The business of shortening URLs

April 7, 2009

bitly.com

Our increasingly hectic, information-overloaded lives call for an increasingly greater number of shortcuts to juggle everything.

This is particularly true in regards to how we process and transmit information online and a number of startups have been launched solely dedicated to truncating links to stories we read and then pass along to friends and colleagues through social networking sites like Twitter, StumbleUpon, Delicious and others. You have likely heard of tinyurl.com, hex.io, or twurl and if you Tweet, you’re already using bit.ly‘s software by default every time you abbreviate a URL on your Twitter page directly, or via TweetDeck.

Yet just like Twitter, these free link-shortening services are trying to come up with a model to make money in a market that is loath to pay anything. So that essentially leaves the ad-revenue route, but with fewer ad dollars available, that may not be the way to profitability.

So what’s a twurl to do? Well for New York-based bit.ly, which launched in July 2008, that meant raising $2 million in venture capital last week from a host of investors (see the full list in the Private Equity Week story). According to investor Jeff Clavier, founder of early-stage investment firm SoftTechVC, the money will be used to create a database to log statistics based on how many people use a given shortened URL. Since bit.ly claims to have shortened more than 24 million links last week alone, that info could potentially be very valuable to large corporations who need to track their clickthrough numbers.

“We have to get ahead of the competition and that’s what the financing is for,” Clavier told PE Week. “Once we reach the level when we have enough data, we’ll have packages and features that will allow us to make money.”

But is it really worthy of a $2-million investment? Delicious founder Joshua Schachter likely doesn’t think so, writing in his blog that while URL shorteners are advantageous to operate due to their relatively simple construction, low cost of entry and potentially easy profit, they “are bad for the rest of us.”

Schachter, who sold Delicious to Yahoo! in 2005 for a rumored $30 million, according to a 2006 Business 2.0 article, claims services like TinyURL or Bit.ly operate as masking agents for spammers and add an “extra layer of indirection” that gums up the browsing experience and introduces a “new and potentially unreliable middleman.”

Despite the doubters, ReadWriteWeb lead writer Marshall Kirkpatrick remains bullish about bit.ly’s ability to make money. “Show us a service that can report in real time how many people are visiting millions of pages around the web and what those pages are about, that exposes that data in an API, and we’ll show you a platform we’re very excited to see work,” wrote Kirkpatrick in an article the day bit.ly announced its first funding round.

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Can we say that it’s kind of peak out signal for this kind of internet based services…