Comments on article found at: online.wsj.com/article/SB10001424052702303695604575182233558434518.html
In the past have opined on Twitter’s valuation; wondering how and why the company’s original valuation was set at $1 Billion. You can read my past postings for those opinions. One of the things I had been wondering is how the site would generate real revenue. In general, I have had the same opinions about social networking and collaboration sites. However, there is a bigger issue for the carriers.
Twitter is now rolling out ads on its site to advertise. I am all for it. I have stated that advertising is a legitimate way of generating revenue. Another legitimate way of generating revenue is charging subscription fees for premium services. Neither method is perfect. Both methods fly in the face of Internet purists who believe that everything on the net should be free. Hey, something has to pay for the infrastructure. There is no such thing as a free lunch.
What has been completely overshadowed by monetizing social networking/social collaboration sites is: the impact on the carriers’ networks.
Twitter generates a great deal of traffic on the wireless carriers’ networks. The traffic can be best described as large, frequent, and bursty. Carriers have lots of trouble engineering their networks for this type of traffic and still stay profitable. It is easy to say the carriers just need to add more capacity but capacity costs money and someone has to pay for it. In the early days of the Internet, there were many Internet startups that took the position the carriers could easily absorb the costs; however, that is just nonsense talk. There are no free rides.
In a short time, Twitter has become the talk of the financial community. Now that rationality has begun to take root in the company, Twitter needs to generate revenue. The company has decided to sell ad space. What does this mean for the carriers?
What it means for the carrier is an increase in traffic. It also means an increase in backoffice support.
Carriers like AT&T Mobility are already having trouble handling the data traffic caused by the iPhone and other smart phones. Is Wall Street expecting AT&T Mobility, Verizon Wireless, and other wireless carriers to absorb the costs? More importantly, what makes anyone think these carriers can handle a sudden increase traffic load due to advertising.
The increase in traffic will be not be one way but will be two way. Users will be interacting with the ads. What is the point of pushing an ad at someone without giving the user (viewer) the ability to order a product or service?
As for backoffice support, companies that provide such products and services will be called upon to support the following:
• Metering traffic flow for the carriers• Metering traffic flow for Twitter and other social networking/social collaboration companies• Transaction Detail recording and billing• CPM analysis• Network traffic analysis• Network management
I know I am missing a few other backoffice issues but what I have considered to date is enough to scare me.
The impact will not be on just the wireless carriers. Landline carriers provide the basic intercarrier network interconnection. The landline carriers also use landline carrier facilities to connect cellsites to switches.
Initially, Twitter’s revenue model may adversely impact a carrier’s network. In the past I would have stated the best way for carriers to deal with Twitter’s new revenue model is by shifting network resources to those areas of the country where the increase in traffic flow will be seen. Howeve