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Twitter as an exemplar of the attention economy

The attention economy requires that major investments be made to acquire the attention base and then to monetize it. Although the attention economy has been around at least since 1830, people are still not used to the model.

They may be right about the business model – in which case Twitter becomes a perfect case study in the economics of information goods. The key to success in cyberspace is to harness the power of Metcalfe’s Law, which says that the value of a network is proportional to the square of the number of its users. In layman’s terms this means that the faster you can acquire users the quicker you reach the point of becoming the winner who takes all. And the quickest way to do that is to offer your services for free rather than charging people for them. But since it costs quite a lot to provide online services at massive scale, the free strategy can only be realised by raising venture capital and burning through it at a phenomenal rate.

Which is exactly what Twitter has been doing. Last quarter, for example, it burned its way through $132.4m of investors’ money, which is the difference between its operating costs and the $250.5m it got in sales. The existential questions for the company, therefore, are: whether it can get to the point where it is at least breaking even; and whether it can get there before it runs out of investors’ cash.

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