The Tweets They Are A-Changin’: Twitter API Changes from an MBA Perspective

The Tweets They Are A-Changin’: Twitter API Changes from an MBA Perspective main image

This Article Summarized in One Tweet: Twitter's $8 billion valuation caused surprisingly aggressive competitive moves against social, advertising, and media companies.

Twitter has made a lot of powerful enemies in the past six months. By pushing into unexpected markets and using unforeseen tactics, they’re absorbing a lot of risk to increase long term value.

Twitter shed its image as a tool for sharing lunch choices years ago, but they caught everyone’s attention last year when they snagged a metric boatload of cash ($800 million at an $8 billion valuation). Twitter’s leadership evidently believed the company’s existing strategy couldn’t deliver returns in an acceptable time. Still, few at the time predicted the range of companies Twitter would kill or alienate.

The Previous Twitter Monetization Model and Why it Needed to Change

When Twitter raised that $800 million in 2011, hundreds of companies were springing up to offer services that let people Tweet, read Tweets, analyze users, share images, and so forth. They made $139 million in 2011 almost entirely from Promoted Tweets.

Was $139 million good? With 100 million active users in 2011, each user generated an average of $1.39. By comparison, Google’s estimated 1 billion users generated $37 on average in 2011. Twitter would have to increase that $1.39 by 2560% to equal Google. Google was 27x better than Twitter at monetizing users. You get the picture.

The comparison with Google is fair. Google tightly controls the distribution of their content and ads, and also exerts tight control over their supply of data. Twitter was the opposite. They let anyone pilfer their most valuable assets -- Tweets and data -- in exchange for sustaining users, which are necessary but also drive infrastructure and serving costs.

Remember the “milkshake” scene from There Will Be Blood? All these companies were drinking Twitter’s milkshake and sticking them with the bill.

Twitter API Changes

Twitter needed to push towards having a monopoly on real time, public sharing.

The specific actions they took were:

Revoking or severely limiting API access to distributors. All those startups that built new interfaces for Twitter.com were swiftly executed
Taking control of content consumption by including media in Tweets and building their own photo sharing service
Blocking specific rivals (Facebook, Instagram, Tumblr) from using the “Find Friends on Twitter” function
Building embeddable “cards” that extends Twitter’s, and its advertisers’, reach onto websites around the web.

Twitter’s Choices Explained through the Five Forces Framework

Every MBA’s good friend Michael Porter can help explain these choices with his Five Forces framework.

The API changes decreased Supplier and Buyer power, and also reduced the threat of Entrants. Suppliers were apps feeding Tweets into the ecosystem other than Twitter’s official site and apps. Buyers were advertisers, who would have eventually been able to purchase ads on properties Twitter didn’t own. The threat of Substitutes came from the risk people would be more attached to a frontend (TweetDeck) than the backend (Twitter’s infrastructure), allowing a frontend company to switch to, or incorporate other, backends.

The API changes represented a dramatic shift in philosophy, but their push to unseat news aggregation services like The Huffington Post, Google News, LinkedIn, and Flipboard are even more aggressive. News aggregators are Substitutes for Twitter: they’re another place to learn what’s happening in the world. As Twitter allows publishers to include richer content when their links appear in Tweets, and continues refining their Discover tab, they aim to siphon people away from the incumbent aggregators.

They’re also laying the foundation to challenge Substitute advertising companies like Google, Yahoo!, and ValueClick who run ad networks. Publishers can now embed custom timelines onto their sites. The countdown begins until advertisers can choose to target based on sites using these features, which is a direct shot at the enormous ad network business.

They also unveiled an impressive self-service advertising managers that is remarkably similar to Google’s cash cow, AdWords.

Finally, Twitter methodically assessed their least favorite companies and severed their API access. If you joinInstagram or Tumblr and want to find people you follow on Twitter, tough luck. Twitter’s not in the business of helping those companies grow, and they certainly don’t want to pass them data that could be used for ad targeting.

Will angry developers embrace other realtime platforms like App.net or Google+? Will advertisers really shift budgets away from established formats? Will consumers use Twitter as their go-to news source?

We’ll have to wait for those answers, but it’s clear Twitter will keep bulldozing small and large companies until their investors believe they’ve earned that $8 billion valuation.

About Juston Payne

Juston Payne works on Google’s Play Store. He worked at foursquare while getting an MBA from NYU Stern. He writes about social media and technology at DVWLR.com and Tweets from @justonpayne.