Twitter has received US$360 mn in venture capital in the past five years. Rumor has it, that a couple of hundred million more will be invested in the social media platform soon. According to sources at the Wall Street Journal, the company founded in 2006 is in the talks with private investors for another round of fund raising. Twitter is valuated at US$7 bn at the moment – an astonishing sum when looking at its 2011 turnover of just US$150 mn. Twitter does not allow any glimpse at their financial records, but if that is true, then the company’s value has doubled in just the past half a year. In December 2010 the company was valuated at US$3.7 bn only. At the time this was enough to convince investors such as Kleiner Perkins Caufield & Byers to go into their pocket. However, the company’s business strategy still leaves a big question mark.

Since 2008 Twitter has developed rapidly. One of our articles at the time titled “Twitter? No business strategy, but US$15 bn in venture capital”. Back then, Twitter was anything but mainstream and still in search of a sound business model. It seems Twitter has found it in the form of advertising and the sales of user data. However, not all of the industry’s observers share the same opinion and see the next Internet bubble dawning. The fact that Twitter’s valuation has doubled in only six months may not be due to Twitter’s own doing, but because investors are very interested in other Internet companies such as LinkedIn (valued at US$8.9 bn) or Pandora (valued at US$11.4 bn). Game developer Zynga (estimated value US$20 bn) and group-buying portal Groupon (estimated value US$25 bn) are also strong forces that have great impact on the market’s valuation. Facebook alone is valued at US$70 bn.

What Twitter earns via its cooperation with Bing or Google does not say anything about its popularity. Advertisements are currently placed via promoted tweets, trends and accounts, which have been introduced in 2010. Coming fall there will be ad placements in the news feed of users. The opinions on this advertising strategy are quite divided. Twitters advertising business is less sophisticated and profitable than that of other social media platforms. In April ReadWriteWeb announced that Twitter might have found another way to create revenues by selling the rights to access its user database. Due to the huge amount of meta-data stored with each Tweet, it is easy to browse through the database according to different filtering and sorting criteria. A deal concluded with Apple is supposed to help generate more mobile users.

Without any doubt, the number of Twitter users has risen tremendously since its foundation and the service has become an established medium on the Internet. No other media can compare with Twitter’s timeliness.

Barack Obama, the Pope and the German government’s spokesman all use Twitter

With them are more than 250 mn registered users worldwide. Of course, not all people who registered once are actively using the service, but all together they are posting 200 mn tweets per day on average. According to data by PEW Internet usage statistics have seen a huge increase since the end of last year: From 8% to 13% of the whole US population, which marks an increase of about 50%. In the group of 25 to 34 year-olds the usage frequency has also doubled. Almost half of all users are twittering via mobile phone.

Barack Obama held a  “Twitter Town Hall” last Wednesday, to answer questions about the economic situation of the US. In total, more than 110,000 tweets with the hashtag #AskObama were sent.

Prominent endorsement:

Co-founder of Twitter Jack Dorsey reads the questions of users to President Barack Obama

Conclusion: It is rather sobering when the same old questions are being asked after five years. Does Twitter have a business model? If yes, is it good enough to justify this high amount of venture capital and a multi-billion Dollar valuation? You will need a lot of phantasy to justify the above numbers, but in the end what matters is, that investors still believe that Twitter will live up to its promises. It will be exciting to observe the further development of Twitter, even more so, since advertising perfectionist Google has just entered the market with its heavy-weight application Google+.