Twitter Uncertainty Spooking Investors - InformationWeek

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11/29/2010
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Twitter Uncertainty Spooking Investors

Venture capital for Twitter startups has dropped 50%, largely due to confusion about the microblogging service's purpose and functions, reports CBI Insights.

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Sitting atop an online empire valued at more than $1 billion, new Twitter CEO Dick Costolo is trying to figure out the microblogging company's long-term purpose.

Costolo, the former COO who took over the helm when co-founder Evan Williams stepped down about a month ago, is "currently trying to define" what Twitter will become, he told the United Kingdom's Telegraph.

"I am working on clarity around that at the moment. I am currently trying to define what Twitter's purpose is in the long term. We will be able to be more specific on that answer in the near future," Costolo said.

Since users drove many existing Twitter advances -- such as the hashtag -- it is difficult for the company to define Twitter's purpose and functions, Jack Dorsey, co-founder and chairman, told the Telegraph.

"It is hard to speak about Twitter's vision without factoring in how much of its purpose has been defined by its users over the years. Users came up with so many parts of the service, such as the hashtag, as so many people use it in so many different ways," Dorsey said."Twitter needs to continue being a good listener and recognize that the service has been redefined by lots of people, tweet by tweet, but also come up with its own priorities."

Uncertainty about Twitter's future direction has impacted Twitter startups, according to a CB Insights report on investments. Between June 2009 and May 2010, investment funding in pure-play Twitter startups from venture capitalists and angel investors dropped more than 50% to $10.4 million, compared with $21.6 million between June 2008 and May 2009, CB Insights said. The average amount invested by investors fell from an average of almost $2 million last year to slightly more than $1 million more recently, the firm said.

"There are lots of theories on why the amount invested has dipped, with the most popular explanation being a feeling of uncertainty by application developers and investors alike about the direction Twitter will go," the report said. "More recently, compounding the uncertainty are acquisitions by Twitter of the likes of Tweetie and Summize (filling holes on its platform)? Time will tell if these moves will drive investors to be even more cautious about the platform?"

In addition to defining Twitter's future, Costolo also must ensure the company can scale worldwide from a technological perspective, and accurately prioritize nations to target first, he said.

Twitter, which was founded in March 2006, has 300 employees and is worth about $1.6 billion, according to reports. As of September, the site had 175 million users who wrote about 95 million tweets daily, the company said.

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