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Comparing Valuations: Twitter Industry vs Email Industry

by Vincent Chan on Sep 30, 2009

twitter_vs_email
To me, Twitter is just another communication and marketing tool, like email, SMS, letter, phone call…etc. When Twitter is valued at $1 billion, I wonder if the valuation is reasonable compared to the email marketing industry. Of course, I understand Twitter is quite different from email in a number of ways. But as a marketing tool, the value given to the marketers should be similar, at least not a 10x difference.

Email Industry

According to the Direct Marketing Association, marketers only spent $600 million on email marketing campaigns in 2008 compared to the $12 billion spent on non-email-related marketing. Their biggest expense is telephone marketing, with an estimated $42.5 billion spent on the channel in both 2008 and 2009.

Some people think that the email marketing industry is a $3 billion industry in the U.S ($456 million for email-generated advertising revenue, $1.15 billion for all the technology, agency, consultant, service providers out there, and $1.35 billion for the lead-gen portion). The most optimistic valuation of the industry is at $12 billion, according to a controversial report published by media research firm Borrell Associates.

Despite those statistics, email remains a bottom feeder in terms of share of marketing budgets. And don’t forget email marketing is an industry with a long history and proven business model.

Twitter Industry

At this moment, the number of worldwide email users is over 1.4 billion in 2009, according to The Radicati Group, a market research firm. In comparison, Twitter has roughly 50 million users now.

Now let’s compare some of the related businesses around these two marketing tools.

Category Twitter Related Businesses Email Related Businesses
Direct Marketing CoTweet, SocialOomph, HootSuite, TwitterHawk Constant Contact, MailChimp, iContact
Clients Tweetdeck, Seesmic Desktop, Tweetie Outlook, Thunderbird
Analytics Twitter Counter, Bit.ly, TwitterFriends, Xobni, Google Analytics, Trendistic, TweetStats
Harvesting Audience Twollow infoUSA
Newsletter TweetBeep DailyCandy, SmartBrief
Corporate Communication Yammer N/A

Among these businesses, only Constant Contact is a public company with a market capital of $568 million and it was not profitable in the past three years.

Another notable email related company is DailyCandy, a free daily email newsletter and website with over 2.5 million subscribers and $25 million in revenue. It was sold to Comcast for $125 Million last year. Do you think a Twitter’s user posting fashion related topics can generate $10 per follower in revenue?

It’s true that Twitter repeatedly said that their real intention for making money is not to go the way of advertising, but instead to do professional accounts, tools and paid API. However, if the service can’t provide a better return on investment (ROI) than email newsletter, why will marketers pay for their accounts?

According to the Direct Marketing Association, email marketing is projected to return $43.52 for every dollar spent in 2009. And the ROI of all non-email-related online marketing is $22.52 for every dollar spent. Twitter at least has to do better than that.

Conclusion

Spending on email marketing in the US will balloon to $2 billion by 2014, according to a new forecast by Forrester. Therefore, if Twitter has to reach their target revenue of $1.54 billion by 2013, the company probably needs to grow faster than the whole email marketing industry. At the same time, they have to prove that Twitter can provide a high ROI to Direct Marketing professionals.

At the end of the day, do plenty of cash and time always translate to highly profitable business model, as TechCrunch suggested? Only time can tell.

Lastly, the inventor of a new communication tool usually is not the one who got rich. Do you remember who invented email and telephone? If Twitter one day became a public company, the inventor of email should feel really really bad ; )

Photo source: MykeshiaMcCool @Official psds, Email button @Apple iPhone


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Back to Normal

by Vincent Chan on Sep 29, 2009

Regular readers might have noticed that we didn’t post in the past two months. We are really sorry about that. We were busy raising angel-funding for our startup during this period. Since we have secured the funding we needed, (Thanks to our angel investors!) everything will be back to normal now.

Thanks so much for all your support so far. We promise that we will have more great posts in the near future.


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