Nikhilesh Rao

TechCrunch has a great post on the dilemma that Twitter and other popular services face- Should they generate Revenue or Not?

 

The thinking is that if there is no revenue, companies looking to acquire Twitter (Or YouTube or any other company) can make whatever revenue projections they want and value the company however they want to. But, if they start generating even a little bit of revenue, the valuation all of a sudden becomes "real" and based on hard numbers.

 

I certainly understand where TechCrunch and Mike is coming from based on my work at my old job. You always had to "justify" your projections, so the easiest and safest thing is to extrapolate based on previous years growth rate into a reasonable future and then slow it down after a few years and then discount back the cash flows.

 

What this obviously ignores is the "real option" of finding an amazing business model e.g Imagine Google being valued on thier early efforts to monetize via thier enterprise search or white label solutions instead of thier Adwords model. But then again, you may end up like MySpace where you realize that all your social networking page views are not going to get you to great profitability.

 

 

Make a comment