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The New Reality of the Twitter Ecosystem

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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.

Related content from GigaOM Pro (sub req’d):

Lessons from Twitter: How to Play Nice With Ecosystem Partners

As Twitter Develops, Developers Quiver in Fear

32 Responses to “The New Reality of the Twitter Ecosystem”

  1. In Sept ’09 I asked Twitter: “Is Twitter a conduit for Tweets or the whole platform?”. The email and Twitters response is here;

    The answer led me to believe that they want to be ‘the whole platform’ so given that, we (Cleartext) changed tack from building business functions around Twitter to building our own enterprise IM, Group Chat and microblogging platform.

    My gut feel was that we’d be a sitting duck anytime the Twitter shotgun went off, and given it has several times since I think we made the right choice.

  2. I think Tino’s comment, “…leverage the power of the real-time communication opportunity that it [Twitter] provides”, as well as the article’s point that Twitter’s “uniqueness lies in its ability to become the messaging bus for the new, almost real-time Internet” are areas which have been barely explored. Think of the promise of the Smart Grid’s ability to provide information to consumers to manage their energy consumption. Twitter could provide the infrastructure to support low-cost SMS transmission of telemetry data. Here is why: SMS is carried within unused portions of the control packets in the cellular network. This means that for a level not straining available bandwidth, the transport is essentially “Free” once the infrastructure is in place. Smart meters which used less-costly, more robust (SMS uses the control channel, after-all) SMS can employ lower-cost, 2G cellular modules. Via Twitter utilities can receive near real-time consumption information for managing supply, and consumers can be appraised of their consumption with Tweets delivered to their cell phones (one of the goals of the Smart Grid).

    Think of Twitter as “the Information Pipe of the Smart Grid”.

  3. Shadowlayer

    Wow this is RICH! is like suddenly the facts around twitter are obvious to EVERYBODY and not just the few of us who were left wondering how could everyone drank the kool-aid…

    I sure would like to know which VC said this:

    Since thats EXACTLY what I told to one that rejected our business plan on the grounds that, and I quote, “twitter apps is where the money is right now, you guys should get on to that”

    Guess he must be getting his BMW repo’ed right about NOW…

    BTW this quote:
    <“…Twitter is like a drunk guy with an uzi killing partners left and right,” he recently tweeted…>
    Isn’t this the epitome of irony? that he tweeted that? couldn’t he email it? or blog it?

    • Shadowlayer

      For some reason the bit of text about the VC got erased.

      Here it is:
      “One needs to wait until Twitter becomes profitable before investing in its ecosystem”

  4. Great job in explaining the confusion from the perspective of the developer and business ecosystems.

    Twitter built a revolutionary communications and open platform. It’s wonderful to see that so many applications and services are utilizing the fire hose. I just find it rather frustrating that Twitter does not appear to have a succinct business/developer plan. Even with that void the developer community has produced some incredible applications and services. I just hope that Twitter’s lack of direction does not (further) alienate the community.

  5. Thanks, Om, interesting perspective and article.

    My two cents: Twitter is just four years old and in that short time has impacted the way we receive and share info. Of course that could be said for most of the ‘social’ media, but it seems that the short streams of info hurling across the Internet have changed the way the other platforms have evolved.

    I don’t believe this evolution has ended, and I also believe that any developer who is not creating integrated platforms is missing the boat.

    Based upon consumer preference and based upon the “don’t put all your eggs in one basket” theory, it makes absolute sense to develop with a ‘plug-in’ approach that would enable the user to merge their diverse connections into one interface.

    The first one to that party wins imho.

  6. I think 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. Great post Om Malik.

  7. It is not entirely surprising with what Twitter has been doing of late, which is something that we will see a lot more from Facebook too. Both companies are young, growing and have decent revenues, but both little that can’t be replicated elsewhere (granted, under the right circumstances), other than the audience they have with them. And we all know how fickle audiences can be online.

    My gut feeling is that there is now increasing pressure from the investors (and the people who put money into the fund for the investors) on the companies to not only build revenue, but also build sustainable revenues. This won’t happen as long as any part of the Twitter ecosystem is open to being attacked by anywhere by the outside developers. In Facebook’s case this will happen even more with the ‘blessed’ channels to enable monetization.

    The messaging is getting harder to ignore – “earn your own keep”.

  8. You raise some good points, but citing “eBay picked PayPal” as an example of a platform choosing favorites doesn’t make sense to me. eBay first tried to put PayPal out of business with its own payments system. eBay only acquired PayPal after their original favorite (eBay Payments) didn’t work. Isn’t this an example of an independent developer triumphing over the platform’s favorite?

  9. Jason V

    I think “wait and see” is probably correct, but I might push the ball towards the “developers walked away” camp. Twitter created uncertainty.. and I don’t think it necessarily worked to their advantage. FB and Apple stole the thunder, so maybe that’s the contingency in the “heat index” calculations.

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

    Twitter is already a media company, it breaks news faster than anything before it, and has more “correspondents” in more locations than any other info distribution platform.

    Waiting for developers in the ecosystem to create features, and then when business case is proven, moving in, can only work for so long. I seriously believe Twitter needs to be more proactive in it product development. Alot of all these startups’ offerings are coded over a weekend (one week max). It costs Twitter virtually nothing in time or investment dollars to upgrade/refine their product.

    This strategy of waiting for developers to take the risks, and then shafting them is cowardly and, quite frankly, slightly disgusting. Twitter needs to be much more aggressive in it product development, and quit waiting for the ecosystem to always suggest the way forward.

    Its no wonder they are struggling with questions about their business model. Serious business isnt for the faint of heart. They need to start taking risks and quit hiding in the background waiting for developers to make the first move.

    Lead, Damn it!

    • CarriBugbee

      I couldn’t agree more with udeme’s comments. I have many pals developing tools that rely on the Twitter API, so I know the frustration and angst that goes along with trying to comply with Twitter’s rules for developers – or lack thereof.

      Not only is Twitter mum about some development-related topics until it’s too late, even when they do have so-called policies spelled out, they’re vague and filled with gobbledygook like they were translated from a foreign language.

      The company is several years old already and can afford to BUY business acumen if the founders and their pals don’t already have it. The argument that we should cut any company slack that has the investment capital and valuation of Twitter is bunk.

      To those saying “I told you so” to developers building on Twitter’s platform, I think you’ve missed the point. For all practical purposes, Twitter is the ecosystem and vice versa. As a platform, Twitter isn’t much. There are, frankly, much better platforms (FriendFeed, anyone?). What has made Twitter great are the tools created by third-party developers. Twitter should be kissing ass with developers – not alienating them.

      Additionally, the cavalier way that Twitter treats developers creates uncertainty among Twitter’s biggest advocates: marketers. We can’t advise clients about Twitter strategies with much conviction if the tools we use might be gone or broken tomorrow. Again, bare-bones Twitter just isn’t enough. You gotta have the third-party tools to make it sing.

      By creating a consistent climate of uncertainty, Twitter is also shooting its own advertising model in the foot. It is, at best, a cute experiment until Twitter demonstrates commitment to stability on all fronts.

      Finally, as someone who has ramped up 40+ Twitter accounts for brands, entertainment, nonprofits, and research I’ve long been convinced that Twitter execs have no idea how people in the trenches actually use the platform. They regularly diminish important functionality and add lame features (to wit, the pointless retweet button that doesn’t allow for content editing).

      Twitter needs to get out of the bubble and join the business world. It’s time already.


  11. 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.

  12. 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.

  13. 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:

    …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”

  14. Jack C

    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.

  15. 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.

  16. 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).

  17. 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.

  18. matt bamford-bowes

    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.

    • 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.

  19. 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.

    • 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.