Twitter’s valuation at $1B in its recent round of capital raised has generated a lot of discussion. One topic is what it means to the VC industry. I think that’s a very lively discussion topic, and it is fundamentally a challenge to the entire VC business model (a recent Techcrunch article provides another angle at looking at it, and is also a challenge to the industry). However it’s not really something I can comment on since I have so little experience to VC.
What I want to talk about, and this is totally going off on a tangent here, is what Twitter’s valuation means to China. When I started this blog I had wanted to stay away from politics; but today I will make an exception because I do see it as a revelation (at least personally).
A few questions to cover here. First, does Twitter create real economic value? The $1B valuation, however over-blown it may be, seems to suggest so, despite the fact that Twitter has no business model (yet). And of course, looking at the fundamentals, Twitter is essentially a service that offers a more efficient way for web-users to consume certain kinds of information – for example, real-time info on current events, and articles that are deemed to be worth reading. It’s a development in how information on the web is organized. Thus, even though users are not willing to pay for the service, there is real economic value being generated (consumer surplus).
Secondly, why then, is a tool that creates real economic value blocked in China (side note, Twitpic was blocked today)? And not just Twitter, but most of its Chinese web clones. The direct and obvious reason is that these tools create headaches for the censorship program of the government. They could be used to cause social movements, as was effectively demonstrated in Iran. But by shutting down these tools for the sake of social stability (in the short-term), the regime also creates a deadweight loss (sorry for all the econ jargon… I’ve been studying hard) – or, in other words, productivity of society at large is held back.
Going back to my high school history and politics classes, the Marxist view to social development is that once the political system does not fit the needs of productivity, the political system will have to be changed (evolution or revolution). Slavery was the best way of organizing production, once upon a time. Then it was feudalism. Then capitalism. Or, using a business school analogy, if a company’s business model doesn’t fit the market, that company either adapts or go out of business.
I feel this is where China’s regime is at. We’ve had 30 years of rapid development where the political system was mostly left untouched. Now it is getting closer to the point where it will have to change, or development will be held back. The fact that value-creating tools like Twitter are forbidden is simply sign that change has to come. I can envision at some point in future society at large will force the change, simply because otherwise the economy cannot grow. So today I’m especially optimistic about that change, even if it’s just ironically due to the Marxist view to the world.
(Apologies this is not really a tech post… But I did feel excited about this train of thought.)