doesn’t need Twitter scale to succeed

Now that I’m on, I’ve re-read MG Siegler’s piece on why won’t succeed.

I think he’s wrong.

His reasoning assumes that a user supported service would need to reach twitter scale in order to rival twitter. Twitter has a different business model than is promising. Twitter is an advertising supported service and the economics are very different. Twitter can only derive pennies per year in value from its users – can derive tens of dollars per year.

To keep the numbers simple, let’s pretend that Twitter already has $1b in revenue and 500 million users (they are projecting that they’ll hit $1b by 2014 and probably have around 600m users or so already). That implies that each twitter user is worth about $2/year to the company.

On the other hand, is charging $50/year for regular accounts and more for developers, etc. This implies that only needs to scale to 20m users to reach the same business scale as twitter.

This is fundamentally a better business model. Costs will be lower and margins will be higher and more importantly, Twitter can’t follow into this territory – they’ve chosen their fate and its virtually impossible to make the transition without destroying the core value that Twitter has created.

If anything, this has the potential to put Twitter in a really bad place – stuck between Facebook and Google, each trying to corner the advertising game and outflanked by on the other. 

I’ve always found Twitter awkward and hostile. I think its created exactly the type of weaknesses for itself that a strong competitor with a good model can exploit and win against.

Is that competitor? Only time will tell. In the meantime, I’m rooting for