Saturday, September 19, 2009

Twitter: Sucking Everyone Into The Next Web Bubble

Remember the days when VC companies would hand millions of dollars to young, hot-shot web gurus. It was a strange time, back then. The VCs were always so proud of themselves: "This company isn't making money, but its burn rate isn't that bad." Wow, what a great investment. My client's not losing that much money.
Most of those companies never made money (were never going to make money) and crashed and along with the tech bubble. You'd think everyone would learn a valuable lesson. Apparently not.
I just finished reading a St. Louis Post-Dispatch article by Tim Barker about a visit by Jack Dorsey, one of the founders of Twitter. Dorsey came to St. Louis as a guest of Webster University. According to the article, he answered questions for an audience of 1,000. Benjamin Akande, dean of Webster's school of business and technology, compared him to Johannes Gutenberg (printing press inventor) and Alexander Graham Bell (telephone creator).
I should seem ironic that a business school would honor Dorsey and a company that has never made a dime in profit. I say "should."
Twitter continues to struggle to find a way to be profitable. "Just wait," say the VCs that just pumped $50 million more into the firm. I'm not as confident. Dorsey and his staff thought they'd be making a profit last year. Didn't happen. They've yet to successful implement their mythical business plan.
Yet, VCs fall all over him and he's honored by 1,000 teary-eyed followers (sort of like the Beattles, without the hit singles).
Don't get me wrong. I like Twitter, use Twitter and would love to see Dorsey and Twitter become a success. But my definition of business success is making a profit. I'd like to see a profit before we start comparing Twitter to the printing press and the telephone.
And, of course, Dorsey discussed a new application that would be out soon. Sounds like the old tech companies that always stayed one step in front of the VCs by promising a new application. (When it looked like money was drying up, there was always a new application.)
It's easy to see why VCs get sucked into these companies. Just like the 1,000 guests that came to hear Dorsey, they get sucked in with the sexiness of the service.
If we can learn anything from the tech bubble, it should be investing in profitable companies.
--Ron Ameln, SBM

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