As Twitter focuses on building up its own services and applications, financing for startups built on the microblogging service has dropped sharply, according to recent analysis by CB Insights. The firm, which tracks private market investments, says funding for pure-play Twitter apps and services has fallen by more than 50 percent over the past year, and a recent analysis by Twitter itself showed that the vast majority of the ecosystem is controlled by Twitter.
The figures from CB Insights show that between June of last year and May 2010, what the firm defined as “pure play” Twitter apps and services pulled in just over $10 million in venture capital and angel funding, compared with more than $21 million in the same period a year earlier. While the number of investments was roughly the same (10 compared with 11 the previous year), the amount invested dropped from an average round of $2 million to just over $1 million in the most recent period.
As CB Insights notes, this shrinkage in financing likely has a lot to do with the tension between Twitter and the larger ecosystem of third-party developers and startups: tension that rose to a peak earlier this year after the company acquired Atebits (creator of the former Tweetie app, now the official Twitter for iPhone app) and launched its own features in competition with various startups who some described as “filling holes” in the company’s feature list. At the time, a number of observers described these moves in fairly negative terms: Angel investor Chris Dixon, for example, said on Twitter that the company was “like a drunk guy with an Uzi, killing partners left and right,” and predicted that investment in the Twitter ecosystem would likely “drop significantly.”
A chart that Twitter posted recently on its official blog also makes the point fairly starkly: It shows that the vast majority of users access the service through either the Twitter website (both regular and mobile versions), or one of its official mobile apps for iPhone, BlackBerry and Android. The proportion that use third-party apps and services such as TwitPic and Tweetdeck is relatively minuscule.
Apps and services that rely on Twitter continue to get funded however — as the CB Insights chart shows — including companies such as Plixi, which recently changed its name from TweetPhoto, and is focused on sharing photos from social networks including Twitter and Facebook. The company raised a $2.6 million Series B round from Canaan Partners and a group of angel investors earlier this year. As Twitter continues to build out its features and expand its reach — moves that make sense for a company that raised its own round of financing last year at a valuation of more than $1 billion — startups that have hitched their wagon to the company’s star will have to make sure they aren’t just filling holes, or they could find their venture capital hopes buried.
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