As Twitter celebrates its 10th anniversary, the company remains the exemplar for all that is bizarre about so many born-on-the internet companies, especially the so-called unicorns (start-ups valued at over a billion dollars).
Despite being 10 – an age when companies generally have either matured or died – Twitter is still fundamentally a start-up with all the requisite Valley accoutrements, such as high visibility but no profits, blazing growth followed by sputtering uncertainty, roller-coastering valuations, founder departures and returns, executive haemorrhages, continued fundraising from A-list venture capitalists, and a desperate search for a sustainable business model.
Personally, I would really love to see Twitter do well and find some stability. It’s my favourite social media environment, where I share items I find interesting, and enjoy discovering those of others. I have made many new friendships and personal contacts all over the world via its newsfeeds and followers.
But despite its popularity, and mainstream significance as a source of commentary from high profile figures and organisations, Twitter just cannot get its mojo together. Its market value this week hovered around $11 billion (€9.85 billion), down from a 2013 high of $40 billion.
Twitter has lost over $2 billion since its founding, most of that ($1.6 billion) in the wake of going public in 2014. Its annual Form 10-K report for the past year, which it is required to submit to the US Securities and Exchange Commission, will not bring cheer in Twitter’s birthday month.
“We have incurred significant operating losses in the past, and we may not be able to achieve or subsequently maintain profitability,” says the report.
Noting a range of difficult factors, the company warns it doesn’t expect to pay any cash dividends “in the near future”, concluding, “investors may need to rely on sales of our common stock after price appreciation, which may never occur, as the only way to realise any future gains on their investment.”
How can a company that has never had sufficient revenue to generate profit – and which still can’t figure out a way to monetise its gazillion users – be valued in the billions? Why do investors continue to throw money at these ventures? Or at other troubled unicorns?
In a week that also saw the passing of a true Silicon Valley icon, Intel's employee number one, Andy Grove (imagine being the first direct hire by Gordon "Moore's Law" Moore, and the brilliant Robert Noyce?), I started thinking about the contrast between those original, high growth pioneer Valley companies like Intel with leaders like Grove, and what we've seen in the volatile, crazy-valuation dotcom era.
Consider Intel, which helped forge the template for Silicon Valley’s explosive growth companies and was run by Grove for ages. Founded in 1968, Intel’s first year revenue was $2,672. The following year, that had ballooned to $565,874, and to more than $4 million by 1970. In 1984, it became a billion-dollar company. By 2000, revenue was nearly $40 billion.
Pile of cash
In contrast to today’s unicorns, Intel didn’t become a billion-dollar company overnight, simply because a bunch of high-profile ex-tech company founding angel investors pumped money into it followed by another pile of cash from venture capitalists. It took 14 years of swift but steady growth for Intel to become a billion-dollar baby; with actual customers, revenue and profit.
But what if Intel had been born in the past few years, with a dotcom-style business plan, staying alive off too-big-to-fail-now cash injections from VCs?
Just imagine a dotcom Andy Grove’s pitch.
“We’ve got these silicon chips that we’ve discovered can power, well, just all sorts of neat things, like computers and electronics. They’re so cool! And so is our plan! We give companies the chips – yeah, for free – so they can build things for consumers and companies.
“We’ll go viral; everyone will know who we are because ‘Intel’ is such a catchy name; great for brand identity. It’s a short URL. And yes, we checked; the domain is available.
“Then, we think companies might give us a revenue share when they sell a computer. We’re also thinking about revenue share advertising. Hey: they could put ‘Intel Inside’ on the product boxes for more brand exposure.
“The addressable market? Oh, hundreds of millions of people, once these computers in the home and business really take off. We’ll definitely get eyeballs. So if we capture 10 per cent of them, we figure we’d have a small profit from ad revenue within, say, five years. And it can only be upward from there.”
Why does that seem ludicrous? Why do unicorn business models, with valuations bearing no relationship to revenue or (gasp) profit, not seem ludicrous?