Services Overvalued Compared with Devices

You’ve probably heard that each Twitter user is worth about $110 to the company, at least based on Twitter’s market valuation versus the number of user accounts it supports.

This is a high number per user, but it is broadly in line with other social networking services. Facebook’s users are worth $98 each, and LinkedIn’s are worth $93.

Many argue, however, that these service-user valuations are overinflated when considering revenue generated by the average user, even more so when compared withecosystem users (Apple, Google and Microsoft users). A Facebook user is just a Facebook user, but an Apple user interfaces with more than just the company’s iTunes music store – they can interact with the company on many levels, driving more revenue opportunities.

“Apple, Google, Microsoft and even Amazon aspire to enable ecosystems which should be seen are more valuable than mere communities,” noted the Asymco blog recently. “Ecosystems enable a higher level of economic activity because they are unbounded by the medium itself. Any number of media can be created. Or so the theory goes.”

Based on data crunched by Asymco, the average Apple user is valued at around $48. This is rudely small given the revenue that comes from an Apple user as opposed to that which comes from a Twitter user.

The average Apple user has bought an Apple device and paid for cellular service (in the case of an iPhone). They have also probably engaged in a lot of browsing on the device, and made online purchases through Apple’s app store and possibly its iTunes music store.

But the way Apple counts it, these users are only worth the $48 worth of purchases they make through the Apple ecosystem per year.

Twitter, by contrast, only generates about $1.36 of revenue per user.

“Of course one could argue that the iOS user’s participation is not profitable for Apple,” noted Asymco. “It does obtain massive cash flow from iTunes which finances its fashionable data centers and bandwidth, but it does not presume to value itself primarily through this revenue.”

The paradox is that while Apple users generate lots of revenue, the market discounts devices and values services such as Twitter instead.

“In other words, users continue to pay for the devices that delight them enough to participate in services (especially the monthly billable kind), but markets walk right by these shiny baubles and shower money on services which have negligible sales and even fewer profits,” noted Asymco.

Somebody’s got it wrong here.