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Your criticisms are well taken and certainly we considered all of them. But this is not some “ego play” designed to rub sand in the wounds of our valley counterparts.
we actually have a number of business models under consideration and some of them are quite interesting but none are going to get implemented tomorrow.
and as for delicious, i wish it were still independent today. we knew how we were going to monetize it before we sold it to Yahoo. and i would gladly have it back in our portfolio right now.
Twitter’s strength is its open API. Facebook doesn’t let anyone build on top of its status messaging feature, nor does Jaiku or Pownce. Hopefully they all will someday.
but mostly i disagree with your view that people will burn out on these “presence based tools”. i find myself blogging less and twittering more. it’s just more efficient to communicate in 140 characters or les more frequently than long blog posts.
Thanks for stopping by Fred and for the courteous reply.
I do believe you guys have carefully considered all the angles, but I just think you’ve reached the wrong conclusion about the “short blog post” format.
If you could compute the overall value of conversations being held over various communications mediums (email, blogs, IM, heck even SMS), I think Twitter would rank near the bottom. The signal to noise ratio is atrocious. The content being delivered is rarely insightful. And forcing users to write within a hard limit is not a feature, it’s a constraint on expression; human natures wars against constraint of any kind. Moreover, the fundamental question being asked by the service ‘What are you doing?’ (i.e. presence) does not have broad appeal to your network or readership. As much as I like reading your blog, I couldn’t be less interested in what you’re up to throughout the day. I like receiving your thoughts, not a paly-by-play of your life.
As for the API, yes, you and Dave Winer are very excited about it - and perhaps rightly? I do think this unlocks of a lot of power (potentially) for the service — I just hope the applications built on top of it will be more compelling that Twittergram, which has not (thus far) captured the imagination of many. Hard to predict where and when the flower of innovation will boom, but maybe there is a killer app that has yet to be built on top of Twitter - I just haven’t seen it, nor can I imagine it. Even if such an app emerges, the underlying revenue model escapes me…
But I will continue to watch with interest, and do wish you luck.
(PS could you really have monetized delicious? that’s a conversation I’d like to have sometime…
I disagree with your analysis. Twitter’s business model makes more sense to me than the majority of web startups these days. They can monetize pretty easily the mobile service, they could introduce advertising if there is a big need for cash.
Compare this to facebook or youtube. What’s their business/revenue model?
Also, about twitter’s user base, don’t forget that most web services launch, get some press and momementum (if they play their cards right), get a lot of attention, then the crowds go quickly to another trendy service. The road is then hard and –long–, but after a while (usually it’s one year), the user base grows steadily, as usage matures.
I am not worried about twitter because I use it and I know its value, as many other people I follow there.
Yikes. Mat, that’s a bit harsh. Mainly, I had the same reaction though. I guess most big things look weird at first. If VC’s only invested in things we could all agree had value, they wouldn’t be VCs.
Fred, I think it would have been easier to digest if you said Twitter was considering a few monetization options rather than a straight “we don’t yet know”.
If you want to blame anyone, blame the buyers: delicious, for example, is not a success unless Yahoo steps in with their offer.
Buyers have the right to be contrarians, see beyond the conventional wisdom, etc., but they can also be stupid.
The stock price run up in the dot-com boom days was driven by institutions willing to pay top dollar for P.O.S. (as Henry Blodgett would say).
That particular market wised up, but this one (the market for relatively small acquisitions by the Yahoos/Googles/Microsofts/etc.) hasn’t yet (or they really are that much smarter and ahead of the curve).
So, like it or not, the market dynamic right now is: if you can build a web service that attracts users, someone will come along and buy you.
First, a nit: I think you meant “doe-eyed” rather than “doughy-eyed” .
You make some excellent points, however, what I think you did not mention was that SMS is a revenue generator for the cell phone companies.
And, that in many other countries, use of SMS is ubiquitous, far more prevalent than here in the USA.
For instance, in the Philippines, population 70 million, over 150 million SMS per day is the norm. And before you say it is low margin, I should point out that one of the major telecom players there is PLDT, on track to make $750 Million USD this year (cell/landline/data combined), which is $10 USD in profit for each person in the country!
It would be reasonable to assume that a large cell carrier or service provider to cell phone companies would buy or license Twitter or its underlying codebase for use in a country. Africa, Europe, Asia - it’s a big world!
@heri “They can monetize pretty easily the mobile service, they could introduce advertising if there is a big need for cash.”
If the core value to Twitter lies in it being a “coral reef” as Dave Winer puts it, then I don’t see how advertising actually fits into that vision. Having built itself up as a free communications medium, Twitter is going to have a lot of trouble moving away from that which has given it current popularity: it’s very freeness.
“Compare this to facebook or youtube. What’s their business/revenue model?”
This type of argument by association is an extremely weak way to make a point, but I’ll address that below when I respond to Paul Graham’s comment.
@paul “What is Facebook’s business model? What was YouTube’s?”
I know you’re a big proponent of the “who needs a business model” philosophy. I’ve read the essays. But I am unconvinced.
YT scored a big exit, yes. FB will score an even bigger one. This is, by no means, precedent for web startups of all ridiculous conceptions. I think we need to be more honest about the numbers. The significant exits are the tiny, tiny exceptions - not the rule. Suggesting otherwise verges on charlatanism.
And besides, the association is invalid. YT was an early operator in web video, managing to achieve near ubiquity before their exit. FB an early operator in social networking, on its way to achieving ubiquity in the people space. (Note: both immensely valuable spaces in which to be operating). Twitter is an early operator in … what? The short-form blogging space? Salivating suitors will surely line up to get into that business (before it’s forgotten) for sure…
@patrick — thanks for the correction. Man, I always thought it was doughey-eyed! I prefer the image of dough in ones eyes.
You’re right — being in Canada wear mobile is ridiculously attenuated due to the outrageous data rate charges, I may be out of touch with the possibilities on the mobile front. There may be a monetization play there — but I just don’t see Twitter targeting international mkts before they figure out how to conquer their own.
I don’t know if the Paul Graham comment was actually the man himself, but it’s hilarious because that’s the problem with all of these deals.
Fred - I appreciate your “gut” feeling on Twitter, but I do think you just wasted a lot of money. You are reducing VC investing to pure luck. All you’re saying is “I stick my finger up in the air, find the flavor of the month, and hope it figures out how to make money.”
Yes, sometimes you get lucky. Sometimes you find a FeedBurner, or delicious, or YouTube. Most of the time you don’t. I suppose that the way you’ve structured your covenants (e.g. liquidation preference, preferred accumulation, etc.), you hope to limit your downside, but when your only potential acquirers are:
- Google
- Yahoo
- Microsoft
- maybe eBay
- maybe News Corp / IAC
you have really limited yourself. These guys only chase what’s hot and the moment Twitter stops being hot, none of them will be interested. Why would you want delicious back in your portfolio? You wouldn’t sell it at a higher price based on a risk-adjusted basis and it would sell for less than StumbleUpon did.
Be happy that you’ve been lucky. I certainly wouldn’t want to be a GP in your fund though I’m sure you’ve made some good money for them thus far.
Fred, I need to correct one small mistake in your post: Jaiku has an open API (and has had it for some months) and over 30 3rd-party projects ranging form simple JavaScript libraries to advanced desktop clients such as Juhu for OSX. We also have a number of 3rd-party mobile clients such as a native Blacberry client called JaikuBerry and the Jaiku WidSets widget (implemented by Nokia).
I might be slightly biased :), but I truly believe that inventing potentially viable business models is certainly possible for all the microblogging services. However, since the whole category is relatively new, most likely there will be a lot of experiments until the 2-3 working models are found.
Interesting discussion! It is nice to see that Twitter found cool investors.
That’s an absurd argument - you can’t just play the Google card, and expect to be taken seriously.
Tomorrow morning, I could decide to start a business involving leaving old banana peels outside my door. Do I know how I will make money? Nope! But I suppose I should take heart, because Google didn’t know either! Who needs a plan? Perhaps I should just retire now.
But surely this whole “Web2.0″ fad is just an attempt to re-create the dot-com bubble of 1999/2000; just a bunch of copycats who have seen that “those guys over there made a load of cash for doing f*ck all work - let’s do that again!”
The web had developed far more over the 1991-1999 period, than it has done from 1999-2007. I hadn’t noticed before now, but that’s a nice even split, 8 years per side. The first 8 years were far more invigorating; we didn’t have the media types on our backs, nor the money-thirsty VCs. Amazon was “whoa, don’t push things too far, guys”; Google was yet another academic idea.
The second byte of the Web’s life has been far less pleasant.
Geeks develop something cool. Media types notice that it is, actually, cool. Business types pay the Media types to get them into it. Lawyers get involved. Media plays up the new tech. Bad (or no) business plan leads to upset customers. Media continues to hype the new stuff.
…. time goes on ….
we’re all used to ebay, amazon, whatever… it’s in danger of becoming old news
… media come up with “Web2.0″ to recreate the original dot-com bubble; after all, if hyping nearly-working technology worked in 1999, it should work in 2007 with prettier logos, right?
Twitter has some interesting potential here because Google/Yahoo/MSN like to acquire things that make users sticky… Grab Twitter for 50m, switch their users over to the centralized authentication system (endure the inevitable outrage, a la Flickr), and you’ve got a new constituency of users (and have made existing users a bit more sticky).
Was de.icio.us a good buy? Was Flickr? Netsape? Cobalt? Dodgeball?
How many acquisitions wither away after the purchase? How many under-perform?
I’d be interested to know how many web company acquisitions have enough revenue attributed to them after the buy to justify the purchase price (and the integration price). I’d guess that darn few do.
The question for Twitter, at the end of the day, is whether it can sell. I’d be willing to bet that it can and will.
[...] few days on the web news: Twitter’s absence of business model. A VC company funded them despite of this - I even read a post of some guy defending it: Business [...]
[...] of the puzzlement and consternation in the blogosphere following the funding of Twitter (to which I contributed), lead me wonder why the hell we pay such lip service to new media in the first place? If [...]
“People will burn out on these presence-based tools. They’re such a productivity drain (despite what many boosters might say). It seems Matthew Ingram is inclined to agree”
That’s exactly what was being said about blogs too. I think that when new communication patterns emerge, it takes a while to “get” why they are important or useful.
These communication methods do provide something… we just don’t know exactly what.
Yesterday I read about “phatic communications”… got me thinking a bit :
“But there is another, anthropological, point of view. Exhaust data is, I think, a clear case of “phatic communication.” This is communication with little hard, informational content, but lots of emotional and social content. Phatic communications doesn’t get much said, but it has social effects so powerful, it gets lots done. ”
Anyhow, keep pounding on the issue, it sure is tought provoking. And yeah, just ot make sure this comment will be well read, I will post a link to it on twitter
24 comments
Comments feed for this article
July 27, 2007 at 7:23 am
Elise
You got it right. I think we got a few bubble-like features to the whole web2.0 mania.
July 27, 2007 at 11:43 am
fred wilson
Mat,
Your criticisms are well taken and certainly we considered all of them. But this is not some “ego play” designed to rub sand in the wounds of our valley counterparts.
we actually have a number of business models under consideration and some of them are quite interesting but none are going to get implemented tomorrow.
and as for delicious, i wish it were still independent today. we knew how we were going to monetize it before we sold it to Yahoo. and i would gladly have it back in our portfolio right now.
Twitter’s strength is its open API. Facebook doesn’t let anyone build on top of its status messaging feature, nor does Jaiku or Pownce. Hopefully they all will someday.
but mostly i disagree with your view that people will burn out on these “presence based tools”. i find myself blogging less and twittering more. it’s just more efficient to communicate in 140 characters or les more frequently than long blog posts.
July 27, 2007 at 1:19 pm
matbalez
Thanks for stopping by Fred and for the courteous reply.
I do believe you guys have carefully considered all the angles, but I just think you’ve reached the wrong conclusion about the “short blog post” format.
If you could compute the overall value of conversations being held over various communications mediums (email, blogs, IM, heck even SMS), I think Twitter would rank near the bottom. The signal to noise ratio is atrocious. The content being delivered is rarely insightful. And forcing users to write within a hard limit is not a feature, it’s a constraint on expression; human natures wars against constraint of any kind. Moreover, the fundamental question being asked by the service ‘What are you doing?’ (i.e. presence) does not have broad appeal to your network or readership. As much as I like reading your blog, I couldn’t be less interested in what you’re up to throughout the day. I like receiving your thoughts, not a paly-by-play of your life.
As for the API, yes, you and Dave Winer are very excited about it - and perhaps rightly? I do think this unlocks of a lot of power (potentially) for the service — I just hope the applications built on top of it will be more compelling that Twittergram, which has not (thus far) captured the imagination of many. Hard to predict where and when the flower of innovation will boom, but maybe there is a killer app that has yet to be built on top of Twitter - I just haven’t seen it, nor can I imagine it. Even if such an app emerges, the underlying revenue model escapes me…
But I will continue to watch with interest, and do wish you luck.
(PS could you really have monetized delicious? that’s a conversation I’d like to have sometime…
July 27, 2007 at 1:20 pm
heri
Hi Mat,
I disagree with your analysis. Twitter’s business model makes more sense to me than the majority of web startups these days. They can monetize pretty easily the mobile service, they could introduce advertising if there is a big need for cash.
Compare this to facebook or youtube. What’s their business/revenue model?
Also, about twitter’s user base, don’t forget that most web services launch, get some press and momementum (if they play their cards right), get a lot of attention, then the crowds go quickly to another trendy service. The road is then hard and –long–, but after a while (usually it’s one year), the user base grows steadily, as usage matures.
I am not worried about twitter because I use it and I know its value, as many other people I follow there.
July 27, 2007 at 1:25 pm
danielharan
Yikes. Mat, that’s a bit harsh. Mainly, I had the same reaction though. I guess most big things look weird at first. If VC’s only invested in things we could all agree had value, they wouldn’t be VCs.
Fred, I think it would have been easier to digest if you said Twitter was considering a few monetization options rather than a straight “we don’t yet know”.
July 27, 2007 at 2:20 pm
paul graham
What is Facebook’s business model? What was YouTube’s?
July 27, 2007 at 2:23 pm
Noman
If you want to blame anyone, blame the buyers: delicious, for example, is not a success unless Yahoo steps in with their offer.
Buyers have the right to be contrarians, see beyond the conventional wisdom, etc., but they can also be stupid.
The stock price run up in the dot-com boom days was driven by institutions willing to pay top dollar for P.O.S. (as Henry Blodgett would say).
That particular market wised up, but this one (the market for relatively small acquisitions by the Yahoos/Googles/Microsofts/etc.) hasn’t yet (or they really are that much smarter and ahead of the curve).
So, like it or not, the market dynamic right now is: if you can build a web service that attracts users, someone will come along and buy you.
Wilson and his firm are just responding to that.
July 27, 2007 at 2:23 pm
patrick giagnocavo
First, a nit: I think you meant “doe-eyed” rather than “doughy-eyed” .
You make some excellent points, however, what I think you did not mention was that SMS is a revenue generator for the cell phone companies.
And, that in many other countries, use of SMS is ubiquitous, far more prevalent than here in the USA.
For instance, in the Philippines, population 70 million, over 150 million SMS per day is the norm. And before you say it is low margin, I should point out that one of the major telecom players there is PLDT, on track to make $750 Million USD this year (cell/landline/data combined), which is $10 USD in profit for each person in the country!
It would be reasonable to assume that a large cell carrier or service provider to cell phone companies would buy or license Twitter or its underlying codebase for use in a country. Africa, Europe, Asia - it’s a big world!
July 27, 2007 at 2:53 pm
matbalez
@heri “They can monetize pretty easily the mobile service, they could introduce advertising if there is a big need for cash.”
If the core value to Twitter lies in it being a “coral reef” as Dave Winer puts it, then I don’t see how advertising actually fits into that vision. Having built itself up as a free communications medium, Twitter is going to have a lot of trouble moving away from that which has given it current popularity: it’s very freeness.
“Compare this to facebook or youtube. What’s their business/revenue model?”
This type of argument by association is an extremely weak way to make a point, but I’ll address that below when I respond to Paul Graham’s comment.
July 27, 2007 at 2:54 pm
matbalez
@daniel, you’re right I might simply be lacking in vision - and this is why I’m not a VC. time will tell, i suppose.
July 27, 2007 at 3:21 pm
matbalez
@paul “What is Facebook’s business model? What was YouTube’s?”
I know you’re a big proponent of the “who needs a business model” philosophy. I’ve read the essays. But I am unconvinced.
YT scored a big exit, yes. FB will score an even bigger one. This is, by no means, precedent for web startups of all ridiculous conceptions. I think we need to be more honest about the numbers. The significant exits are the tiny, tiny exceptions - not the rule. Suggesting otherwise verges on charlatanism.
And besides, the association is invalid. YT was an early operator in web video, managing to achieve near ubiquity before their exit. FB an early operator in social networking, on its way to achieving ubiquity in the people space. (Note: both immensely valuable spaces in which to be operating). Twitter is an early operator in … what? The short-form blogging space? Salivating suitors will surely line up to get into that business (before it’s forgotten) for sure…
July 27, 2007 at 3:22 pm
matbalez
@noman — I think you’re spot on. The buyers need to reign themselves in before any of this madness cools. Thanks for chiming in.
July 27, 2007 at 3:27 pm
matbalez
@patrick — thanks for the correction. Man, I always thought it was doughey-eyed! I prefer the image of dough in ones eyes.
You’re right — being in Canada wear mobile is ridiculously attenuated due to the outrageous data rate charges, I may be out of touch with the possibilities on the mobile front. There may be a monetization play there — but I just don’t see Twitter targeting international mkts before they figure out how to conquer their own.
Useful contribution to the discussion!
July 27, 2007 at 5:02 pm
Jay (living in First Life)
I don’t know if the Paul Graham comment was actually the man himself, but it’s hilarious because that’s the problem with all of these deals.
Fred - I appreciate your “gut” feeling on Twitter, but I do think you just wasted a lot of money. You are reducing VC investing to pure luck. All you’re saying is “I stick my finger up in the air, find the flavor of the month, and hope it figures out how to make money.”
Yes, sometimes you get lucky. Sometimes you find a FeedBurner, or delicious, or YouTube. Most of the time you don’t. I suppose that the way you’ve structured your covenants (e.g. liquidation preference, preferred accumulation, etc.), you hope to limit your downside, but when your only potential acquirers are:
- Google
- Yahoo
- Microsoft
- maybe eBay
- maybe News Corp / IAC
you have really limited yourself. These guys only chase what’s hot and the moment Twitter stops being hot, none of them will be interested. Why would you want delicious back in your portfolio? You wouldn’t sell it at a higher price based on a risk-adjusted basis and it would sell for less than StumbleUpon did.
Be happy that you’ve been lucky. I certainly wouldn’t want to be a GP in your fund though I’m sure you’ve made some good money for them thus far.
July 27, 2007 at 5:08 pm
Petteri Koponen
Fred, I need to correct one small mistake in your post: Jaiku has an open API (and has had it for some months) and over 30 3rd-party projects ranging form simple JavaScript libraries to advanced desktop clients such as Juhu for OSX. We also have a number of 3rd-party mobile clients such as a native Blacberry client called JaikuBerry and the Jaiku WidSets widget (implemented by Nokia).
I might be slightly biased :), but I truly believe that inventing potentially viable business models is certainly possible for all the microblogging services. However, since the whole category is relatively new, most likely there will be a lot of experiments until the 2-3 working models are found.
Interesting discussion! It is nice to see that Twitter found cool investors.
July 27, 2007 at 7:35 pm
Shanti Braford
Google didn’t have a business model for what… 3, 4 years?
Google Mini (or something like it) we know now is a total joke compared to Google’s search / contextual ad revenue.
Twitter could easily transition to a profitable company, if they play their cards right.
July 27, 2007 at 7:40 pm
matbalez
That’s an absurd argument - you can’t just play the Google card, and expect to be taken seriously.
Tomorrow morning, I could decide to start a business involving leaving old banana peels outside my door. Do I know how I will make money? Nope! But I suppose I should take heart, because Google didn’t know either! Who needs a plan? Perhaps I should just retire now.
July 27, 2007 at 11:58 pm
Top Posts « WordPress.com
[...] A VC Gone Mad? So it’s time to revisit Twitter. The news today that Fred Wilson’s Union Square Ventures has funded Twitter […] [...]
July 28, 2007 at 1:05 am
unixshell
But surely this whole “Web2.0″ fad is just an attempt to re-create the dot-com bubble of 1999/2000; just a bunch of copycats who have seen that “those guys over there made a load of cash for doing f*ck all work - let’s do that again!”
The web had developed far more over the 1991-1999 period, than it has done from 1999-2007. I hadn’t noticed before now, but that’s a nice even split, 8 years per side. The first 8 years were far more invigorating; we didn’t have the media types on our backs, nor the money-thirsty VCs. Amazon was “whoa, don’t push things too far, guys”; Google was yet another academic idea.
The second byte of the Web’s life has been far less pleasant.
Geeks develop something cool. Media types notice that it is, actually, cool. Business types pay the Media types to get them into it. Lawyers get involved. Media plays up the new tech. Bad (or no) business plan leads to upset customers. Media continues to hype the new stuff.
…. time goes on ….
we’re all used to ebay, amazon, whatever… it’s in danger of becoming old news
… media come up with “Web2.0″ to recreate the original dot-com bubble; after all, if hyping nearly-working technology worked in 1999, it should work in 2007 with prettier logos, right?
July 28, 2007 at 2:44 am
Tony Wright
Twitter has some interesting potential here because Google/Yahoo/MSN like to acquire things that make users sticky… Grab Twitter for 50m, switch their users over to the centralized authentication system (endure the inevitable outrage, a la Flickr), and you’ve got a new constituency of users (and have made existing users a bit more sticky).
Was de.icio.us a good buy? Was Flickr? Netsape? Cobalt? Dodgeball?
How many acquisitions wither away after the purchase? How many under-perform?
I’d be interested to know how many web company acquisitions have enough revenue attributed to them after the buy to justify the purchase price (and the integration price). I’d guess that darn few do.
The question for Twitter, at the end of the day, is whether it can sell. I’d be willing to bet that it can and will.
July 28, 2007 at 8:19 pm
Pop
[...] few days on the web news: Twitter’s absence of business model. A VC company funded them despite of this - I even read a post of some guy defending it: Business [...]
July 29, 2007 at 4:39 am
Blowing Back « web1979
[...] of the puzzlement and consternation in the blogosphere following the funding of Twitter (to which I contributed), lead me wonder why the hell we pay such lip service to new media in the first place? If [...]
July 31, 2007 at 1:00 pm
Sylvain Carle
“People will burn out on these presence-based tools. They’re such a productivity drain (despite what many boosters might say). It seems Matthew Ingram is inclined to agree”
That’s exactly what was being said about blogs too. I think that when new communication patterns emerge, it takes a while to “get” why they are important or useful.
These communication methods do provide something… we just don’t know exactly what.
Yesterday I read about “phatic communications”… got me thinking a bit :
“But there is another, anthropological, point of view. Exhaust data is, I think, a clear case of “phatic communication.” This is communication with little hard, informational content, but lots of emotional and social content. Phatic communications doesn’t get much said, but it has social effects so powerful, it gets lots done. ”
http://www.cultureby.com/trilogy/2007/07/how-social-netw.html
Anyhow, keep pounding on the issue, it sure is tought provoking. And yeah, just ot make sure this comment will be well read, I will post a link to it on twitter
July 31, 2007 at 5:28 pm
Mat
Hmm, very interesting post you linked to there. I’m going to sit on that for a bit, digest it, let it age and come back to it again.
Thanks Sylvain!