While I didn't have time to reflect on the top management changes at Twitter last week, I'm not surprised. Jack Dorsey and Ev Williams have swapped seats for one reason: Jack's a code jock and Ev's the biz guy. Andy Beal almost nails it:
Sure, it sounds amicable–which is the norm in these situations–but you can’t help but think that investors were perhaps disappointed with Jack’s leadership of Twitter. After all, three years in and Twitter still hasn’t found a revenue model that matches its Silicon Valley hype.
I’m sorry, but I suspect that it will be only a matter of months before we hear of Jack Dorsey leaving his new role as Chairman to “explore other opportunities” or “spend more time with his family.”
Reading between the lines, it seems that Jack's time at Twitter is already done:
Jack will remain on the board and be closely consulted for all strategic decisions, while I take on day-to-day operations with the support of Biz, Jason, Greg, and the rest of this impressive Twitter team.
VC Fred Wilson who is an early Twitter backer, sounds like he's getting increasingly fed up of the same old question: When will Twitter announce a business model.
I made a boneheaded move this week as well with this quote to Chris Snyder of Wired which he reported yesterday:
“It’s like the stupidest question in the world: How’s Twitter going to make money?," said Union Square Ventures’ Fred Wilson, another investor. "It’s like 'How was Google going to make money?'
The minute I said it, I wanted it back. But it reflects my weariness with getting this question every time anyone asks me about Twitter (as well as the fact that I had flown back from SF the night before and gotten up at 6am to do a board call to London that day). Rule #1, don't talk to the press when you are tired and irritated.
It is not the stupidest question in the world. It's a terribly important question. But I don't think it's the most important question facing Twitter right now. Twitter has yet to cross the chasm to mainstream usage. It's not immediately obvious to anyone why they should use Twitter. Search and discovery doesn't work well on Twitter yet. There are a host of issues about the API and the developer ecosystem. Will recent reliability success continue? Can Twitter's architecture scale now? All of these questions loom large in my mind.
Hey Fred, we've all been there and in this mea culpa he raises many of the right questions. But seriously, at a time like now, all businesses need to focus on revenue. It is suicidal to believe that anyone other than Google wins in an ad-sponsored world. I don't care how great your service is, Google has got the ad-search market sewn up and there are few if any viable alternative ad-based business models for commercial software producers. At least none of those I've seen look that attractive.
The possible alternatives are not so palatable either. We've already seen Twitter clones turn up, demonstrating that it ain't that hard to do. At least not on a small scale. It is much harder to build a business from a service that increasingly looks more like a feature. One way around this is to come out the gate with a commercial offering that has genuine business value with a roadmap to match.
I've seen plenty of Tweets where people have said they'd willingly pay for Twitter on a subscription basis but at what price? $5 a month? I forked over for the commercial version of Jaiku but it just didn't have the 'juice' to make it to the mainstream. I didn't renew. Is Twitter that important that I'd buy into a revenue model based on consumption? Possibly. But they'd still have to offer a freebie and I can imagine most people moderating their usage to ensure they don't pay. If ads are a pain then swapping to the currently free TweetDeck solves that problem in a stroke. Unless of course Twitter forces ads on customers. That's a guaranteed death sentence in a market where alternatives abound.
It seems to me that a combination of its own relative popularity, open API and free to use model is likely to prove a significant dampener on any attempt to commercialize. It'll likely suffer from its own success and the expectations of people for 'free.' At least in the consumer world. Even if its first mover advantage plays in its favor, the click through rates are likely too low to make ad-based sponsorship worthwhile beyond a few million dollars.
The way to go is direct to the enterprise where customers will pay for guaranteed service levels, white labeling and integration. Even then I'm not sure how much there is to be had from a market that is 99% oblivious to Twitter. To repeat Fred's words: "It's not immediately obvious to anyone why they should use Twitter." That's why use cases are so vitally important and where an understanding of business problems is central to unlocking the value of micro-sharing/micro-blogging services.
But even assuming Twitter overcomes all those hurdles can it really reach Henry Blodget's assertion of a $1 billion valuation? Believe that if you will but revenue pressure is forcing prices down which can only be counterbalanced by way of an uptick in active users. Put another way, you can take the sell-side analyst out of Wall Street, but you can't take the Pavlovian urge to sell-side pimping out of the analyst.
In the meantime I wish that Twitter would put us all out of our collective misery and tell us it's thoughts on business models. Simply parroting the 'lots of opportunities' line is wearisome. But then I've come to expect little more from a company whose reputation for secretiveness on any topic is growing by the day.