Twitter: Monetize the Apps, not the Platform

I have spent a lot of time thinking about Twitter, and trying to figure out how it fits into the communications landscape. I’ve also given some thought to how it should best be monetized, and attempted to decompose the value stack associated with its presence. My conclusion: Twitter is akin to an open source utility, not dissimilar from Lucene, Linux and Apache. It is a platform, a base off which value-added services can be built. I am working on one, Stocktwits, but there are countless others that are built on top of Twitter by leveraging its API. I believe the real value of Twitter is in the applications, in the aggregation and monetization of vertical audiences that happen to use the platform as a medium of communication. But the question is: how can Twitter benefit from this innovation? Clearly there are analogies out there providing some guidance of what can be done, e.g., Facebook, but Twitter is a unique animal and requires its own analysis.

I wasn’t an early adopter of Twitter. In fact, I was pretty cynical and dismissive at first. But since I joined, it has rapidly become a fixture of my communication process. I sometimes substitute email with Twitter, if I need a quick answer from a friend whom I know is constantly watching their Twitter feed. I find it useful for monitoring the banter around a particular thread, and for discovering interesting links shared by people I follow.

Starting out on Twitter can be hard, however, because unless you know lots of people using it how do you know who to  follow? And how do people become aware of you? I was lucky because I knew lots of active Twitterers to ping once I got on, and between that and blogging I built a rich community pretty quickly. Not everybody is so fortunate, however.

I love Twitter because of its immediacy, the “one to many” concept and the fact that culturally, so many of those on Twitter monitor and manage their messages with a vigilance far exceeding that of email. This is its power at the most basic level. But when you think of creating communities around Twitter, be they related to companies, brands, entertainers, common interests, politics, etc., it is easy to see the massive power that can be harnessed pretty quickly.

So what do you need? Groups. Perhaps human-curated groups. With hierarchies and sub-hierarchies to help people best search and discover pockets of people they want to follow. Much as AOL, iVillage and the other major portals did to help organize and target their massive horizontal audiences. This easily helps new users get engaged and get busy, as they can simply wade in and find relevant groups with a few clicks. Further, groups are great targets for future advertising and lead generation, as they’ve self-selected into particular areas of interest.

You also need vertical applications. Investing. Shopping - cars, music, etc. Travel. And on and on. With a sufficiently robust API, the developer community can innovate in much the same way as they have for the iPhone. Create a Twitter App Store? Maybe. But the main goal should be providing the environment for developers to come up with great stuff that will be used, that ultimtely people will be willing to pay for.

But the big question in all of this is how will Twitter get paid? Should it be the one to organize the user base, or will that put it in direct competition with those who would develop apps for the platform? And what about advertising? Ads in the Tweets seems pretty far-fetched, but ads targeted at specific users within specific applications seems much more acceptable. Should Twitter take a piece of the major vertical applications that emerge, letting competing apps duke it out until a clear victor emerges and then co-opting the winners in each key vertical? These are questions Twitter management and its investors will have to answer in due course.

I never really got the monetary value of del.icio.us. But I get Twitter. The problem is that when looking at the value stack, it seems that the stuff people might be willing to pay for resides largely on top, and not inside, of Twitter. In short, I believe Twitter needs a robust and well-resourced business development function to cut deals with leading applications and to get into the flow of the revenue. I can also see Twitter setting up its own Red Hat equivalent, offering institutional-grade service and support to corporate users - for a price. Because without these steps, I don’t see what has become a viral and powerful service generating a return for its investors.