V Bit Set

Twitter, the enormously popular micro-blogging service, faces a daunting prospect of discovering a way to retrofit their business with a revenue generating model. Gone are the days of build it with venture capital money and sell it to Google. Kevin Thau was hired to lead Twitter out of the profitless desert into the promised land of the for-profit world. Mr. Thau has been handed a quiver filled with a vast network of loyal users and the strong bow of the Twitter brand. Unfortunately his hands have been tied by the perception of Twitter as a basic utility service, like email, and furthermore he has been forced to don a blindfold in the decisions Twitter founders, Biz Stone, Jack Dorsey and Evan Williams to give away what is possibly the most valuable asset of the company, their social network tree.

People create Twitter accounts because their friends have Twitter accounts, this is the heart of social networks. Twitter therefore has held an advantage over any competition. Twitter over time has taken hits from other services because of reliability issues or because they didn’t serve a foreign language market well. However, because Twitter is free, in general competitors would have to pay people to lure them away from Twitter.

In Chris Anderson’s article for the Wall Street Journal, The Economics of Giving It Away, he theorizes on two possible revenue sources, having sponsored commercial messages pushed at users and charging for authentication.

Twitter is an absolute dog for advertising. The end platform is often a mobile phone, the message format is short and the user may in fact be paying for the receipt of messages. The likelihood of making money in this fashion is extremely low. Chris Anderson points out that the money for impressions on Facebook are significantly lower than the rates for media sites because of the social nature of the content.

The idea that Twitter would charge you to establish your identity is not something that is going to sit well with consumers. Any argument that this service is necessary is in fact an argument that it should be intrinsic to the service. In fact Twitter, as a social network, is better placed to provide this service. Similar to linked in, trust of a Twitter account should come from the direct exchange of Twitter account names by existing contacts, or through a trusted third party. This is similar to the mechanism that Linked In uses.

This exact trust matrix is the most valuable thing about Twitter, unfortunately they have seen fit to open this information up for general use. You can now have your Twitter network mined by third party services like Mr. Tweet.

Finally, Twitter built a fundamental infrastructure service in a closed fashion. There are dozens of Twitter clients, and many third party Twitter based services to do such things as track packages or search Best Buy. But they are all dependent on Twitter. You don’t own your Twitter account, Twitter could take it away from you if they chose. An open alternative exists and is gaining some traction, Open Micro-blogging.

It seems people have already forgotten the IM wars or what it was like to send mail to Prodigy from Compuserve. Whenever we build new communication networks, the ability to interconnect the networks becomes key. Staying isolated to build up a customer base will work in the short term, but in the long term the value of your network increases exponentially with the ability to connect it to other networks. Twitter may very well go the way of email services like Prodigy and it may happen on the new Internet time scale.

Twitter’s best option at this point is to decentralize their solution. Franchise their software out to major ISPs to and become the dominant provider of software, not service in this space. Twitter could then relaunchitself as a paid premium service and offer free ports out to participating ISPs or portals. They could also leverage their existing infrastructure and provide hosted micro-blogging services for small to medium businesses. In effect Twitter, Inc. could become the Sendmail, Inc. in the micro-blogging space.