cdixon: The inevitable showdown between Twitter and Twitter apps
David Cancel
· 3 months ago
I saw this first hand with the Facebook App ecosystem. Please take a look at all those dead and dying Facebook apps when betting on a Twitter app.
There were some successes on the Facebook platform, mostly in the Social Gaming category. What I hope Facebook is learning firsthand with the Social Games apps is that it should've left the app system "open" and built a perfect "closed-loop" monetization platform like Google has been able to with Adwords/Adsense.
What Facebook should have done is built an ad platform that app developers could use to monetize their apps. Right now it's leaking all that money to 3rd parties and only capturing a small fraction of it via "Facebook Ads". If FB had a ad network for app developers it could've had all those apps buying ads on the current "Facebook Ads" platform to get installs/users and then monetized the new inventory created by those apps.
Pay Facebook to get traffic/installs of your app and then make money from Facebook on all that new traffic. A simple copy-n-paste of the Adwords/Adsense model.
Ivan Kirigin
· 3 months ago
I think you're using "apps" when you mean "clients". There isn't an inevitable clash between twitter and a twitter dating app, or something else that isn't the view into the stream.
chris dixon
· 3 months ago
If it depends on the Twitter API and makes significant money, Twitter will have an incentive to compete against it. So I mean any product, service, website that meets those criteria (I updated the post to note this).
Ivan Kirigin
· 3 months ago
Twitter is a company that understands the value of an API and development community. In that sense, it is optimizing both its own revenue, and that of the developer community.
It might be a local win to get the revenue from a popular app, but a global loss in increasing the disincentive to make apps for their platform. I think they get this.
There is a balance between functionality that is core to twitter and that which will always be outside Twitter Inc.
The question for each app maker is where you are in that spectrum (and for how long).
chris dixon
· 3 months ago
They might get this now, but this isn't craigslist - they've taken a lot of VC money at hundreds of millions of dollar valuations. There will eventually be extreme pressure and even possibly management changes if they don't justify those valuations.
GeekMBA360
· 3 months ago
I think it's very risky for a venture-back start-up to have its application run on another platform (e.g. Facebook, Twitter, etc).
iLike was acquired by MySpace for about 20 million, while investors put in 16 million. It couldn't get the valuation it wanted because of its reliance on the Facebook platform (and therefore the inherent risk).
I think if the start-up is a bootstrapped by an entrepreneur, if it gets really popular with meaningful traffic and revenue, it can still get acquired by Twitter with a reasonable exit price. But, if it's funded by VC, it's very hard to get the kind of valuation VCs normally expect.
chris dixon
· 3 months ago
Totally agree.
Dave Blanchard
· 3 months ago
"some of the lucky Twitter apps will get acquired by Twitter."
"I think it's very risky for a venture-back start-up to have its application run on another platform (e.g. Facebook, Twitter, etc)."
I won't pretend to be knowledgeable in the area, but I would love to hear others insights: if you are a VC, what are you looking for/trying to build in a platform dependent company that makes them more likely to be acquired than commodotized? It's easy to say big user base, but I'm not sure that's it - maybe something more nuanced around being a third party (at least pre-acq)?
chris dixon
· 3 months ago
Probably not user base since Twitter has that in abundance. Defensible technology? Revenue?
ShanaC
· 3 months ago
Independent interlocks. CF Foursquare. It's not dependent on Twitter, however, Twitter makes it stronger by the fact it interlocks and makes the technology inside FourSquare easier to spread and share. Same thing with Bit.Ly. No one is commanding you to use it on Twitter. Twitter could disappear and Bit.Ly could find totally new uses for itself, Twitter does make Bit.Ly a stronger technology by having it show up in so many places and showing what the uses of it are.
scotthoffman
· 3 months ago
Chris, what are your thoughts around GOOG leveraging/augmenting the YHOO search platform back in the late 90s to create a new competitive business with YHOO? Are we looking at the same issue?
gyardley
· 3 months ago
Think of Twitter as the jungle volcano god and the complements as the awestruck villagers. Sure, the volcano god can demand a human sacrifice now and then, but too much of that and too little rain and the volcano won't get any new worshippers.
I imagine Twitter will make like every other company out there with an API, a platform, or an affiliate program and find a happy balance between cannibalizing their complements and making rain for other parties - if a hundred skeezy refinance-lead or diet-pill shops can get this right, there's no reason Twitter can't.
chris dixon
· 3 months ago
Nice metaphor. What if the volcano god lets the villagers remain awestruck until the time is right and then goes on a sacrificing spree? Isn't that what MS and Google did?
gyardley
· 3 months ago
Too many sacrifices all at once and the villagers run into the jungle screaming. But I don't think Google or even Microsoft went on a 'sacrificing spree' - they might have claimed a few especially attractive villagers, but for every one of those there's thousands of others doing quite well off their respective ecosystems.
Some unfortunate startups are going to be on the wrong end of one of Twitter's build-or-buy decisions, but I suspect Twitter will allow enough people to make enough money to maintain a vibrant developer community despite the occasional sacrifice.
chris dixon
· 3 months ago
LOL. Could be true. :)
Elad Kehat
· 3 months ago
Spot on Chris. One possible solution to this conundrum is to build your app to support multiple platforms. While Twitter had practically invented (in the sense of market success) "status updates", Facebook is now getting in on the game, as well as AOL and Yahoo. As for "real time" WordPress and TypePad had just got in with PubSubHubbub etc. While many Twitter apps are too Twitter-specific to be extended to another platform, many others are 100% reliant on Twitter at this stage simply because it's the simplest platform to build for in terms of API and openness.
chris dixon
· 3 months ago
True, it depends on how the "status update" market shakes out. The more hubs there are, the better for the app makers.
terrycojones
· 3 months ago
Hey Chris
Nice post, again. I guess we think lots of things in common, following this & your posting on data the other week. Did you get a chance to take a look at FluidDB? The other day Om Malik asked me "why isn't Hunch being built on top of FluidDB". Also, Linda Stone told Caterina about us (I met Caterina briefly at a couple of FOO camps, but we didn't talk much). I'm in NYC the week of Oct 5th if you want to meet up. I'm doing the Oct betaworks brownbag presentation, and I see you on the mailing list too. So maybe there, or after it.
Greg4
· 3 months ago
I think the meme on commoditizing your complements is perhaps an over-simplification. Aren't there really three distinct motives at work in these kinds of situations?
Controlling the platform - Microsoft and Google getting into browsers, for example. A new or evolving platform may turn out to be important, perhaps as a disruptive innovation, so incumbents feel they have to get in the game. It seems like this usually turns out to be a bad idea. Microsoft has spent tons of money on IE without getting much benefit out of it (I don't think bankrupting Netscape counts). If the platform does turn out to be a disruptive innovation, the odds are it'll squeeze much of the profit out of the market anyway, at least on a per unit basis. Red Hat makes good money on Linux, but it's orders of magnitude less than proprietary Unix or Windows Server. Also, incumbents usually aren't that great at executing on disruptive opportunities.
Commoditizing complements - Microsoft and IBM in PCs are the classic example. Each company wants to provide the value add and get the lion's share of the revenue. This seems like a classic phenomenon when vertically integrated stacks get broken into horizontals. No one really knows which part of the stack drives the value, so everyone's trying to claim it. Content providers and pipes/software providers are in a complementor battle, too.
The land grab - I think this more accurately characterizes moves like Facebook, Apple, and Microsoft horning in on app providers. The platform company sees a chance to earn some additional money by going into app markets. The goal isn't necessarily to bring down the price of apps but rather to maximize profits. So while Microsoft for example may have brought down the cost of certain app categories over time by entering those markets, it wasn't because they thought the additional value would accrue to the operating system. It was because they thought that the market was price elastic and that increasing volume would more than make up for a lower price point.
Where do Twitter and its ecosystem fall? I haven't given it enough thought, but I'd say it's probably going to be a land grab. Twitter won't put apps out of business to get people to commoditize complements per se, but rather just to earn some extra money by taking over a bigger part of the value chain.
BTW, I was struggling with this idea but didn't have the patience to express it until I saw your retweet, Chris. So it did do some good. ;-)
Johannes Dommnich
· 3 months ago
Interesting post, thanks for sharing.
Ankesh Kothari
· 3 months ago
Isn't the best business model for Twitter... charging for API access? Would make Twitter money for the community it has built around itself. And would give the developers and investors more confidence to invest in Twitter complementary apps.
Name
· 3 months ago
How does this compare to a franchising model? You own the main product but get partial revenues from other sites who rely on your brand/platform? I would think that this sort of arrangement would only become unattractive if a) the other sites actually cannibalize your own profits, b) the NPV of the marginal revenues you would earn from creating your own version of what the 3rd party is currently doing is greater than the development (and other) costs of building it. Which do you see being the case here?
chris dixon
· 3 months ago
Interesting analogy. I think with franchising you are definitely increasing the pie, whereas here the 3rd party apps are increasing the pie now but at some point that effect will diminish.
All Comments
There were some successes on the Facebook platform, mostly in the Social Gaming category. What I hope Facebook is learning firsthand with the Social Games apps is that it should've left the app system "open" and built a perfect "closed-loop" monetization platform like Google has been able to with Adwords/Adsense.
What Facebook should have done is built an ad platform that app developers could use to monetize their apps. Right now it's leaking all that money to 3rd parties and only capturing a small fraction of it via "Facebook Ads". If FB had a ad network for app developers it could've had all those apps buying ads on the current "Facebook Ads" platform to get installs/users and then monetized the new inventory created by those apps.
Pay Facebook to get traffic/installs of your app and then make money from Facebook on all that new traffic. A simple copy-n-paste of the Adwords/Adsense model.
It might be a local win to get the revenue from a popular app, but a global loss in increasing the disincentive to make apps for their platform. I think they get this.
There is a balance between functionality that is core to twitter and that which will always be outside Twitter Inc.
The question for each app maker is where you are in that spectrum (and for how long).
iLike was acquired by MySpace for about 20 million, while investors put in 16 million. It couldn't get the valuation it wanted because of its reliance on the Facebook platform (and therefore the inherent risk).
I think if the start-up is a bootstrapped by an entrepreneur, if it gets really popular with meaningful traffic and revenue, it can still get acquired by Twitter with a reasonable exit price. But, if it's funded by VC, it's very hard to get the kind of valuation VCs normally expect.
"I think it's very risky for a venture-back start-up to have its application run on another platform (e.g. Facebook, Twitter, etc)."
I won't pretend to be knowledgeable in the area, but I would love to hear others insights: if you are a VC, what are you looking for/trying to build in a platform dependent company that makes them more likely to be acquired than commodotized? It's easy to say big user base, but I'm not sure that's it - maybe something more nuanced around being a third party (at least pre-acq)?
I imagine Twitter will make like every other company out there with an API, a platform, or an affiliate program and find a happy balance between cannibalizing their complements and making rain for other parties - if a hundred skeezy refinance-lead or diet-pill shops can get this right, there's no reason Twitter can't.
Some unfortunate startups are going to be on the wrong end of one of Twitter's build-or-buy decisions, but I suspect Twitter will allow enough people to make enough money to maintain a vibrant developer community despite the occasional sacrifice.
One possible solution to this conundrum is to build your app to support multiple platforms. While Twitter had practically invented (in the sense of market success) "status updates", Facebook is now getting in on the game, as well as AOL and Yahoo. As for "real time" WordPress and TypePad had just got in with PubSubHubbub etc.
While many Twitter apps are too Twitter-specific to be extended to another platform, many others are 100% reliant on Twitter at this stage simply because it's the simplest platform to build for in terms of API and openness.
Nice post, again. I guess we think lots of things in common, following this & your posting on data the other week. Did you get a chance to take a look at FluidDB? The other day Om Malik asked me "why isn't Hunch being built on top of FluidDB". Also, Linda Stone told Caterina about us (I met Caterina briefly at a couple of FOO camps, but we didn't talk much). I'm in NYC the week of Oct 5th if you want to meet up. I'm doing the Oct betaworks brownbag presentation, and I see you on the mailing list too. So maybe there, or after it.
Controlling the platform - Microsoft and Google getting into browsers, for example. A new or evolving platform may turn out to be important, perhaps as a disruptive innovation, so incumbents feel they have to get in the game. It seems like this usually turns out to be a bad idea. Microsoft has spent tons of money on IE without getting much benefit out of it (I don't think bankrupting Netscape counts). If the platform does turn out to be a disruptive innovation, the odds are it'll squeeze much of the profit out of the market anyway, at least on a per unit basis. Red Hat makes good money on Linux, but it's orders of magnitude less than proprietary Unix or Windows Server. Also, incumbents usually aren't that great at executing on disruptive opportunities.
Commoditizing complements - Microsoft and IBM in PCs are the classic example. Each company wants to provide the value add and get the lion's share of the revenue. This seems like a classic phenomenon when vertically integrated stacks get broken into horizontals. No one really knows which part of the stack drives the value, so everyone's trying to claim it. Content providers and pipes/software providers are in a complementor battle, too.
The land grab - I think this more accurately characterizes moves like Facebook, Apple, and Microsoft horning in on app providers. The platform company sees a chance to earn some additional money by going into app markets. The goal isn't necessarily to bring down the price of apps but rather to maximize profits. So while Microsoft for example may have brought down the cost of certain app categories over time by entering those markets, it wasn't because they thought the additional value would accrue to the operating system. It was because they thought that the market was price elastic and that increasing volume would more than make up for a lower price point.
Where do Twitter and its ecosystem fall? I haven't given it enough thought, but I'd say it's probably going to be a land grab. Twitter won't put apps out of business to get people to commoditize complements per se, but rather just to earn some extra money by taking over a bigger part of the value chain.
BTW, I was struggling with this idea but didn't have the patience to express it until I saw your retweet, Chris. So it did do some good. ;-)
Would make Twitter money for the community it has built around itself.
And would give the developers and investors more confidence to invest in Twitter complementary apps.