What was Twitter’s Biz Stone smoking?


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A couple of months ago, Twitter co-founder Biz Stone appeared on The Colbert Report. Watch the interview below and then continue reading the blog post. Pay close attention during the latter part of the segment as Stone describes Twitter’s plans for revenue generation.

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[NOTE: If you don’t see the video in your browser, wait a few extra seconds for it to load, refresh the browser window or view the original here, or if you live in Canada, view it here]

If you were impatient and couldn’t watch the whole thing, here’s a recap of the key parts, starting at about 2:55 into the video:

Stone: Twitter provides a new way of messaging. It’s really the messaging service we didn’t know we needed until we had it. You send out 140 character bursts of information to anyone who wants to receive it; they receive it in real time and that’s when some of the magic happens.

Colbert: [looking perplexed] It’s the what? It’s the what?

Stone: [matter of factly] The messaging system we didn’t know we needed until we had it.

Colbert: [astutely] That sounds like the answer to a problem we didn’t have until I invented the answer. [audience laughs loudly]

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http://onproductmanagement.net/2009/08/19/what-was-twitters-biz-stone-smoking/

Analysis part 1

I do agree with Stone on his first sentence. Twitter does provide a new way of messaging. I wrote about it previously in Twitter: The Napster of Messaging. But after that, Stone starts speaking mumbo jumbo.

The “service we didn’t know we needed” line makes little sense. Thankfully Colbert quickly calls Stone on it almost immediately.

Later, starting around 4:30 into the video, the following exchange happens:

Colbert: Does Twitter charge anything?

Stone: It’s totally free.

Colbert: So I assume that “Biz” in Biz Stone doesn’t stand for “business model”?

Stone: [somewhat sheepishly] No. No it doesn’t.

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Analysis part 2

This in my opinion was the best exchange of the interview. Colbert intentionally asks a question to which he knows the answer, only to follow up with a real zinger; an easy target, but quite effective. This does set up the context for further questions a few moments later.

The interview later continues:

Colbert: How would you make money? Are you going to make money off of this? How?

Stone: Yes we are. We are going to become a strong, profitable, independent company. We are going to continue to stay based in San Francisco.

Colbert: You and Pets.com.  [audience laughs. Stone looks annoyed.]

Stone: We are recognizing a difference right now between profit and value. We are building value right now.

Colbert: Wait. What’s the difference between profit and value?

Stone: Well right now we are building on value. That means extending the service worldwide, globally, so that more people have access to the real-time network. And not just on the internet. There are over 4 billion mobile phones and when we network them together it is very transformative especially when you realize it works over both texting and the web.  As we grow that network it becomes more valuable; as we add features to it, as we make it more robust. When we get to a certain point where we feel we’ve gotten there, we’ll begin experimenting with revenue models. This is not unlike how Google approached their revenue.

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Analysis part 3

This last exchange is where I think Stone goes right off the rails. His line about “value” and “revenue” is utter rubbish.

Extending the service – taking it global etc. — has nothing to do with value. That’s called “extending the service”. Value is not added with new features and capabilities. To quote Warren Buffet:

Price is what you pay. Value is what you get.

Value is delivered or derived, not added through code and new functionality. Newsflash Stone! Millions of people are getting value today out of Twitter. Even with the frequent appearances of the Fail Whale, people continue to use the service.

And what’s this about Twitter networking the world’s 4 billion mobile phones together and being “transformative”. That’s just more mumbo jumbo.  I guess with 45 or 50 million users of Twitter today, that’s just not enough to figure out how to generate some revenue?

Finally, what’s with the line “When we get to a certain point that we feel we’ve gotten there…” Huh???? Biz, could you just be a little more specific? And, hey VCs who’ve invested MILLIONS into Twitter….is this what passes for intelligent business speak from the founder of one of your portfolio companies?

But the interview continues:

Colbert: How long out is that?

Stone: How long is what?

Colbert: Before you experiment with revenue.

Stone: We’re going to start experimenting this year. But we don’t have to hit a home run right away. We have patient investors. We have time to work it out. We’re going to be exploring and experimenting starting this year and we have time to figure out what the perfect revenue model is.

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You can see the new version of this article at the following URL:

http://onproductmanagement.net/2009/08/19/what-was-twitters-biz-stone-smoking/

Analysis Part 4

Hold on a minute. Almost immediately after saying “When we get to a certain point that we feel we are there…“, Stone indicates that “this year” is when that certain point will be reached that they will feel they are there. Wow. So why didn’t he say that in the first place?

So in summary what is Twitter?

It’s a free service that solved a problem people didn’t know they had. They’ve raised tens of millions of dollars in VC money, and the company’s goal is to be a strong, profitable, independent software company based in San Francisco. They’re currently in a phase of value building but later this year they will start “exploring and experimenting” with revenue models, but there is no urgency to find great model because they have patient investors.

For those you reading this, I’d love to hear your thoughts. Personally, I find the whole interview rather amusing; and not in the typical Colbert way. Stone seems like a nice guy, but his comments in the interview truly leave me suspicious about Twitter ever generating sustainable revenue, and also leave me wondering, what he was smoking when he went on the show?

But maybe I’m wrong. What do you think?

DID WE SAY THIS BLOG HAS MOVED?

http://onproductmanagement.net/2009/08/19/what-was-twitters-biz-stone-smoking/

Saeed

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17 responses to “What was Twitter’s Biz Stone smoking?

  1. Please enlighten me. Aren’t new features what you get? When you get new features aren’t you getting value?

    • Jeremy,

      Short answer now, more detail later if needed.

      *** Features do not equal value. ***

      If that were not the case, then endlessly adding features would continuously increase the value of any product, particularly software. That is clearly not true.

      Sorry for all the double negatives. 🙂

  2. I wouldn’t harsh too hard on “solving a problem people didn’t know they had.”

    In the early days, people didn’t know they needed a cellphone until they got one. And many people couldn’t foresee why they would really need the Web.

    There are plenty of latent needs that we have, which we are satisficing around. Only when a quality product emerges to fulfill one of those needs do we become aware of it.

    Philip

    • Philip,

      Thanks for the comment. While most people (myself included) didn’t know how useful a cell phone was originally, there are 2 differences with Twitter that must be noted in your analogy.

      1. Cell phones and cell service were not free for the masses when they first came out.; they cost a pretty-penny and had value for those who could afford them. If they were free, people would have found uses for them very quickly.

      2. A corollary to #1, there was a clear business/revenue model from day 1 with cell phones. The same can’t be said for Twitter.

  3. While I haven’t drunk the Twitter Kool-Aid yet I think Biz Stone didn’t realise this was an opportunity to sell the idea of Twitter. I just put it down as bad interview. Stephen Colbert just did what he does best and that is entertain. Unfortunately, it was at the expense of Biz Stone and Twitter.

  4. Saeed, I think you missed the boat on this one!

    Stone doesn’t equate “value” with “features.” Stone says “value…means extending the service worldwide so that more people have access to the real-time network” and “As we grow the network it becomes more valuable.” (He actually equates features with “robustness.”)

    That makes sense to me. Network effects create the situation where the more users own or have access to a node in a communication network, the more valuable that communication network is to each user. This is Social Software 101 stuff. Twitter becomes more valuable to me the more people — especially people I’m interested in following — are participating in that network.

    But more to the point of this interview, that network effect is probably even more important to revenue strategies, at least in the case of Twitter. Most of the potential revenue opportunities for Twitter revolve around leveraging the real-time nature of the data that flows into Twitter. The more real-time input Twitter has — i.e. the bigger its network — the more useful and accurate and — dare I say it — valuable the aggregation of that real-time data becomes. For example, its not uncommon these days for news to breaks on Twitter before it breaks on other networks because of the real-time nature. Being able to capture and mine that trending data is probably something that someone will pay for!

    So I doubt Stone is arguing that a bigger network = more value for the individual end user (although I think that’s true), but, at least in the context of this interview, I understood his statement as a response to the business model question: a bigger network gives Twitter the critical mass it needs (“the value”) to get someone to pay for access to this real-time, user-generated data.

    Finally, although the “messaging service we didn’t know we needed until we had it” bit is pretty glib, I don’t think it’s inaccurate. Remember, Twitter wasn’t initially a product. Biz Stone and Ev Williams (who also founded Blogger) had launched a separate company, Odeo, a podcast creator/aggregator site. Twitter was an internal project for Odeo employees and their friends that quickly become more compelling than Odeo. Stone & Williams sold off Odeo, and devoted their efforts to Twitter. Plus, I think it probably took a year or two for Twitter to gain enough network growth before it started to become obvious that the revenue opportunity was likely to be the value of capturing that real-time data flow. Glib? Probably. But I don’t think it’s inaccurate to say they didn’t know what they had until they had it.

  5. I am going to agree with Greg on this one and say that Saeed missed the boat on the the value equation here. I agree that Biz is a horrible spokesman, but assuming he understands the economics of the network effect he is absolutely correct in realizing that the biggest value will accrue for Twitter in the long run after they can amass a huge user base. This isn’t about figuring out how to monetize “eyeballs” circa 1999 but rather about how new communication/interactive platforms can’t start throwing off cash until there are enough nodes for them to be interesting. It isn’t just social software 101, it goes farther back to econ 101 and the basics of trade.

  6. Biz Stone is talking about charging for commercial tweets, and data mining information: http://ow.ly/kZ1l

  7. Perhaps you can all talk to Facebook about growing your network to achieve value. Hey Mark, how is that business plan coming along? Twitter is nothing more than a big honking hobby and Biz knows it. They cannot monetize this beast.

    • Stewart,

      Facebook is just too easy a target. But, they have the same problem, only magnified many times over. And BTW, the same is true for YouTube. Google is “investing” well into the 9 figures annually for infrastructure and other costs to keep it going.

      I actually use Twitter so I’d like to see it become a “strong, profitable, independent company”, though I don’t care if they are based in San Francisco or Santiago.

      But, given what I see up to now, my view is someone will acquire them well before they reach break even. And for the “patient investors”, that’s really all they care about.

  8. Maybe they can build a business model or maybe they will flounder and be subsumed into Google/Yahoo/Microsoft’s tech stacks.

    Stay tuned.

    Biz sounds to me like one of those DotCom, new-economy-buzz-word twits.

  9. Greg, Jerry

    Thanks for your comments. As you guys are in agreement with each other, I’ll respond collectively to both of you.

    There is clearly room for debate here, as none of us have a crystal ball into the future, but the argument about the network effect is not new at all and far from being on solid ground.

    It’s the same argument that was made about Facebook , YouTube, Friendster and many other social networking or user-generated content sites.

    It is a no brainer (as Greg says Social Networks 101) that more users connecting with each other increases value to those users. But that’s meaningless if you cannot find one or more scalable and sustainable revenue models to support that growth in usage and connectedness.

    There are potential data mining opportunities on Twitter. But how big is that market opportunity? It doesn’t pass the “smell test” that data mining can generate significant revenues. If it could, every other major social networking site would be touting the tremendous value of their data mining analytics and generating a lot of revenue from it.

    Yes, news can break via Twitter very quickly, but then what? As a recent discussion on this very blog indicated (http://bit.ly/mlB4m), Twitter is great place to start a conversation, but other media are much better at sustaining or delving into it.

    As for the meaning of “value” in Stone’s comments to Colbert, he said a number of things add value, including better infrastructure, features, reach etc.

    But in saying so, he explicitly skirted the question being asked about revenue. Let’s be clear. Stone, the other Twitter execs, their BOD etc. all knew that the Colbert interview was important, that it would be seen by a large audience and rebroadcast via the web, on Twitter etc. to an even larger audience. So, he had a lot of prep for that interview, and lines like “the messaging service we didn’t know we needed ….” as well as the revenue vs. value answer were created, approved and rehearsed by Stone well before the show.

    And the best they could do when answering what was a very obvious question about revenue generation was a vague answer with enough wiggle room to sail a battle ship through? Doesn’t hold water. (No pun intended). It says to me, they really don’t have a better answer.

    And this phrase “experimenting with revenue” is so bizarre. I mean who says stuff like that? Do they want to be a profitable business or not? If so, then they should speak as if that is their goal. Not humming and hawing about experimenting and doing it when they “feel that they gotten there” etc. This is the problem one ends up with when they create a business with absolutely zero upfront thinking about actually generating revenue.

    Twitter has seen hyper-growth this past year and has become a media darling among tech companies, and quite a popular company to blog about. 🙂

    But, in the end, it needs to become a business like most others, or the patient investors may not be as patient a few years from now (say 2012) if Twitter isn’t generating a lot of cash or been acquired for at least 10x of their investment.

    I’m not doubting that there are revenue models for Twitter to pursue. But are there scalable, sustainable models will make Twitter cash flow positive to be a strong, profitable and independent company? I have my doubts. And recent history is full of many similar, highly popular and well funded companies that had failed to ever turn a profit.

    Saeed

  10. Regarding the “building value” statement – Twitter is a three party model (at the very least). The value for brands and marketers is in part the volume of information accessible from twitter. More people = more insights = more value. Likewise larger potential addressable audience = more value. In this case, expansion and growth are directly related to perceived value by this group.

    • Kevin,

      Agreed, there are at least 3 parties. Twitter is an intermediary delivering the service to the publishers (individuals and organizations) and their followers.

      The question is who would be willing to pay for analytics or other services that Twitter could offer, how much, and whether the addressable market is something that is sustainable over time.

      My view is that while Twitter is popular (with a subset of the population), there is enough usage by individuals and businesses that Twitter should be able to start generating revenue without significant expansion.

      We’ll see what experiments Stone and crew start “later this year”.

  11. Hi Saeed,
    You said:
    So, he had a lot of prep for that interview, and lines like “the messaging service we didn’t know we needed ….” as well as the revenue vs. value answer were created, approved and rehearsed by Stone well before the show.

    We all hope that is true… but if not, Stone wouldn’t be the first CEO to think he was smart enough to ‘wing it’ in an interview.

    I happen to agree with your points (and Greg’s) – I think he could have done better. If he was advised & rehearsed by his PR team, then shame on them. If he overrode their advice, shame on him.

    But I think that old adage applies here: all PR is good PR.
    -Linda

  12. Saeed,

    I am a newbie twit and Stone’s viewpoint on analytics cautions me a little on using Twitter for long term gains. If they are trying to build analytics on the basis of opinions of people (who can be opinionated – there was Alan’s post on the top of the inference ladder), I would be wary.

    I send out good tweets (I know this because there is an awful lot of junk on Twitter) and I invest time on it. It does help build relationships. But using the result of tweet analysis and paying for it ? That somehow does not go with my entrepreneurial instincts. Would I try delivering value to my clients based on gut feel and ‘top-of-the-ladder’ opinions of a diverse audience ?

    I am in the B2B space. I have a few but serious customers. Twitter is a long way from telling me that it can be really useful.

    And then there is this funny view on revenue experimentation…For a second, take the investors away – would you still be playing this game ?

  13. Dheeraj,
    I love your connection between the “ladder of inference” and the usefulness of the Twitter data for data mining. More like opinion mining. Interesting connection.

    For those interested in the article Dheeraj refers to, it’s here:
    Tweet wars: The limits of debate in 140 chars. or less
    http://onproductmanagement.net/2009/08/20/tweet-wars-the-limits-of-debate-in-140-chars-or-less/