One of the fun but complicated challenges you face when starting a company is figuring out how to make money. In today’s tech startup environment, business models are often ignored or downplayed in importance in lieu of creating a product and gaining traction as fast as humanly possible. Investors will readily throw heaps of money at teams of people on the promise of a product that could prove to become interesting, or has proven to become interesting, regardless of any hint of a revenue model. “You’ll figure out how to make money off it later,” is a common excuse, justified by the precedents of startups that became highly successful—or more commonly, sold out—while offering their products or services for free to users, in order to foster rapid growth of a huge user base.
More often than not, advertising becomes the business model of choice for these companies that have a large number of users but little to no profits or even revenues. While advertising as a model is not to be dismissed or ignored, it’s worth noting that only two “types” of companies have ever become highly profitable successes off of it: advertising-related companies, and Google—and the chance that you’re the latter is nil.
Advertising agencies and companies that provide supportive services to the advertising model, like analytics, are the only real winners in a business culture saturated with advertising models, much like how lawyers are the only real winners in a culture of suing everyone. Google is the only company whose success in advertising is truly notable, and even they technically classify as an advertising company, despite the many other things they’re mainly known for.
Advertising is a poor subsidizer of business revenues. Look at newspapers, magazines, cable companies… all heavily advertising-subsidized, and all of them are struggling. The World Wide Web has made information and media easily accessible to anyone, and we’ve collectively made it accessible for free, unintentionally eroding the value of the work that goes into making quality information and media.
And competing with free is difficult (but not impossible), especially for businesses that have no other revenue streams. Apple succeeded with music by making it easier than downloading illegally, and cheap enough to still appeal. But not everyone has a product to sell that is distinguishable enough to register as a product in the public consciousness. A song or an album is such a product in people’s minds; a news article is not, even though it ought to be.
Thus enters the advertising model, where rather than selling the product, we sell eyeballs, thereby transforming our customers into our product, and advertisers into our customers. For social media companies this has been a frequently-seen pattern, much to the dismay of the users who spent time and energy into the platform only to be sold as a product in return. The widely-cited “Don’t be a free user” addresses this, but doesn’t help customers who are already heavily invested in something, or who have no good alternative.
The concern that many user-customers have with companies that turn to the advertising model for financial sustainability, is that its real customers—advertisers—don’t much care for either the quality of the platform or the interests of its users. They care about eyeballs, effective advertising techniques, and selling whatever product it is they are selling. Advertisers want to know more about each user so that they may target her more effectively; users care more about relevant advertising than irrelevant advertising, but may not exactly agree with the amount and type of information being sent to advertisers to make that happen.
Worse—and this is my own primary concern—is that the priorities of the company that owns the platform tend to shift towards catering to the advertisers. Look at almost any news outlet or media organization trying desperately to get more page views for ads for evidence of these shifting priorities. Which brings me to Twitter.
Cultivating third-party innovation
There are alternatives to the advertising model for companies like Twitter, whose platform has reached enough critical mass to become invaluable to many, but whose primary product does not register in people’s minds as sellable on its own: charging for more or better access, premium features or accounts, adjacent services, supplemental products, and so forth. Not all are necessarily feasible or effective enough, whether on their own or in tandem, but that also varies from product to product. In the case of Twitter, one area that stands out to me as worth exploring is the third-party ecosystem.
Three parties have made Twitter what it is today, and I would argue in some way the three are all equally responsible: Twitter themselves, for creating the service. Users for populating it and drawing additional users in. And third parties, for doing both of the first two. Not only did third parties draw in lots of users, especially in the early days, but many of the features that make the Twitter of today were invented by third parties (and some by users):
- @ for usernames
- the term “tweet” (and with it, the retweet)
- Twitter search
- the bird as its logo and brand identity
- most of its native apps
- conversations (threads)
- Twitter analytics
- favorites aggregation & relevance
- embeddable tweet widgets
Strip all of these out, and what you have left is what Twitter created itself originally: a barebones stream of consciousness of 140 character chunks, and that’s it. Back in 2006 when I started using Twitter, that’s what it was, and that’s what it would be today if you stripped away all third-party innovation.
The business joke about Twitter for a long time was that everyone could make money off of Twitter, except for Twitter itself. In recent times, and especially with the latest changes in policies, Twitter has expressed a certain hostility to the third-party developers that treat Twitter users as customers, rather than a product to sell. Perhaps because it sees these developers as infringing on what ought to be Twitter’s source of income, but that’s just a guess. Regardless, Twitter’s priorities have clearly shifted towards favoring companies that also treat Twiter users as a product, and away from those who enriched Twitter with the kind of features we now can’t imagine being gone from Twitter.
I wish Twitter hadn’t chosen between the two as if they were mutually exclusive, because I don’t think they are. They could’ve embraced both advertisers and third-party innovators; the former by doing what they’re already doing, and the latter by facilitating them with a financial infrastructure to build upon.
Twitter could monetize the third-parties that interfere—however much—on their primary source of revenue, presumably their advertising business. Twitter could monetize them based on the revenues they are making off its platform, similar to how Apple has created an ecosystem with its AppStore.
Such an ecosystem would not stifle innovation, in fact, it would encourage it. Those who truly think they can contribute something innovative, different or at least worthwhile, are likely willing to charge their users for the resulting product, doubly so if Twitter gives them a hand in selling to customers. Instead, it seems like Twitter is saying “Thanks, but no thanks, we got it from here,” resting any future innovation on its own shoulders.
I believe that these kinds of ecosystems are more sustainable than the advertising model, in part because our world is becoming more integrated and inter-connected in more ways than we can keep track of. Advertising will always be around—and necessary—but I suspect that its life as a subsidizer for free or cheap products is starting to run its course, unless it radically changes its dynamic to foster innovation and quality content and media somehow.
All that said, I don’t mean to disparage Twitter’s work; they have built what I still consider the digitization of the human consciousness, archived and social. That is immensely valuable and a wonderful contribution to our society. But in adopting and acquiring the innovations from their third-party developers, and subsequently undermining future third-party innovation, they have enriched themselves in an unsustainable manner. Twitter is now a big corporation burning through lots of money to sustain what is still “just” a stream-of-consciousness service, with feature upon feature plastered on top vertically, not horizontally. It remains unclear to those outside of Twitter whether the company is profitable or not, though I hope they are or soon will be.
But more than that, I hope that they will reconsider being so unsupportive of the types of products and companies that significantly helped make Twitter what it is today, and explore the opportunity to evolve into an ecosystem that fosters and facilitates third parties in ways that mutually sustain each other.