Max Gladwell

Twitter’s sudden profitability is a lesson in priorities and value creation.

Bloomberg BusinessWeek broke the news today that Twitter became profitable. (Just as surprising, Bloomberg BusinessWeek broke this story before the tech blogs.) Twitter achieved this feat through big search deals with Google and Microsoft (Bing) totaling $25 million. Though it remains to be seen whether Twitter continues to be profitable in 2010, the company has come to this point by staying true to the value principle. In other words, it prioritized long-term value over short-term revenue, and it’s paying off.

As early as 2007, analysts questioned the Twitter revenue model. As the company grew, so did the skepticism about how Twitter would monetize its millions of users. Meanwhile, the founders of Twitter focused on providing value for its users, fully aware of the fact that value is what ultimately yields sustainable revenue models.

First, Twitter provided value for consumers with its free microblogging platform. Next, it provided value for developers, who reciprocated by adding value of their own. As soon as enough consumers were using Twitter, it provided value for businesses. Incidentally, the Max Gladwell brand owes a good measure of its success to Twitter and how we used it in the early days. Finally, Twitter offered enough value for two of the biggest companies on the web, Google and Microsoft, to warrant a couple checks worth $25 million. Twitter can now take its time in determining how it creates value for advertisers without compromising the value it has created for consumers. This won’t be easy, but as long as they stay true to the principle, it should work out for everyone.

Contrast this with the approach MySpace took after it was acquired by NewsCorp. While the founders of MySpace initially offered value through a highly personalized social networking platform, the mission quickly turned to monetization. The overwhelming, in-your-face advertising created an unbearable consumer experience, and since the focus turned to revenue, it was diverted from the product and providing real value. MySpace ceased innovating. NewsCorp drove the company and brand into the ground, sacrificing long-term value for short-term gains. Facebook ate their lunch in social networking. The founders left (moving on to the next big thing, we hear). And the process of rebuilding the MySpace brand has now begun.

This isn’t to suggest that web-based businesses don’t need revenue models or that monetization shouldn’t be a priority. It’s simply a matter of prioritization. First, develop a compelling and sustainable revenue model for your business. Once you (and your investors) are sufficiently satisfied it’s viable, turn your resources and energies to creating value. Create metrics and benchmarks based on value creation. Make value creation the measure of success. Twitter generated so much damn value that big, bad Google and Microsoft couldn’t acquire them and had no choice but to become clients! That’s a lot of value.

So you should always keep an eye on the monetization strategy. But never let it undermine the enduring value you’re creating.

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