Dear Twitter, (A Simple Solution To Your Economies Of Scale Problem)

by M. David Peterson

Solution One: Put phriggin' AdSense ads on everyones profile page already!

Do you honestly think anyone would care? And if they do, offer them a premium "Don't put ads on my profile page, damn it!" opt-out plan. WeatherBug does it. (For weather info I can get for free by sticking my head out the window!) Why can't you?

Oh, and don't even think about charging me for the right to "tweet". Imagine a world where the ideas of yester-year to impose an SMTP "stamp" came into fruition.

Actually, nevermind. Forget that. SMTP would have never existed (clarification: SMTP, in the form of sendmail, existed *LONG* before the "email stamp" tax ideas came into existence. So SMTP would have survived. The idiotic politicians who made attempt to implement this plan, on the other hand, wouldn't have survived.), nor would it continue to exist if such a scheme were imposed.

Of course, we all seem willing to pay our mobile phone providers anywhere from a penny to twenty cents USD to send the equivalent of a tweet to our buddies mobile device. With this in mind, herein lies the other revenue streams you seem to be more than happy to neglect,


25 Comments

Aaron Fischer
2008-05-29 11:51:22
You don't need revenue when you have VC money.
M. David Peterson
2008-05-29 12:00:57
@Aaron,


Where in the hell did you contrive that ridiculous idea from? Come on, Aaron Fischer, you can do better than that! Do you honestly believe that VC's don't care about revenue stream(s)?


Answer me this: If you were a VC, would you invest money into Twitter? If yes, why?


BTW... "Future acquisition target" is a bullshit "I don't have a clue how the the mind of a VC actually works" response. Use it responsibly. ;-)

Aaron Fischer
2008-05-29 12:17:45
I would have a hard time investing in twitter since they don't have a revenue stream. And I don't believe in ad supported. That didn't work so well in the last bubble. If they offered a service for a price. Now that is a model I can buy into.
But seriously what is twitter up to? it has to be a future acquisition since they offer a free service with no ads. What other revenue model is there?
M. David Peterson
2008-05-29 12:43:33
@Aaron,


>> I would have a hard time investing in twitter since they don't have a revenue stream.


Exactly! They don't have a visible plan for a revenue stream. So why invest?


Hype?


Hype gets you nowhere fast as far as revenue streams are concerned. And the only folks who -- generally speaking -- profit from hype, are the ones who are able to back up the hype with a realistic "Here's how and where we will make profit" plan.


For example, YouTube. Marc Cuban believed he could prove that their bandwidth consumption alone would destroy any potential profit from ads.


1billion.some-ridiculous-amount-of-money later -- quite obviously -- proved Marc Cuban wrong.


But not because MC sucks at math, and instead because he underestimated the power -- and therefore value -- of critical mass.


Critical mass is why Hotmail -- with *1 million* users at the time of its acquisition -- demanded 250 million dollars on the open market.


Now fast forward ten years and MSFT *robbed* Jack Smith in open daylight, as did Google to Chad Hurley and Steve Chen in its -- at the time -- mind boggling acquisition of YouTube.


The folks who make these decisions -- setting aside Yahoo! and some of their mind boggling acquisitions (e.g. Marc Cuban/Broadcast.com, ironically) -- are not idiots. They understand the value of these acquisition targets. But these same targets have *always* had revenue streams.


Twitter doesn't have one. Why?


>> And I don't believe in ad supported. That didn't work so well in the last bubble.


WTF? Aaron! Come on, now! I know you're smarter than this, so why make such a silly statement? Is Google's 20 *freakin* billion a year off of ad revenue not enough to convince you of your error prone response?


Web 2001 != Web 2008.


The 2001 bubble happened because of the belief that the potential for revenue streams existed without providing proof that the world was ready to "pay up" so to speak. Google has since proved that -- in theory -- the .com bubble investors were right, if not slightly off target by 3-4 years in their belief that the market existed.


>> If they offered a service for a price. Now that is a model I can buy into.


Why? Give me one solid reason you -- as a Twitter subscriber -- would be willing to pay for their services.


>> But seriously what is twitter up to?


Great question!


>> it has to be a future acquisition since they offer a free service with no ads.


I agree with the notion that this is where they placed their exit strategy. I just don't believe they thought their exit strategy all the way through.


>> What other revenue model is there?


The same model that generates 20 billion/year for Google. I do understand and recognize that the ad supported business plan is not one that is easily swallowed at first sight.


But 20 billion/year and growing proved the naysayers wrong.


As it should have! How big is the broadcast television market? *WELL* above 20b per year, *ALL* of which is generated from advertisers.


And it surprises us that this is how the next generation of content distribution is funded?


Why?

Edward Grech
2008-05-29 13:53:00
If I send a tweet from my mobile, I am paying my mobile operator money that I wouldn't have paid had Twitter not existed. So shouldn’t Twitter strike deals with mobile operators and get a share of that money?


And I never really understood what’s the problem with ads. Why not? Twitter knows what you're interested in, what channels you're following, etc. I see no harm in some targeted ads on the side a-la Google.


And this might be a bit off-topic… or maybe not, but I can’t understand why Twitter haven’t yet implemented their own tinyurl.

M. David Peterson
2008-05-29 15:06:09
@Edward,


>> If I send a tweet from my mobile, I am paying my mobile operator money that I wouldn't have paid had Twitter not existed. So shouldn’t Twitter strike deals with mobile operators and get a share of that money?


Sure. But what's their leverage point? A piece of physical hardware is more powerful than a piece of meta-physical non-hardware such as a Twitter account. So how do I negotiate with the mobile web service provider?


>> And I never really understood what’s the problem with ads.


You and me both, brother! (Twitter: Pay the fuck attention. PLEASE!)


>> Why not? Twitter knows what you're interested in, what channels you're following, etc. I see no harm in some targeted ads on the side a-la Google.


It's like AdSense on Ecstasy! It honestly couldn't get any better than this!


>> And this might be a bit off-topic… or maybe not, but I can’t understand why Twitter haven’t yet implemented their own tinyurl.


Because they still don't get their own business model? Don't know, but yeah: I can't help but agree.


@Biz Stone: Firstly, WTF? Secondly, can you make up a better name? Please!? Thirdly, are you -- honestly -- that naive? /methinks not. But you haven't really done much to argue your case against simple naivety. Are you really just that dumb?


Again, /methinks not. But, again, you haven't proven your case otherwise. I think it's time that you do. Seriously.

Aaron Fischer
2008-05-30 07:53:45
Twitter already has atleast 15 million in VC money. http://www.techcrunch.com/2007/07/26/twitter-gets-their-venture-round/
http://gigaom.com/2008/05/21/twitter-series-b-funding-done-raises-15-mm/
Chris Josephes
2008-05-30 10:52:20
M,
The right to "tweet"?


I think I know what you mean, but in the space of 2 paragraphs you say "don't charge for every message", and then "charge for every message".


Binny V A
2008-05-30 11:51:32
There is a technology component in the scaling issues of twitter - that will be harder to fix.
M. David Peterson
2008-05-30 13:12:53
@Aaron,


>> Twitter already has atleast 15 million in VC money.


15 million in VC funds isn't going fix Twitters scaling problem for one very important reason: Twitter is growing rapidly, and the only way to deal with rapid growth is to scale your hardware to cope with the growth. EC2 is certainly one way to handle such growth, but just like any hardware solution, EC2 costs money. You might be amazed at just how fast you can blow through 15 million, and while they can certainly go back to the well in attempt to get more funding, that process becomes harder and harder to do when you've yet to prove you know how to generate revenue.


Of course to get the 15 million in the first place they had to convince someone there was money to be made. So maybe I'm just not giving Twitter enough credit, and they do have a convincing plan related to how they plan to generate revenue. But they'd better hurry up and put that plan into action, because as I've already pointed out, 15 million goes a lot faster than most people might realize.


One other point: via a May 21st blog post from Jack@Twitter,


http://blog.twitter.com/2008/05/i-have-this-graph-up-on-my-screen-all.html


>> "We've gone through our various databases, caches, web servers, daemons, and despite some increased traffic activity across the board, all systems are running nominally. The truth is we're not sure what's happening. It seems to be occurring in-between these parts."


In other words, they don't even know what the problem is, much less how to fix it. The funny thing is that it's not like Twitter is the first messaging system on the planet. *PLENTY* of companies on this planet deal with many magnitudes more volume than does Twitter and they handle that volume just fine. From what I understand, they're starting over from scratch with their system design. But will this go round be any different? Do they have the in-house talent to make it work? And if yes, will they be able to scale their hardware any further w/o generating a steady stream of revenue to pay for the expansion?


Time will tell.

M. David Peterson
2008-05-30 13:14:53
@Chris,


>> I think I know what you mean, but in the space of 2 paragraphs you say "don't charge for every message", and then "charge for every message".


I do. Hmm... That's certainly not what I meant. Guess I need to reread the post and figure out where I went wrong. I'll attempt to clarify the text a bit further.

M. David Peterson
2008-05-30 13:18:42
@Vinny,


>> There is a technology component in the scaling issues of twitter - that will be harder to fix.


Are you referring to Rails? Of course, there's a mob of Rails developers who will take immediate defense claiming "It's NOT Rails!". Whether it is or is not is neither here nor there: Unless they were to open source the platform no one on the outside can say one way or another what the problem is.

M. David Peterson
2008-05-30 13:26:46
@Chris,


I've updated the post. Hopefully this clarifies my position a bit further.


Thanks for pointing this out!

M. David Peterson
2008-05-30 13:43:20
@Aaron,


One last point to consider: The reason Twitter is going to have a hard time using a future acquisition strategy is due to the fact that eBay has previously shown that the "We'll figure out a way to make money from all of those users" idea just doesn't work. They paid 2.6 billion+incentives to acquire Skype with the belief they could generate revenue and have since admitted it was a mistake. Before the eBay Skype acquisition, anyone who had the amount of money Twitter will demand would have been *extremely* leery of acquiring a company that hasn't proven they can generate revenue, regardless of how many users they have on the system. With eBay having proven that just such a strategy was a mistake, I have serious doubts anyone else will be willing to take the same risk.

Ric
2008-05-31 08:42:33
M. David,
You are wrong! All respect, buddy, but dead wrong.
I _KNOW_ the free model. It Sux. Ad driven only works for Google because people are SEARCHING for something. Look how poorly Facebooks ads are REALLY doing because they are not focused and people just ignore them. I think MySpace does much better BECAUSE it is run by a media company which is using it as another outlet for their message.
Twitter using an Ads in the way you propose would NOT work.
Charging the service providers IS better, but not the whole boat.
I believe there *IS* a model for a NEW twitter where the users would pay a reasonable fee. I would bet dollars to donuts that Scoble would pay if the service NEVER went down.
M. David Peterson
2008-05-31 18:00:57
@Ric,


>> You are wrong! All respect, buddy, but dead wrong.


No I'm not. You're just slightly confused by my point. Explanations inline below.


>> I _KNOW_ the free model.


No you don't. Your experience involves giving away something for free (e.g. Free.tv) that people already get for free.


>> It Sux.


The *for free* TV industry is a 300 billion per year market. That's *six* times what MSFT makes per yer for *not free* products. So you're saying that 6 times the pay-to-play market sux?


Please clarify.


>> Ad driven only works for Google because people are SEARCHING for something.


Bullshit. AdSense is more than search. It's discovery. Twitter represents the perfect model: I write: "I think 'X' sucks!'. An ad for 'X' appears on the same page. 2-3% of the people who read "I think 'X' sucks" will click on an ad that suggests otherwise.


It's made Google a 20 billion/year monster.


With all due respect, what's Free.tv made you?


>> Look how poorly Facebooks ads are REALLY doing because they are not focused and people just ignore them.


No they don't. Show me proof. The same 2-3% click on Facebook ads as do Google ads. Show me proof otherwise, or accept the fact that you've completely miscalculated your stance.


>> I think MySpace does much better BECAUSE it is run by a media company which is using it as another outlet for their message.


Huh? Ric, WTF is your point? Ads are *always* about someone else's message. That's why people pay for them.


>> Twitter using an Ads in the way you propose would NOT work.


Yes it would. It's as targeted as you could possibly get. You've got 140 characters to state your message. So you find every fine tuned keyword you can. AdSense is built on top of auctioning keywords. Get the connection? I hope so, because apparently you need a refresher course on marketing. Code you can write. Marketing you do not understand. Period.


>> Charging the service providers IS better, but not the whole boat.


*NO ONE WILL PAY*, Ric! The Internet isn't owned by one controlling entity. There are other options. And people will use those options.


>> I believe there *IS* a model for a NEW twitter where the users would pay a reasonable fee.


Believe all you want. You're still wrong.


>> I would bet dollars to donuts that Scoble would pay if the service NEVER went down.


Scoble is an anomaly. And Scoble alone can't fund Twitter into profitability.


Ric, seriously. You haven't thought this all the way through.

Ric
2008-06-01 12:12:39
@M,


(Received via email from M. David)
>>>> To further clarify: No disrespect is meant. But you don't have the qualifications nor the facts to back up your claims, which is why I responded as harshly as I did. I hope you can take my comments in the same way they were meant: Not in disrespect, but in contention to the way you presented your own reply.


I have suffered critique from the communities of Drupal, JavaScript, jsON, WordPress, OpenAjax, and more. Don't worry about hurting my feelings. You are no doubt l33t - you do such kewl stuff that I stand back in amazement. BUT do NOT think for a minute that I "do not have the qualifications."


>> I _KNOW_ the free model.
>>>> No you don't. Your experience involves giving away something for free (e.g. Free.tv) that people already get for free.


Did you even look at my business model? People do NOT get Free TV anymore! They pay $30 to $60 a month AND watch commercials. I also founded a few other Free models, perhaps you may have heard of them? I admit the 'free beer' model that is true OpenSource gives me a bit of issues, (cuz of my long Microsoft experience) but I have been at it for more than NINE years, so I do have a least a little experience with Free.


>> It Sux.
>>>> The *for free* TV industry is a 300 billion per year market. That's *six* times what MSFT makes per yer for *not free* products. So you're saying that 6 times the pay-to-play market sux?


I seem to remember a post from you saying that VCs only fund a model that makes money. And giving it all away with out an EVENTUAL revenue stream will always die.
Notice I did not say the Free model is impossible. Just that is Sux. I staad by my assertion.


>>>> Please clarify.
Ok. I agree that, before cable, TV was 'Free' - that is ad supported. Now people pay for it. Cable companies are making a mint. I was kinda hoping that something would change that: Tivo, YouTube, Wimax, IPTV, I don;t care - anything.


>> Ad driven only works for Google because people are SEARCHING for something.
>>>> Bullshit. AdSense is more than search. It's discovery. Twitter represents the perfect model: I write: "I think 'X' sucks!'. An ad for 'X' appears on the same page. 2-3% of the people who read "I think 'X' sucks" will click on an ad that suggests otherwise. It's made Google a 20 billion/year monster.


You do realize that Google has several patents on context based Ads? That is why they are making money and no-one else can. On top of that, their search is the BOMB. Oh- they also have some IP on that too. But my point, which you seemed to miss entirely, is that Facebook's Ads have a MUCH lower click-through. This is because people's intention for the service is different. Sure, if I am on a social service, and I HAPPEN to search for something then I MIGHT click on a relevant ad. Twitter would be oh so worse. The majority of content is not part of the normal path conducive to ads.


>>>> With all due respect, what's Free.tv made you?
Ok, it's true that I am not a millionaire. But, then again, Free.TV is still alive, unlike 99.99% of other 'Free' services founded before the (First) dot com bomb.


>> Look how poorly Facebooks ads are REALLY doing because they are not focused and people just ignore them.
>>>> No they don't. Show me proof. The same 2-3% click on Facebook ads as do Google ads. Show me proof otherwise, or accept the fact that you've completely miscalculated your stance.
Hey! Could you perhaps guess I also know a thing or two about debate? Don't put the imperative on me - YOU come out with the hard numbers otherwise your point isn't proven either.
I admit my thesis is based on what _I_ see in the industry, but I think most people would agree with me: Context is king.


>> I think MySpace does much better BECAUSE it is run by a media company which is using it as another outlet for their message.
>>>> Huh? Ric, WTF is your point? Ads are *always* about someone else's message. That's why people pay for them.
My original premise is that Google makes the $$$ BECAUSE people are looking for something. I did not say that FB does not make any money, just that they have the capability to make LESS on an ROI basis. I was countering that with a similar social network: MySpace. They also have a lower click rate, BUT they already have the media back-end. For example, if a new movie comes out from FOX, it costs them nothing to promote it in from of millions. (Ok, it does cost them in replacement revenue for other ads they could have placed.) But my OTHER point is that MEDIA ads (for exposure rather than direct purchase on the web) have much more impact on a social network, which is NOT twitter.


>> Twitter using an Ads in the way you propose would NOT work.
>>>> Yes it would. It's as targeted as you could possibly get. You've got 140 characters to state your message. So you find every fine tuned keyword you can. AdSense is built on top of auctioning keywords. Get the connection? I hope so, because apparently you need a refresher course on marketing. Code you can write. Marketing you do not understand. Period.


um... You seem to be a little astray. I actually do know quite a bit about marketing. My first job out of college was at Media Marketing Assessment, the ONLY 3rd party marketing analysis company that landed a contract with McDonalds, all because of the code I wrote. Ok, the actual marketing analysis was done by Neil, Jim, and the rest of the marketing geniuses at MMA, but I picked up a thing or two. Question Mark?
Getting back to your statement: 140 characters simply will not do, especially with TinyURL as the only intermediary. Also, need I remind you that Twitter does not own AdSense? Yes, they can USE it, but this business model is already a razor thin.


>> Charging the service providers IS better, but not the whole boat.
>>>> *NO ONE WILL PAY*, Ric! The Internet isn't owned by one controlling entity. There are other options. And people will use those options.


What other options Exactly? Other than FriendFeed, I do not know of anything that can compete right now.


>> I believe there *IS* a model for a NEW twitter where the users would pay a reasonable fee.
>>>> Believe all you want. You're still wrong.


Is there someplace we can hold a poll? I am willing to BET that people WILL pay for Twitter IF they guarantee uptime. You game?


>> I would bet dollars to donuts that Scoble would pay if the service NEVER went down.
>>> Scoble is an anomaly. And Scoble alone can't fund Twitter into profitability.
Scoble is _THE_ king. I agree that he may not fund a start-up, but he can certainly knock one down. Before you think this is just a fanboy post, please look what the OTHER A-List geeks are saying about Twitter. It Ain't good.


>>>> Ric, seriously. You haven't thought this all the way through.
Actually, I have though about this quite a bit. I am willing to learn something though.


I have an idea! Lets have a DeathMatch PodCast! We ask Arrington to moderate and the loser has to fly out FROM Utah to apologize.


(Sorry about that last one :)
Ric

M. David Peterson
2008-06-01 17:05:31
>> I have an idea! Lets have a DeathMatch PodCast! We ask Arrington to moderate


Let's do it! :D


>> and the loser has to fly out FROM Utah to apologize.


I didn't know you live in Utah? Nice! ;-)

M. David Peterson
2008-06-01 17:07:58
@Ric,


>> You do realize that Google has several patents on context based Ads? That is why they are making money and no-one else can.


What? Plenty of other ad companies are doing context based ads, so I'm not sure what you mean.

Ric
2008-06-01 18:20:25
@M,


>> I have an idea! Lets have a DeathMatch PodCast! We ask Arrington to moderate
>>>> Let's do it! :D


Actually, I was partially serious. I would LOVE to discuss this over the phone or somethin'. The new comment latency here is counter conducive to spirited discussion. Besides, I do not trust my writing skills to communicate my true message.


>> and the loser has to fly out FROM Utah to apologize.
>>>> I didn't know you live in Utah? Nice! ;-)


To other humble readers, this is an inside joke. I live in PA, so by saying the loser would have to fly FROM Utah to apologize, it was a snide way of saying that it is a forgone conclusion that Mark would lose. Mark, of course is so cool he took it in stride.
Mark: I wish I was in Utah, so we could have these discussions face 2 face. Much would be learned.


>> You do realize that Google has several patents on context based Ads? That is why they are making money and no-one else can.
>>> What? Plenty of other ad companies are doing context based ads, so I'm not sure what you mean.


Ok, again you caught me talking out my arse: I do not know the exact facts. But I seem to remmber that Google purchased a company specifically for the AdSense Intellectual property - context based advertising. On the other hand, I have also notices a few other companies that recently have similar models. Perhaps Googles' patent is specific to Automation and the other guys have to do it by hand? Maybe the big G ain't the suing type? I dunno.


I know you are a busy man, but do you have any replies to my big A$$ post? By the way- ya think Kurt may throw us both off for cursing like PopEye?


One last thing - In case anyone out there reads these smarmy posts and begins to think otherwise: M. David Peterson is my hero. (See my other posts through out the YEARS for proof on that one) I may get a little big headed about my code-fu, but Mark is the sensai.

M. David Peterson
2008-06-01 19:27:20
@Ric,


Sorry, I'll reply in greater length later this evening. Have some deadlines to meet at the moment.


jimothy
2008-06-02 10:21:39
The "email stamp/tax" was a hoax. There were no politicians, idiot or otherwise, proposing this idea.


http://www.snopes.com/business/taxes/bill602p.asp

M. David Peterson
2008-06-02 11:26:20
@jimothy,


It's funny to me how people will go to snopes *first*, find the first article which is even remotely similar to what they want to proclaim as the "truth", and then use that as the basis of their argument.


>> The "email stamp/tax" was a hoax. There were no politicians, idiot or otherwise, proposing this idea.


The postal service "stamp tax" may have been a hoax, but the existence of the email stamp tax ideas are quite real. Please do some more research. You can start here > http://www.cnn.com/2004/TECH/internet/03/05/spam.charge.ap/


Nowhere above did I say "postal service". The idea to impose an email stamp tax has been floated around for *years* by various groups, including some well intentioned politicians. MSFT Research actually came up with a *much* more realistic alternative. But it's never taken flight. The reason? Can't say for sure. But pointing at a snopes.com article related to the postal service without doing any other research doesn't suddenly make you a source of enlightenment. It just makes you look a little bit silly for not doing a bit more diligence in your research.

Ric
2008-06-02 18:34:36
M.,
First I just thought you were just given me some flack.
But now it seems you are having a bad week. What's up?


How bout a joke to lighten the mood?
There are 10 type of people in this world
Those that understand binary and those that don't


One of my favorites:
How many Yendi does it take to sharpen a sword?
Answer: Three - One to do the dead and one to confuse the issue.

M. David Peterson
2008-06-03 07:01:55
@Ric,


>> First I just thought you were just given me some flack.


I was. You know me :) *EVERYTHING* I say is said with a scoop full of love on the side. ;-)


>> But now it seems you are having a bad week. What's up?


Yeah, you're right. I guess I have been in a pi$$y mood for the last few days. Hmmm... Not sure why. I'll work on it though.


>> How bout a joke to lighten the mood?


Perfect! :D


>> There are 10 type of people in this world
Those that understand binary and those that don't


:D *LOVE IT*! :D


>> One of my favorites:
>> How many Yendi does it take to sharpen a sword?
>> Answer: Three - One to do the dead and one to confuse the issue.


Okay, this one I need to think on (not sure I totally get it) but I appreciate the effort to cheer me up (though until now I didn't fully realize I needed it. But you're right. I do. Thx! :D)