Twiddle me this… On the Twitter protocol, ecosystem and the company’s business

First, a must-read – Twitter CEO Dick Costolo’s interview with the WSJ this wknd –> http://stk.ly/i8IerR… The Twitter ecosystem has really exploded over these last 12-18 months, with numerous companies building interesting tools, functions and adaptations of Twitter’s underlying architecture. Many of these companies have even built robust and sustainable business models as well, which bodes well for the future of the communication platform. For a reasonable snippet (but by no means the entire list) check out this TwitterVerse graphic from Jesse & Brian Solis:

The eye opener from the Dick Costolo interview, and their actions over the last few months with ‘the new Twitter’ clearly indicates the battle lines that Twitter seems to be setting for many of these ‘ecosystem’ participants.

The key to the puzzle is business model – Twitter believes that it has a very robust advertising business, in which a sponsored tweet, sponsored ‘trending hashtag’ and sponsored username will support a company with a $2Bn+ valuation. Given the investors and the intelligence of Dick, I’m sure they have made a very conscious decision on this front, and they probably do have a bright future in this business model.

Implications of the model are quite clear:

  1. 3rd Party Clients / Communication Management / Mobile Applications– Advertising will either need to be ‘passed through’ to 3rd party platforms, e.g. sending sponsored Tweets through the Twitter API, or Twitter will need to make a very strong effort to get people to experience Twitter on Twitter.com (or Twitter-developed mobile apps). While the former is really a good stop-gap solution, that they will probably be able to push through quickly because of their immense influence, the latter is easier for them to model, as they seemingly have unlimited resources at their disposal as well as access and significant influence over some excellent engagement models built by 3rd parties (think Tweetdeck, Seesmic, Hootsuite, etc.). Twitter has the ability to build/enhance the best features from these platforms in their new Twitter.com experience, if they so choose, enhancing their user engagement (and ultimately advertising impressions) as they do it. The question will be whether they choose to build or buy, as i’m sure they’ve considered both.
  2. URL Shorteners – I stand in awe of the brilliant execution of the small team at bit.ly that built a powerhouse out a simple consumer-facing idea that solved a problem (giving us a few characters back in that limited 140), an immense backend capturing nearly every detail of the link and its history, and the insights that only come from aggregation. There are many companies that were built, based on the basic premise of collecting data, then selling intelligence on top – think Hoovers (company data), Bloomberg (bond data), Facebook (personal interests), Linkedin (personal resumes), etc. – Bit.ly has done it remarkably well, offering a ‘relevancy-based’ web search by topic that is just phenomenal. Unfortunately for Bit.ly and the other shorteners, Twitter has realized the power of this data and is actively pushing users to use their own tool. Once again, much like #1 above, Twitter seems interested in actively competing with their ecosystem players, instead of buying them.
  3. Trends and Analysis / Twitter Marketing Tools / Search – Lots of companies in this space, many with questionable business models. As Twitter becomes more aggressive on the ad side, these will be critical core competencies of Twitter. I’d be shocked if they do not build through acquisition here, simply because I do not see any independent companies in this space, and frankly, i’m not sure I see any other logical buyer here. If you need a guide to how this will all happen, take a look at Google’s acquisitions around the Adwords/Adsense/Doubleclick ecosystem.
  4. Influence – I find it hard to believe that Twitter won’t actively pursue an acquisition or build here, since Influence is a very critical measure on the platform – as an advertiser, I want to get impressions and in front of the right people, but I also care where the message comes from. Tracking which messages are being sent by whom will better granulate ‘impressions’ by quality, which allows for more focused campaigns.
  5. Relationship Management – Tools that are further away from the Twitter core, and frankly compliment it, will likely survive and be given the chance the flourish. Of course, larger relationship management tools, like Salesforce.com and other CRM tools will add more and more Twitter connectivity, and may pick of some of the guys in this category.
  6. Message Origination – Tools that encourage more messages on twitter will continue to thrive, particularly places like Facebook, LinkedIn, Yelp, OpenTable, the geo services like Foursquare and Gowalla, and firms like StockTwits. Firms that encourage their users to push messages to Twitter help the Twitter equation, as they make Twitter’s message platform more robust, and allow Twitter to generate revenues from advertising based on the content of those messages from within the Twitter.com (and Twitter mobile platforms). Obviously, not all companies in this broad category will survive for various reasons, but by and large, i’d expect Twitter to be comfortable with the existing arrangement…

2011 will be a massive year for the Twitterverse, and I do expect that many of these 6 categories will look dramatically different by year end…

Comments are closed.