After months -- and months and months -- of breathless anticipation, Twitter finally tweeted yesterday that it's filed papers for its initial public offering. It won't have the highest valuation of all companies to go public this year, but it's probably the highest profile and is poised to impact the daily lives of millions of users. Here are some things to chew on:
1. What does Twitter want to accomplish by going public?
These days, going public isn't the singular goal for tech companies looking to reward their investors: Many of them instead shoot to get acquired by one of the big Web platforms, such as Google, Facebook, Yahoo or Amazon. There was once talk of Twitter being a feature that could bolster another big company's social strategy, and indeed, several have tried introducing various forms of microblogging on their own (R.I.P. Google Buzz). Going public means that Twitter sees itself as a platform, too. And at a $10 billion valuation, the cash raised would allow Twitter to compete for talent with all those other big companies based in the Bay Area, helping it grow and adapt to become even more integrated into our daily lives.
2. Can Twitter actually make enough money to generate returns?
The general profit-making philosophy of tech start-ups, especially free and social ones, is that you first focus on gathering a giant pile of loyal users, and then worry about making money off them. Twitter's done that, having made itself pretty indispensable to the modern media landscape, and gradually grown its user base to an estimated 240 million accounts.
In 2010, it started introducing revenue strategies, such as sponsored tweets, in-stream video advertising and charging for access to valuable data. A collection of recently-acquired companies -- including an ad exchange and a company that tracks social TV watching -- are expected to strengthen its ability to target and display advertising. The results aren't too shabby; the company reportedly brought in $350 million in revenue last year.
Chief executive Dick Costolo tells people his revenue strategy is all about growing Twitter's user base. Indeed, it's been expanding apace -- but not quite as quickly as he's predicted. Going forward, it'll have to confront the same problem that Facebook did, with fake users and bots that pad the number of followers it looks like various brands or personalities might have. Earnings, though, are expected to keep ramping up, which is ultimately all investors really care about.
3. What's up with this "secret IPO" business?
Twitter filed what's known as a "confidential" or "secret" IPO, which means that it only has to publish financial information 21 days before shopping itself around to investors. The option became available for companies with less than $1 billion in revenue pursuant to the JOBS Act in April 2012, on the theory that it would help "emerging growth" companies figure things out with the Securities and Exchange Commission without the pressure of public scrutiny and competitive advantage before its stock market debut.
Deciding to go public privately has become the standard option for companies that fit under the revenue cap. The SEC says it has received "more than 250" such submissions as of June, which is more than the total number of companies that have gone public over that same period -- so lots of them are likely waiting in the shadows.
Twitter didn't even need to tell us that it had filed its paperwork -- not doing so would have allowed it to withdraw without stigma. The fact that it did announce the filing means it's definitely serious, and will probably move quickly towards a stock market debut.
4. Who gets rich off this, and how can I get in on it?
Twitter's backers are the usual who's who of Silicon Valley, plus founders Biz Stone, Evan Williams and Jack Dorsey, as well as a collection of higher-up executives who receive equity as part of their compensation packages (the actual ownership structure is hard to discern while the company is still private). Which means that yes, there will be even more millionaires running around Market Street in San Francisco.
Whether you'll be able to make money off Twitter eventually depends in part on the price they start out at, and the amount they offer -- lots of tech companies lately have followed a "low-float" strategy, selling off only a small part of the company in order to not dilute existing ownership and to keep prices high. That tends to keep out the small fry investors, which can sometimes be a better thing for them, but also is one of those forces in America that keeps the in-the-know upper class relatively static.
5. I thought Facebook crashed and burned after going public; why won't Twitter?
That was then. Facebook has since figured out its mobile strategy and made a dramatic comeback, bolstering faith in tech IPOs generally. The better model to shoot for is LinkedIn, probably the lesser-known but more significant social success story. And there's a case for Twitter, which has studied both examples, as the third-act happy ending.
6. How will this change Twitter?
Good question. The rap on IPOs is that they can make companies maniacally focused on short term profits and growth, which means they risk alienating users who had gotten hooked on a service because it was beautiful and free. Going forward, your stream will likely get more clogged with ads, which Twitter may allow you to avoid by paying for a premium service. Overall, tech watchers speculate that Twitter is headed toward a richer, deeper, more wraparound experience that offers more entry points for valuable user engagement. If it can do that without pissing off the users themselves, the downside looks slim.