Social networking giant Twitter is now valued at $US3.7 billion after Kleiner Perkins invested $US200 million into the company in a recent round of funding, new reports have revealed.
But the investment also raises questions about Twitter’s business model, given the company is still relying on external investment even after it has attempted to generate revenue through various advertising and premium accounts packages.
The investment is the first under chief executive Dick Costolo, who took over from Evan Williams is October, and is further confirmation of his big-picture strategy for the company. While Williams may have grown the company from nothing to one of the most innovative and influential social networks in the world, Costolo has bigger plans and the new investment is being pinned as a first step in that direction.
And according to a blog post on the company’s website, that strategy will involve two new directors being added to the board: Mike McCue, chief executive of the social magazine app Flipboard, and former DoubleClick and Google executive David Rosenblatt.
“We also closed a significant new round of funding, with new investor Kleiner Perkins Caulfield Byers leading the round. KPCB brings to Twitter a track record of helping build great companies, ranging from Amazon to Zynga (get it? A to Z? See how we did that?), and a team with expertise in internet, mobile and social platforms,” Costolo says.
“The additional resources and expertise will be extremely helpful as Twitter continues to grow as a company and business.”
Over the past year, Twitter has experienced some exponential growth. There were over 25 billion Tweets sent between users, and over 50% of the company’s 175 million accounts were added in the past year. The number of employees grew from 130 to 350.
All Things Digital reports that Kleiner partner John Doerr has been wanting to fund Twitter for some time, and has beaten Russia’s Digital Sky Technologies to the punch. Kleiner invested $US150 million, while the rest came from existing investors.
At this point it remains unclear what Twitter will do with the latest influx of cash, which brings its total funding to $US360 million. Costolo has previously made it clear that he wants to grow the company’s user-base, but also turn it into a profitable business – so far Twitter has made some revenue through ads but the company is still far from self-sustaining.
Part of the problem is the popularity of third-party clients, which generally refrain from using ads that appear on the Twitter site. Analysts say part of Costolo’s challenge will be delivering revenue models that aren’t hindered by the popularity of such third-party programs like Tweetdeck and Echofon.
“The challenges of growing an organisation so quickly are numerous. Growing big is not success, in itself. Success to us means meeting our potential as a profitable company that can retain its culture and user focus while having a positive impact on the world,” he said earlier this year.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
