Betting on the Real-Time Web

No one knows how the microblogging site and similar online social networks will make money, but investors see a new Web revolution

Betaworks' Borthwick was an early predictor of the disruptive power of real-time Bill Wadman

By Robert D. Hof

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John Borthwick speaks softly, but he can't hide his excitement. Co-founder and chief executive of the New York Internet media incubator betaworks, Borthwick is an investor in the microblogging phenomenon Twitter, where people exchange short public messages called tweets. Betaworks is also building or investing in at least 21 other companies mining the "real-time Web." That's the term coined to describe the exploding number of live social activities online, from tweets to status updates on Facebook to the sharing of news, Web links, and videos on myriad other sites. "It's a whole new layer of innovation that's opening up on the Web," he says.

It's also a whole new field of dreams for entrepreneurs and investors. Amid the downsized remains of Web 2.0, with online advertising and e-commerce in a drought, they're viewing the real-time Web as the Internet's Next Big Thing—maybe even the source of the next Google (GOOG). The emerging sector is so new, and its boundaries so fuzzy, that it's difficult to know how much money has been sunk into how many firms. But many dozens of startups are staking claims and drawing interest from investors.

"People are realizing this is a huge opportunity," says angel investor Ron Conway, an early backer of Google and Twitter. Ticking off a series of startups with dutifully silly names—TweetDeck, Aardvark, Topsy Labs—that he thinks could be big successes, he says he aims to invest in 40 to 50 real-time companies in the next 18 months. He thinks there is at least $5 billion to be made on the real-time Web, from retailers providing instant discounts on Twitter to marketers targeting ads to people based on products or services they mention in tweets.

The investment frenzy for all things real-time began earlier this year when Twitter raised its fourth funding round, a $35 million investment that valued the company at $250 million. During a two-day Twitter conference in May, a speaker asked the audience how many people thought Twitter's valuation in 5 to 10 years would be higher than Facebook's, now about $6.5 billion. Most raised their hands.

Are people getting ahead of themselves? Possibly. Twitter has just started exploring ways to generate revenue, and its prospects are unclear. Facebook, with its blend of social networking and real-time activity, has struggled to turn rising popularity into profits. Even Borthwick, perhaps the real-time Web's key articulator, concedes he hasn't yet identified a blockbuster business model for any of betaworks' firms.

But there's a method behind the mania. In just the past couple of years, several developments have come together to make the Web more of a real-time experience: ubiquitous high-speed Internet connections; a growing number of mobile devices such as the iPhone with full Web browsers; and new Web technologies that enable instant transmission of messages and data. That mix has made always-on, real-time communications easy and addictive. The iconic example, Twitter, attracted 44.5 million people to its Web site in June, plus perhaps an equivalent number who gain access to its services via other sites and software. Facebook's 250 million active users, whose instant status updates are a key part of its appeal, share more than 1 billion videos, photos, and other content each week.

"Real-time" is actually a bit of a misnomer. Most of this activity doesn't truly occur in real time, the way talking on the phone does, and social gestures such as sharing links with friends are just as important a part of the appeal as immediacy. These gestures—often accompanied by data from people's profiles on social networks, such as where they live or their age—hold the key to the real-time Web's moneymaking potential. What people are tweeting and sharing could be a potent indicator of their interests and intentions: When people type in a response to Twitter's home-page question "What are you doing?" their answers also may reveal what they want to buy—right now.

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