Investors just pumped $100 million into Twitter in its third round of financing, valuing the site at a total of $1 billion. The only problem is that the newly-minted billion-dollar site doesn’t actually make any money.

The company would have everyone believe that they’re building a monetization strategy. However they haven’t announced whether they’re going with an ad-supported model, freemium or even a paid subscription model (which isn’t very likely).

The only thing that’s really certain about Twitter’s future is that its founders have nerves of steel. How else could anyone sit on a pile of debt that high without so much as putting a banner ad on the site’s sidebar?

Earlier this year the site was valued at a decidedly smaller sum- just $255 million. Since then Twitter has continued to capture the popular imagination by popping up on Oprah, in rap videos and countless online marketing campaigns.

The only problem is that many consumers, even those that sign up with the site, don’t really understand how it works. Many have heard that Twitter is the new hot thing and that they can follow celebrities like Ashton Kutcher, but they don’t use is to communicate with friends.

So while all the marketing hype has made Twitter into a household name, there’s nothing tying users to the site. And once users realize that Twitter is mostly a forum for people marketing their brands, they will just leave.

In fact, 60 percent of Twitter users don’t come back a month after using the site. With a churn rate like that, Twitter is turning off users too fast to provide real value in terms of relationships.

With such a tenuous relationship between Twitter and its users, it’s hard to imagine the average user paying for a subscription or premium features. The best these investors can hope for is a buyout next year.

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Entry was posted on Friday, September 25th, 2009 at 9:37 am under Social Media.

Read more entries by Dave Jeyes.
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