Twitter May Raise Money as Web 2.0 Values Soar

Twitter is mulling a new round of funding that would value the company at over $3 billion, according to a Bloomberg report. "The financing may include new investors, such as venture capital firm Kleiner Perkins Caufield & Byers and Russian investment company Digital Sky Technologies, said two of the people, who declined to be named because the fundraising isn't public," the news service reports. These firms are seasoned venture capitalist operations, so it is likely they believe the valuation is reasonable.

The news of the potential financing comes just as Google (GOOG) is in negotiations to buy online retail discount coupon service Groupon for as much as $6 billion. Other large Web 2.0 companies have also been given lofty valuations. Facebook has a valuation of between $12 billion and $14 billion. The world's largest social network has over 500 million members. Twitter has over 100 million.

One of the issues raised by skeptics who believe that social networks are valued too high is that a relatively small number of users make up most of the activity at these sites.

Most of the social network companies have modest revenue. Groupon has a revenue run rate of $1 billion, according to many media accounts. Facebook's is probably slightly larger than that. Those numbers indicate that Groupon is worth six times its revenue. Facebook's value is nearly twice that when measured on the same basis.

The cautionary tale most analysts use about social network sites is the fall of MySpace, which has been losing users for over two years and is a money drain for parent News Corp (NWS). There are rumors that the media conglomerate may sell it. But who would buy a business that has such a rapid rate of attrition in revenue and users?

Many questions remain about the value of Web 2.0 firms, some of them have been asked about traditional media as well. How long will people spend on social network sites each day? To what extent do they take business away from one another? Has the field become so crowded that some sites are gasping for air? Or, are the millions of teenagers who spend hours a day on these social network sites enough to sustain them?


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