I saw a blurb indicating that bit.ly raised some money. I use bit.ly and I can see why investors wanted to pony up a modest amount of cash to see if it can become something meaningful. Two quick thoughts:
If Twitter continues to become a place where people share links and articles they find interesting, bit.ly is well-positioned to be the Feedburner of Twitter. So long as the 140 character limit holds and people want to share long URLs (particularly those optimized for SEO juice) on Twitter, users will need a URL shortening service. I see no reason why bit.ly can’t be the de facto service. And if bit.ly becomes the default service people use to rewrite URLs, bit.ly will know a lot about which URLs Twitter users are clicking on and who produces links that generate the most activity. If you believe that Twitter’s value proposition at present is largely about traffic acquisition and a low-cost way to acquire / direct users to your website, being the analytics engine behind link activity is not a bad place to be.
If bit.ly wants to win in a largely commodity market, distribution deals will be key. I’ve used a lot of link shortening services and they’re all pretty much the same to me. I use bit.ly now because it’s integrated into TweetDeck. In a commodity technology market like URL shortening, getting key distribution deals is key – getting bit.ly baked into key Twitter clients and maybe (gasp!) Twitter.com itself will be the keys to winning. This strikes me more as a distribution play than a technology play. Having a few million in the bank should help the company secure those deals and make the case they’re funded to outlast their competitors.
Ultimately, though, I’m not sure that bit.ly will be a big business. Feedburner turned out to be a good investment (Google bought it for a nice fee). Whether or not bit.ly turns out to be a good investment will ultimately depend on whether or not bit.ly can turn URL shortening and analytics into a business. That’s a bet worthy of a few million bucks today. Whether it’s ultimately a money-maker remains to be seen.