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Business, Featured - Written by on Thursday, April 22, 2010 10:22 - 2 Comments

Denis Hancock
Twitter, and the challenge of managing competitive collaborative platforms

Late last year I wrote a report for nGenera Insight clients called “The Six Phases of Twitter’s Evolution“, which focused on distinct phases the company went through, rather rapidly, in terms of both use and perception (you can read a brief overview of an earlier take on the first five phases here). The last phase, at the time, was what we called “innovation in search of a business model.” That Twitter was in need of finding one was hardly news at the time, nor is it today. But what was, and remains, quite interesting is the somewhat unique challenge Twitter faces.

While Twitter is a stand-alone company, the value of the service is heavily dependent on the large ecosystem of developers innovating on top of their API. Like Twitter itself, most of these developers took a “build the customer base first, worry about business models later” approach. “Later” is now here. As  everyone involved starts scrambling to try to make money, everyone almost invariably stumbles onto the word “advertising” as the solution. But no one’s quite sure how big the advertising pie will be, and Twitter itself needs to grab a pretty big piece of it. This is going to make it tricky to hold the ecosystem together.

While there were many signs of this coming through 2009, two particularly big ones popped up late in the year. The first was changes taking place with StockTwits, which described itself as “real investors providing real ideas in real time“, and had grown to become one of the most popular Twitter applications. As a TechCrunch article in September explained, StockTwits was evolving to create an entire back end independent of Twitter itself – “Yes, StockTwits is slowly breaking away from the service that inspired its name.” In turn, it would be reasonable for Twitter to think that an important partner might become a competitor, and others might follow.

The second was that Twitter itself was (finally) starting to innovate on top of their own platform. “Lists”, which were launched as a “great way to organize the people you follow and discover new and interesting accounts“, was one such example. Instead of just enabling people to share information, the company seemed to be making baby steps towards making it easier to sort through. If they continued down that path, it could eventually put them in direct competition with services like TweetDeck.

I was reminded of this when reading the recent Economist article called “Up for promotion – Twitter decides to sell advertising.” In paragraph seven, the issues I was pointing towards in #2 are made clear – it opens with the sentence “A few of these may compete with offerings from developers.” It mentions how people at Chirp (Twitter’s first developer conference) were a little upset about Twitter’s purchase of Atebits (the maker of Tweeties), and that “makers of rival programs complain that Twitter is now competing with them.” A developer is quoted saying that “the way they have done this is scary” – and many would argue he has a right to be scared. A New York Times article on the same subject hit on the same themes and arguments.

However, as #1 pointed to, Twitter needs to be a little scared itself, as developers might just shift their attention away from the platform (particularly if they feel threatened), perhaps taking current users, and ideas for new innovations, with them. More to the point, they need to make strategic choices about what should be created on the platform, and what should be left to the ecosystem – a message Twitter’s CEO is clearly sending to developers now. With quotes like “(there are also) features built for Twitter that maybe only exist in client applications, and we’re going to build them in because they should be there“, it’s pretty clear some nifty innovators are going to be put out of business by the platform they innovated on top of, as Twitter tries to find find the appropriate balance.

Such challenges are not new in the competitive collaborative platform space. Companies like YouTube and Ning have had similar issues pop up now and again, and we expect to see such tensions arise far more in the future. How exactly it will play out is anybody’s guess. But as more and more companies move to platform-driven models to derive competitive advantage, what happens here is worth paying attention to.

One of the more important lessons may end up being that the owner of a given platform (or, say, community) that has a clear business model from the outset, and allows ecosystem partners to innovate around it, instead of plugging holes in the core offering, is more likely to build a sustainable ecosystem model. In addition to the quotes above, Fred Wilson, a long-time Twitter Board Member, had a recent blog post that highlights the need for Twitter to (belatedly) move in this direction. In the future, companies that, you know, already make money, might be in a better position to create competitive collaborative platform strategies than those starting from scratch.

On the flip side, perhaps a “winner takes all” model will take hold here – where the best innovators are acquired (maintaining the incentive for developers to engage) and integrated into the main platform, and the rest wither away and die. We see more and more of this type of rewards distribution popping up all over the web, and while it may not seem “fair” to everyone, I think it’s a definite possibility. I don’t know – but with pressure on to find a business model that validates all the venture capital money that has flowed in, I have a feeling Twitter will soon find out.

Either way, there’s actually another interesting lesson in here worth repeating. Many people are expressing “surprise” and “shock” at these latest Twitter developments. They shouldn’t be. Everyone knew Twitter had to eventually find a business model, and little signs have been popping up to point in this direction for quite some time. If you looked carefully at what Twitter (and key partners) were doing, and thought about the challenges they were facing, you didn’t have to wait for the CEO to tell you this was coming.



2 Comments

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Mavis Shoop
Apr 27, 2010 12:12

I love to use Twitter whenever i want to know the latest buzz about my friends. I also use Twitter to know the latest buzz from famous persons *

David Oliva
Apr 28, 2010 11:43

Twitter will have a rough time dealing with its first year of a business model implementation. Also youtube in 2009 was losing a lot of money, making it for google hard to handle, but, you know… it is google after all. 2010 looks pretty sharp for youtube though.

Not so much for twitter that will have to work a lot more to make it profitable.

BTW Great article Denis.

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