Just how much is Twitter's burn rate?

Relentless biz-blogger Kara Swisher is pushing again for Facebook to acquire Twitter.

Relentless biz-blogger Kara Swisher is pushing again for Facebook to acquire Twitter. Twitter will never IPO on its own, she says, and Facebook is Twitter's most natural fit as a parent company.

But there's an important number missing from Swisher's post and all other Twitter punditry: How much does it actually cost to run Twitter, and how will that number grow ever more rapidly as more customers sign up?

Twitter's PR team hasn't responded to my email, so I'm stuck with guesses. First, how many employees does Twitter have? Wikipedia says 31. Using a West Coast average of US$125,000 per year in salary, benefits and overhead for staff, that's just under $4 million per year for staff.

More importantly, how many tweets per month is Twitter sending to customers, and how much does it cost them?

Twitter doesn't charge its users anything. The company pays for all messages sent to cellphones through Twitter. That's the burn that no one's been able to estimate with any certainty.

Last year, the company's blog claimed costs of $1,000 per user per year to send SMS messages to Europe -- which is why Twitter stopped sending them. But there are no numbers for what its U.S. customers cost. To calculate that, we'd need to know the total number of tweets sent through the system in, say, a month, plus the per-message price that Twitter has (hopefully) negotiated with cellphone carriers. I can't even find a good guess anywhere on either of those.

Finally, the biggest problem of all is the network effect of Twitter's popularity. As the number of people using a network goes up, the number of connections between them rises much, much faster. Most Twitter users now have several times more followers than they did a year ago. As a result, every update sent to all of a user's followers costs the company more to send to everyone who's subscribed by phone.

It's an exponential function: The more people use Twitter, the faster the number of messages grows. Twitter's SMS bill is not only climbing, it's accelerating, and each new customer costs more than the last one. Any company looking to acquire Twitter has done calculations to estimate the future cost of the service, which could grow from a reasonable expense to a profit-destroying nightmare if Twitter's acquirer were successful at marketing the service without charging for it.

Too bad none of those estimates have yet been leaked onto the Internet. Anyone?

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Paul Boutin

The Industry Standard
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