Will TWTR work?

It’s pretty simple. For a site like Twitter to make its current valuation any more than happy time fairy dust, it needs to:

#1. Make gobs more money (read: ARPU) from existing revenue channels, primarily through more sponsored tweets and selling user data more aggressively.

AND/OR

#2. Find bountiful new revenue sources, whether closely complementary (e.g. more card-based advertising options) or tangential (think Amazon selling cloud storage).

WHILE

#3. Maintaining and growing the user base. Twitter is attractive to advertisers today because it has over 200m active users, who happen to be younger, better educated and richer than any other high volume channel.

Can Twitter do #1 and/or #2 while keeping #3, their users, on board?

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For a case study, consider MySpace. In 2005* the site was purchased by News Corporation for $580m after a fierce bidding war with Viacom. MySpace initially concentrated solely on #3, gaining its 100 millionth user account in 2006 and a $12bn valuation in 2007 as the largest social network on the planet.

The story does not end well. MySpace had #3 in spades, but its attempt to realize #1, through a $900m advertising deal with Google, was part of the reason** its popularity fell off a cliff. By 2009 Facebook had conclusively won the war, and MySpace was sold for $35m (m, not b) in 2011.

*Fun fact: earlier that year, Mark Zuckerburg offered Facebook to MySpace’s CEO, Chris DeWolfe, for $75m. DeWolfe said no.
**Naturally there were many others, from terrible product management to an association with spam and pornography.