no business. So if Twitter was to approach any of those companies that proved services that Twitter would like to offer businesses they would be silly not to sell.

So during this lull of new users signing up I could see Twitter doing a lot of work on their backend and looking to develop new features – either in-house or by purchasing them. The world is only just now really opening up for Twitter and this plateau it is resting on for the moment could end up being a launching pad for their next big jump into the consumer and business mainstream.