One of the hottest tech stories last week was the $100 million raised by Twitter in a new round of funding, which reportedly values the microblogging service at $1 billion, even though it has yet to generate meaningful revenue. Much of the commentary has focused on the high valuation, but the funding begs another question: Did Twitter raise $100 million because it can, or because it really needs the money?
Some analysts foresee Twitter using the money to hire 200 to 500 developers, or to acquire some of the companies building apps and services atop the Twitter API. But the real answer to the "need vs. want" question may depend on how much Twitter is spending on the infrastructure to support its rapid growth.
Massive Scalability Never Cheap
By outsourcing its infrastructure to NTT America and Amazon Web Services, Twitter has undoubtedly spent far less on infrastructure than if it built its own data centers. But massive scability never comes cheap, and as Twitter has gone mainstream, the rapid growth in its user base has meant additional investment in servers to handle the load.
Twitter's storage requirements aren't as onerous as some other social media sites, such as Facebook, which stores billions of photos and videos. Twitter's storage output is primarily text (Tweets), avatars and background images. Twitter saves money on image storage by using Amazon S3, but as its user base moves into the tens of millions, those costs will start to add up quickly.
Hosting Bill Growing
Then there's Twitter's outsourcing relationship with NTT America, which recently announced that it is adding new Silicon Valley data centers in Santa Clara and San Jose. NTT America says the expansion was driven by the needs of multiple customers, not just Twitter. But it's likely that Twitter's hosting bill is growing along with its user base.
NTT America Chief Operating Office Kazuhiro Gomi said in June that “traffic generated by Twitter is getting so big, it’s basically eating up a lot of our data center network resources, especially the segment where Twitter is hosted."
"Meeting this rapid growth has been a challenge for us," Gomi recently told DCK. "We’ve been very busy adding capacity to make sure we have enough processing power to handle their demand. We need to keep adding servers.”
Additional Security Measures
Twitter has also invested in additional security measures to defend against electronic attacks after being knocked offline by a denial of service attack in early August.
Can Twitter eventually develop a business model that can generate enough revenue to justify that $1 billion valuation? That question probably wont be settled until Twitter rolls out revenue services, most likely in 2010.
But one thing's for sure: Twitter can't find its way to that profitable future without continuing to invest in servers, network capacity and anti-DDoS measures. Profitable business platforms need to be reliable, and that will require infrastructure.