To me Twitter is a sort of archetype of online, mass media businesses and some of the quirky side effects of "unicorn culture."

At least at early stages, market value
(and hence wealth of founders, investors & early employers) is some version of: (Likelihood of reaching $N bn revenue) X (N).

The size of "N" is so open ended that a lot of traditional economic/finance logic of the kind Warren Buffet's generation used, it gets very abstract.

When Google launched adwords, no one really knew what the potential was. The adwords team themselves understood the model (overture had already proven it) and probably knew it would get > $1bn. Past that, it was an unknown. That kind of a business had never existed at this scale before. Adwords is now $100bn pa, and growing.

Facebook were in the same boat. The adwords/overture system didn't work on FB, and the size/value of the new market they were building was unknown. They knew it had potential, because of all the attention FB commanded, but how much was a guess. They waited until after IPO to find out. It turned out to be a lot, about $45bn currently, halfway to Google and gaining.

We have already forgotten this, but when Facebook IPO-ed they hadn't really launched their mature business/advertising model. Revenue potential was still unknown and the range of possibilities was still very wide. Even on the premise that FB remained as popular as it was, anywhere from <$1bn to >$100bn was very possible. A huge range of possible outcomes.

My belaboured point is that without the benefit of hindsight, the revenue potential of Google, Facebook, Twitter & Reddit is very detail dependant. Extrapolating from user/usage stats will only get you to within 100X.

Anyway, in this kind of environment, the pressure is on to hit the top of your potential range. Take risks. Add costs.

About 5 years ago, Twitter looked down this barrel. They 10X-ed their number of employees from 300-400 to 3,000-4,000 and cost base. Very little of this expansion was strictly necessary, to provide the service they were/are providing. Twitter was still Twitter @ 300 employees, more or less the same Twitter we have today.

In an alternate world, they could have probably achieved >$1bn (currently @ $2bn) in annual revnue with just 500-1,000 or so employees. That's at the very top of the revenue/employee spectrum, and a recipe for one of the most profitable (in % terms) companies in the world. But, the current capital allocation economy does not have room for this sort of thing.

Say it had been executed perfectly, $1.5bn/$0.5bn revenue/profit. They would have been worth less than they are currently, even though they'd be making far more profit. ...And Twitter didn't achieve the high end of their revenue potential. They've had mediocre results, with their advertising model. Still, just leaving open the possibility of Google/FB-like outcomes adds more to market cap than any level of profit.

To put this in some numerical terms, Twitter spends 40% of it's 2.2$bn revenue ($1bn) on "Selling General and Administrative." This is more than twice "R&D" spending, which I assume means "making Twitter features."

Reddit is in the same sort of boat (though they're userbase are more beligerant to this sort of thing), but scaled down. Investors are looking at Reddit's users & usage stats. DAUs, Times-on-sites... They are comparing it to FB, Google, Twitter. They are coming up with massive revenue results that might be achieved if only a good advertising model could be plugged in.

What they are not looking it is "how much revenue would it take to profitably make reddit reddit" without necessarily targetting or leaving open the possibility of 100X more, at some point.

it seems that for these kinds of companies, you are either Google/Facebook or you are a probability of becoming one. How profitable, popular or well liked you are by users doesn't matter, only (probability of X). The implications of this are big, and worrying for the future of media.