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Summary:

In the last two months, a controversy has broken out between the startup of the moment, Twitter, and its ecosystem. Some of its actions — such as acquiring Tweetie (a mobile client that has since been rebranded as Twitter for the iPhone), coupled with its recent […]

In the last two months, a controversy has broken out between the startup of the moment, Twitter, and its ecosystem. Some of its actions — such as acquiring Tweetie (a mobile client that has since been rebranded as Twitter for the iPhone), coupled with its recent decision to impose limitations on companies building ad-related businesses on Twitter — have thrown everyone into a tizzy.

Dozens of tiny startups that formed specifically to leverage the Twitter platform are now wondering if they’ll be able to get anyone to fund their dreams. Chris Dixon, a New York-based angel investor and founder of VC fund Founder Collective, has been among the most outspoken about Twitter’s actions. “Twitter is like a drunk guy with an uzi killing partners left and right,” he recently tweeted. “Expect investment in ecosystem to drop significantly.”

“A bunch of investors have told me recently there is no way they’d invest in Twitter ecosystem now,” he later added. To which Twitter COO Dick Costolo responded by saying, “I’m hearing *precisely* the opposite. Fortunately, time will soon tell which of us is getting bad information.”

Hot or Not?

Upon seeing this exchange, I emailed a dozen top investors — angels, super angels and early-stage venture capital investors — to get their take. Understandably, they agreed to respond on the condition that they remain anonymous. Interestingly, their perspectives all fell somewhere between Costolo’s and that of Dixon.

Many of them, who had themselves invested in Twitter-related startups, said they were stepping back from the Twitter ecosystem, even if only momentarily. They said that while they understood some of the onetime shifts that Twitter has made, and the necessity for the company to make money, its recent moves had given them reason to pause.

Most said they were no longer interested in talking to pure-play Twitter startups. (Fred Wilson, an investor in Twitter itself, made clear in one of his recent blog posts that you can’t just develop stop-gap products for the company’s service because Twitter will end up filling those holes.) However, there is still interest in startups that are using Twitter as a broad distribution platform and as part of an overall growth strategy.

Here are some of their other comments:

* There may well be opportunities in the current Twitter ecosystem, but investors will need to be even more vigilant about filtering deals.

* Twitter is a small company that can’t do much on its own, so there’s still room for developers.

* Twitter doesn’t have much of a business ecosystem to support venture returns (in the near term.)

* Twitter is more of a broad distribution platform for customer acquisition than an investment platform.

* One needs to wait until Twitter becomes profitable before investing in its ecosystem since that’s the point at which the company will likely embrace it.

The House Always Wins

I’ve remained fairly ambivalent through this whole controversy — mostly because the gray in my hair tells me that the economic interests of platform owners and the people who develop for them are almost never in sync. So from my perspective, those who invest in single-platform companies deserve their fate. I was equally hard on those that focused their investments solely on the Facebook platform, too.

Whether it’s Google, Apple, Intel, Microsoft or even Sony (Playstation), platform owners almost always end up going home with 60-70 percent of the total profits. From that perspective, what Twitter is doing isn’t so out of step — even though Twitter and its ecosystem are nowhere close to being a profit machine.

Historically, developers have had much less control over their destiny than platform owners. Take Facebook. It’s played the developer community like a fiddle with its recent actions (and ad-hoc changes). And platform owners always play favorites. eBay picked PayPal, Intel had Dell, Facebook chose Zynga — that’s just how the dice rolls.

When 140 Characters Aren’t Enough

If there’s one criticism I have about Twitter, it’s that it’s failed to be clear in its communications with the developer community. The company doesn’t have a business ecosystem yet, so until it does, it needs to nurture its developer ecosystem. In particular, it needs a way to encourage developers to embed Twitter into their products.

In order to do so, Twitter needs to acknowledge that it’s not a media company and instead see itself as the activity stream for the web, one that is inherently open, portable and malleable. Its uniqueness lies in its ability to become the messaging bus for the new, almost real-time Internet.

If it can do that, then it will be able to take on Facebook in a far more meaningful manner than it is currently. Facebook is working hard to spread its social tentacles across the web — the only way Twitter can counter that effort is by using the best weapons in its arsenal, namely a healthy and happy developer ecosystem.

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  1. Sanjay Maharaj Thursday, June 3, 2010

    Om, in your humble opinion, do you think that Twitter is making the right move by limiting or closing off accesss to their platform? What do you see as the potential pitfall of this move by Twitter.

    1. I am not sure — see it is hard to make a decision about this. I think from an advertising stand-point, I totally see it as a rational move by a company trying to make money (eventually.)

      I dislike the fact that they were not clear about it earlier. It doesn’t make any sense to change the rules mid-way. Oh well.

  2. matt bamford-bowes Thursday, June 3, 2010

    Really great article. Seems to summarize the confusion around Twitter at the moment. In some ways I can fully understand why Twitter are behaving like this, but in reality we just want to see an idea of where Twitter want to take things. The apps and tech that spring up around things like Twitter are most often the moat exciting parts of the whole ecosystem. I would hate it if these stopped happening.

    1. Matt

      I am with you. For a company which is very open (and it really is), they really need to state their positions more clearly to the rest of the ecosystem, so the rules are set for people to simply move forward and build.

      I would love to see another option to Twitter and Facebook as well, because we need a bit more choices in providing “messaging bus” for the web.

      Read @davewiner’s ScriptingNews for more thoughtful writing.

  3. Shyam Subramanyan Thursday, June 3, 2010

    I think the Twitter developer ecosystem is actually better off now than before. With its recent moves, Twitter is signaling their developers on where to focus. In fact, my only complaint is that it should have come much sooner.

    Twitter needs apps that leverage the power of the real-time communication opportunity that it provides – not one more client with an additional fancy feature.

  4. Ben Metcalfe Thursday, June 3, 2010

    Great post as ever, Om.

    One of the issues I’ve been mulling over on a project I’m working on is the ability to monetize Facebook users vs Twitter users on a 3rd party site.

    With FBConnect, I receive all sorts of useful information about the user that can help me with monetization. I also know that their account is likely to be permanent and long-standing.

    Twitter accounts have little-to-no obtainable demographic information, plus the churn of accounts is hi (the mainstream user with few connections will often delete an account and start again).

    If I was Twitter, I would be trying to get more user data on my users and find a way to make that info available to platform developers (only with the user’s consent because they OAuthed into the given 3rd party site).

    1. Ben,
      What information do you find most valuable in the connect payload?

      Doug

    2. Interesting and a very valid point. I think Twitter is new to the platform game so to speak and will/should eventually scale up. I think it is important for them to do so.

      I think you should give Twitter team some feedback as to what you really need.

  5. Hey Om
    I’m puzzled. You say
    “Interestingly, their perspectives all fell somewhere between Costolo’s and that of Dixon.”

    The support for Costolo’s position:
    “However, there is still interest in startups that are using Twitter as a broad distribution platform and as part of an overall growth strategy.”

    Sure, of course. Who wouldn’t use Twitter, FB, Google etc to market their product. That is a far cry from investing in Twitter ecosystem companies – Seesmic etc. Sounds to me like the investors agreed with my point entirely.

    1. Chris

      No one is outrightly saying that not-touching twitter-related start-ups. What they are saying: not touching twitter-only-marginal start-ups.

      1. I think Chris would like you to say that he’s right — pretty much about everything:)

  6. Great article. Twitter needs to remain focused on what it does really well and position itself as The portal for ~real-time internet. They seem to be well positioned now to build on existing familiarity and leverage the platform for more than just social media.

  7. Lazy developers, even lazier VCs.

    We haven’t even begun to scratch the surface of what’s possible with the staggering data being generated by the Twitter API, let alone its outwardly abstracted layers.

    Take a look at this “Anatomy of a tweet” graphic:

    http://www.readwriteweb.com/archives/this_is_what_a_tweet_looks_like.php

    …and that’s WITHOUT the new annotations!

    Stop treating the Twitter API like a craps table and follow Tim O’Reill’s advice: “Work on Stuff that Matters”

  8. Well, Om, I assume you know my thoughts on this.

    Twitter can be (or probably already is) media company, this whole strategy of sitting back and waiting for developers to take the risks, then when case is proven, move in and occupy the service gap can only work for so long.

    They need to be more aggressive in their product development. Most of all these startups ideas are/were coded over a weekend, ..full week, at the most. It costs Twitter next to nothing in time, and virtually nothing in actual dollar investments to upgrade/refine their product.

    This strategy of waiting for developers to upgrade their product and then moving in to shaft them is cowardly and disgusting, frankly.

    Twitter needs to prep itself for the big time already.

  9. I find it funny (strange, not ha ha) that people (not you, Om) want Twitter to be something it’s not. They expect it to be grown up. They expect it to make perfect decisions. They expect it to know what it wants to be day in and day out. This is unfair.

    Twitter is a company growing just like many other growing companies. Each and every day brings new opportunities and challenges and they are doing what they believe, is in the best interest of their employees, customers and shareholders … based upon each unique day.

    Perhaps the whole point of the Twitter platform is to be just that – a platform. While this is nebulous, it does allow for continued evolution and development in many different ways. Any time something is growing up, not everyone is going to like all stages of the personality as it matures or embrace all of the decisions it makes. The real proof is in the aggregate value created for the aforementioned employees, customers and shareholders.

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