For all its claims to innovation and thinking outside the box, Silicon Valley business culture is really about comfortable rituals and groupthink. Internet businesses aren’t even called businesses — they’re “start-ups”, temples of a workaholic cult where a faster-faster Zorba-ritual transforms angel funding into an initial public offering.
And for all their claims of having invented new business models, most start-ups operate in much the same way. Whatever service you’re offering, just suck in as many users as you can, as fast as you can. Persuade them to hand over as much personal information as possible and to dob in their friends for the same treatment. Data-mine their activities. Show them advertisements. Then sell the business, or float it, before the cash runs out.
Sustainability is not in the vocabulary. Turning a profit is called “monetising” the users, and it comes later. If at all. That’s how come Facebook bought Instagram for $1 billion when it has virtually zero revenue, and then tried to change the rules after 100 million people had signed up.
And as documentary filmmaker Adam Curtis portrayed in All Watched Over By Machines Of Loving Grace, the entire process is suffused with the Randian vision of a leaderless society where computer networks automatically fulfil our every desire.
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Given this environment, Twitter’s decision to transform itself into a media and advertising company isn’t merely unsurprising — it’s inevitable.
But as Twitter grew ever more popular, its lack of revenue grew ever more obvious. Twitter could have charged users a few dollars per month, but users paying for services isn’t how things are done around here. No, advertising and data mining it must be. And once that decision was made, Twitter inevitably started exerting more control over the tweets they now viewed as “content”.
Twitter’s paucity of revenue was highlighted in December 2011, when Saudi prince Alwaleed bin Talal’s US$300 million investment in the company bought him a shareholding of less than 4%. That’s a valuation of $8.4 billion on annual revenues of just $100 million. Welcome to Dotcom Bubble 2.0.
Since then, Twitter has aggressively enforced its display guidelines, demanding that users’ tweets be displayed in specific ways when they appear on other people’s websites. LinkedIn and other recalcitrants got the boot. Twitter changed the rules for third-party app developers too, damaging its developer ecosystem precisely when it needs them to help increase revenue.
All this has been a “tragic mistake”, according to internet entrepreneur Dalton Caldwell. He was “blown away” by the potential of Twitter’s original application programming interface (API). “This is the best plumbing I’ve ever seen. You can build anything with it,” he told the Patch Monday podcast. It was essentially a message-routing platform that could, with the aid of third-party applications, look like anything you wanted.
Twitter was communications infrastructure, says Caldwell, and historically we pay to use infrastructure. “Twitter and Facebook are buying data centres. You have to sell a lot of 10-cent CPM ads to pay for a data centre in Oregon,” he said.
Caldwell’s July 2012 blog post riffing on these themes led to a fundraising campaign that delivered US$803,000 from more than 12,000 backers to create App.net, a service that’s intended to become what Twitter might have been — a real-time social network without advertising, where the users are seen as customers rather than product.
App.net’s business model was radical. People pay to use the service. With money: $50 a year for ordinary people (later dropped to $36) and $100 for developers. Over the last six months App.net has attracted 32,000 users and the development of around 100 third-party apps. A good start, but nowhere near the critical mass it’ll need to succeed.
So today App.net went “freemium”. Users get a limited service for free, but will have to pay for the whole enchilada. Similar freemium models have allowed other infrastructure-like services to flourish, including cloud storage provider Dropbox, photo sharing service Flickr and Github, a collaboration platform for programmers.
The timing is fortuitous. Apart from the core public messaging functions, App.net’s API now includes a rich suite of tools for file and photo sharing, group messaging, non-public messaging (Caldwell avoids calling it “private”) and a framework for adding structured data to messages. Writing all that software has surely depleted their cash reserves.
Meanwhile, Twitter’s pursuit of the advertising dollar enters a new phase this Friday, when it’ll be compulsory to use their new advert-friendly API, and Instagram’s grab for users’ photo rights is still a fresh memory.
Perhaps we’re seeing turning point, and we’ll go back to paying for services with money rather than our privacy. Or perhaps not.
As Caldwell points out, it’s only Twitter’s power users who worry about using third-party apps. Most Twitter users don’t care what client they use, he believes, and they rarely tweet. They’re using it for entertainment, following some celebrities for gossip and sports results.