Why is the twitter stock evaluation tanking?
A hypothesis excerpted from Mathew Ingram:
“A crucial turning point in Twitter’s evolution that arguably helped put it where it is today, both in a positive sense (it is a publicly-traded $25-billion company) and a negative one (its growth potential is in question and its strategy doesn’t seem to be working). And that turning point happened about five years ago, when Twitter decided to turn its back on the third-party ecosystem that helped make it successful in the first place.
This process began gradually, with the acquisition of Tweetie?—?which became Twitter’s official iOS client?—?and restrictions on what third parties could do with tweets, including selling advertising related to them. But it escalated quickly, and arguably became an all-out war with Twitter’s moves against Bill Gross, the Idealab founder and inventor of search-related advertising, who was busy acquiring Twitter clients and trying to build an ad model around the public Twitter stream. The idea that someone could monetize Twitter before Twitter itself got around to doing so was what one investor called a “holy shit moment” for the company. As I wrote at the time:
Critics have accused the company of “nuking” the developers and services that helped it achieve its early growth in its drive to monetize its network, in much the same way that Hunch founder and angel investor Chris Dixon criticized the company last year for “acting like a drunk guy with an Uzi” after it acquired Tweetie. Anyone who is still under the impression that Twitter is the friendly, touchy-feely company that co-founder Evan Williams used to run?—?the one that admitted it “screwed up” relations with developers by moving too quickly?—?is living in a dream world.
The board of directors and Twitter’s executive team clearly believed that in order to manage the growth of the company?—?and in order to generate enough revenue to justify the multibillion-dollar valuation given to it by its investors?—?Twitter needed to take full control over every aspect of the service. So third-party clients were shut down or restricted, API access and advertising rules were strictly enforced, and so on. For many of the developers and startups that helped generate user growth for Twitter in its early days this was a kick in the teeth, but that didn’t matter. Twitter was going public and getting a good valuation was top of the list of must-have items.
Could it have taken a different path?
Twitter obviously felt that this was the only route available to it?—?but is that true? I don’t think so, and neither do others, including one of the earliest Twitter employees: Alex Payne, who ran the developer and platform side of the company for a long time. After he left in 2010, he described a letter that he had sent to the executive team arguing that Twitter was making a mistake by closing down the network, and that it should have made the opposite decision: that is, by becoming as open as possible. In a nutshell, he said, Twitter’s choice was to become more open?—?to decentralize the network?—?or die like other walled-garden platforms before it.
Ben makes a somewhat similar argument in his “Twitter and What Might Have Been”post: although he doesn’t say Twitter will die because of the decisions it made, he does say that the company could arguably have generated as much or more value by taking the open path rather than shutting down the ecosystem. And that’s because the core value of the service is the “interest graph” of its users, not the app itself or timeline views or whatever other metrics the company has come up with to satisfy Wall Street. And monetizing that interest graph might actually be better accomplished with partners rather than trying to do it all within the native app or website:
I would argue that what makes Twitter the company valuable is not Twitter the app or 140 characters or @names or anything else having to do with the product: rather, it’s the interest graph that is nearly priceless. More specifically, it is Twitter identities and the understanding that can be gleaned from how those identities are used and how they interact that matters. If one starts with that sort of understanding?—?that Twitter the company is about the graph, not the app?—?one would make very different decisions. For one, the clear priority would not be increasing ad inventory on the Twitter timeline (which in this understanding is but one manifestation of an interest graph) but rather ensuring as many people as possible have and use a Twitter identity. And what would be the best way to do that? Through 3rd-parties, of course!
Last year, Twitter effectively admitted that it needed third-party developers and apps to achieve its growth potential: the company had a developer conference and talked about how it wanted to work with outside entities to build things that would work with the API, including some new ventures aimed at turning Twitter into a single-login identity service and other initiatives collectively known as Fabric.
For anyone who had worked with Twitter in the past, however, this was a little bit like Fox Inc. asking for chicken volunteers to help it build a new hen-house. As far as I can tell, there’s little or no evidence that Twitter’s outreach program is working.”