RFC #2 Twitteronomy

RFC #2

Hypothesis:
The path to building a financially successful twitter application lies in building tools to help the twitter elites (businesses/individuals) with large number of followers manage, organize, and respond to their communities.

Motivation:
The customary notion after the YouTube acquisition around venture funded social media investments has been that major public companies (Microsoft, Yahoo!,Google,AOL), will value and acquire a business at a 10x-20x multiple to revenue on the notion that they can accelerate both user and CPM growth*.
The focus of new startups was around being able to drive traffic as quickly as possible, versus building a traditional funnel where cost of traffic acquisition and value of traffic matched profitably.
Compared to traditional software startups this could be done relatively quickly, inexpensively, and much more lucratively for investors, and thus our industry created a social media bubble... but this you already know.
The current economics for social media startups, along with the increased costs associated with greater storage/processing/bandwidth requirements has not proven itself to be profitable. Public companies have grown wary of holding expensive and money losing business units, and it is infeasible for most ad supported social media startups to scale independently. It is thus important for entrepreneurs to find products which can be en face profitable.
* I will explicate this business decision and how its impact on R&D and the software/hardware industry in the future as a regular part of this blog

Introduction to Twitter startups:
Twitter is the latest fad to light up the eyes of the entrepreneur. The number of companies and products in this market has been growing rapidly.
The top five application from Techrunch's February list: Twitpic, Tweetdeck, Digsby, Twittercounter, and Twitterfeed have spawned massive numbers of me to competitors attempting to capitalize on the growing media frenzy surrounding Twitter.

Like the world in the aftermath of the 2007 Facebook Developer Conference , the massive user adoption trends of Twitter are too alluring of an opportunity to pass up. I admit to having been personally lured into the twitter application world with my own TwitterMap search and visualization tool.

Opportunity:

There seem to be two areas around which a startup can generate enough value to create a useful non-free product.
The first area is around aggregating twitter messages around a particular topic which will give businesses/individuals competitive advantage. Twitter will likely need to see another order of magnitude increase in user ship for the value of these messages to be relevant enough to build a venture scale business. In addition products around tweet aggregation must have built in support to existing enterprise software as well as give the ability to respond both personally and en mass.
The second area, is around building tools to support high value twitters. These Twitterers tend to use the service to build their brand, and to make themselves appear more personally to their fans. However twitterers such as Shaquille O'neal (@The_Real_Shaq) with his 650,0o0 or so followers will need tools to help them respond and manage their relationships. While this is an extreme case, it is likely to be just as impossible to keep up with 10,000 followers as 650,000, expanding the potential market significantly.
I will leave the features/functionalities of these tools as an exercise for the reader.

Conclusion:
As an investor, I am very interesting in watching the development of Twitter as a communications platform. However, I am looking for proposals that highlight how a service provides definable economic value to a customer and can therefore generate revenue.