The case for Twitter’s independence (unless Google or management buys)

This was posted on 7 October 2016 at TechCrunch
Original Here

Keith Teare
CRUNCH NETWORK CONTRIBUTOR

Keith Teare is the co-founder of TechCrunch and today runs Palo Alto incubator Archimedes Labs.

The problems associated with the widespread rumors of Twitters “for sale” status and that the management team is divided on whether or not to sell the company were compounded this morning with reports that Google, Disney and Apple will not be bidders. The stock price is down 20% to $19.79 at the time of writing.

Who runs Twitter — Board or Management?

The impressive Board of Directors seems to have set itself against CEO Jack Dorsey by seeking an exit. This is not the first time the company seems to be being run by the Board rather than the management. Previous changes in strategy, management and even the decision to IPO do not seem to have been organic decisions planned by management but rather reactive Board led decisions.

As anybody who has run a business knows, a Board-Management tug-of-war almost never results in a win. Boards hold managers accountable on behalf of shareholders, and managers run companies. It is not clear that this is the case at Twitter and that may be the source of many of the issues.

The Board is made up of many celebrity figures including Peter Fenton, Marjorie Scardino, Bret Taylor, David Rosenblatt, Martha Lane Fox and Omid Kordestani. Previously Fred Wilson had also been a strong minded Board member. The Board’s opinions about the strategy and tactics may reflect a weak management needing direction, or may represent frustrated operators hoping for an exit and seeking to influence day-to-day decisions. Only an insider knows. But one thing is clear, unless Twitter management actually runs the company, the future of the company will be bleak.

The case for “No”

Why no? In principle, Twitter is the communications bus for the entire world. I would guess that 2–3 billion people a month see a Tweet mentioned on TV, radio, in a movie, in print. It has become an almost ubiquitous broadcast platform for anybody wishing to publish an event, an opinion, a riposte. It is a marketing platform used by every brand in the world. Compared to the other means of disseminating content, Twitter is a giant.

In its earliest manifestation, Twitter understood its position as a message dissemination infrastructure. It was happy for third parties to “carry” its messages to consumers and businesses via software integrations with its APIs. The potential reach of a Tweet was the addition of people who went to twitter.com, as well as people who used a piece of software provided by a third party to disseminate tweets.

Others were allowed to index tweets and provide filtered views showing tweets that pertained to a topic or an interest. It was an open and widely distributed platform, somewhat like the internet itself. Search engines could index and point to it just as they do web pages.

The biggest version of Twitter one could imagine?

This stage of Twitter’s development evoked its true potential, and was the manifestation of the biggest version of Twitter one could imagine. A universal data bus for everything important now. With an index and search open to developers.

The business model for this stage was obvious. An ad every n tweets no matter which environment the Tweet stream was consumed through, with Twitter as the “AdSense” and “AdWords” of the whole thing. This would have resulted in Google-sized revenues quickly.

The smallest version of Twitter one could imagine?

But at that time, there was a belief that Twitter needed to become a destination. This implied that any ability for a third party to take tweets and re-broadcast them through another app or site was bad. It implied that indexing and searching tweets was to be blocked, it set Twitter against its disseminators. By doing so, it limited the Twitter audience to those who directly engaged with the properties owned and operated by the company.

This was the smallest version of Twitter one could imagine. It seems clear that many at the board level wanted Twitter to be a destination, a Yahoo if you will. And to create content “channels” that would attract the audience for the channel. And to prevent any other means of accessing those channels.

This allowed Twitter to become a branded destination and created the conditions where its key KPIs were not “tweets seen” but became “logged-in users” on a Twitter-owned property. The advertising platform Twitter has so impressively built over the past 3–4 years is based on top of this approach.

The $2 billion or so in revenues it generates is impressive, but tiny compared to what would result from a truly universal data bus available everywhere. This would be a replacement of Google for content discovery, whereas the current Twitter is at best a replacement for Yahoo as a destination for content — and a poor one at that.

IPO was premature?

Twitter’s IPO was done before the company had truly completed its transition to becoming a content-rich destination site. The suspicion is that the need to IPO early was driven by board decisions and not organic management choice.

Dick Costolo did an excellent job of trying to manage a ship in a storm that had only partial navigation, but the stock price ultimately reflected two things. Firstly, a company that could not accurately predict revenues and, secondly, one that had a KPI (logged-in users) that was always going to be its worst metric. The market took the direction of the board and management that Twitter wanted to be a branded portal business with advertising and measured it accordingly.

Most of the 2013–2016 ailments of Twitter emanate from this product decision and the decision to IPO before it was completely built and functioning. The management changes, the stock performance, the yearning to sell the company.

The case for “Yes”

Twitter is a dysfunctional company with an interfering board and, like any dysfunctional family, it needs a divorce. A buyer would gain a clean slate and would be able to build the biggest possible version of Twitter, free of internal squabbles.

This is the strongest case for a sale. But who should be the buyer if this outcome is wanted? There are only two good answers. One is Google, the other is a private equity buy-out.

Google is the obvious buyer. A universal data bus carrying everything that is important now to the entire world, with ads every n Tweets would probably have revenues close to and eventually surpassing web-search revenues.

With the emergence of live video — an area YouTube should excel in — the impact of this would be compounded by the video ad opportunity. And the vision would be well-aligned with Google’s “organize the World’s Information, and make it Accessible” vision. If Google is truly out of the race, Larry or Sergey or David Drummond — call me and let me explain why you should re-consider. I’m always available at http://chat.center/keith.

Twitter is a dysfunctional company with an interfering board and, like any dysfunctional family, it needs a divorce.

If Google really is out of the running, the next best sale is to PE. Silverlake, KKR or Blackrock should look at how they worked with Skype previously and consider taking Twitter private, removing the short-term thinking and re-launch it as the biggest version of Twitter it can be. That company could own digital advertising and audience engagement for decades to come.

If neither option materializes, Twitter should take itself private — Qihoo360 just did this, as did Dell. There would be no shortage of banks interested in helping.

What’s next for Twitter?

The board should not sell Twitter to a media or content buyer. By doing so they would cheat the world by taking away a wonderful chance to build a universal data and messaging bus able to scale to the challenges of 4 billion smartphone owners wanting news, entertainment, live video and more.

Management should go back to Twitter’s founding principles and build that universal, open, biggest possible version of Twitter.

And the markets should give the company the space to perform such a transition.

Twitter is not Yahoo. It is a baby, struggling to grow up. Infanticide is wrong. Let the children grow.

The impact of mobile growth on web advertising. Is Android bad for Google?

alternate textGoogle and Facebook can’t turn off the mobile deluge

I just posted on TechCrunch. The article focuses on the Facebook S1 filing and in particular on the risks section that covers the growth of the mobile internet and its potential impact on the web business model.

Facebook itself has been very clear that its advertising revenues are exclusively derived from its web site, and also that an increasing amount of its usage comes from mobile in general and smart phones in particular.

Buried in the article is this point:

Google’s present – and Facebook’s future – involves the painful fact that the very success of mobile platforms in helping human beings be productive, on the go, has a negative impact on the desktop-based advertising programs of the past 10 years. Mobile growth impacts web advertising revenues, except of course for Apple who make money from hardware and software and so benefits from these trends. The reason is simple. We do less ad-centric activities on mobile than we did on the web. And we are less likely to click away on an ad when we are focused on a specific goal on a largely single window device.

The implication of this point is that, absent an advertising solution for mobile, Google’s success in distributing Android, as well as the rise of the iPhone, are directly damaging to Google’s legacy business model. Now, it isn’t as if anybody can turn the mobile internet off or slow its growth. So Google has no option but to be a significant player in mobile, and has no option but to try and drive the revenues it derives from mobile harder than the pace of slow down in web based revenues that result from the trend. But to accomplish that Google, and Facebook will need to innovate in advertising. Web based display ads, text ads and others are really not able to translate effectively to mobile without seriusly undermining the user experience.

This is one of the areas we are focused on at just.me.

Google and the newspapers

t_google_logo_hires-1.jpg

Over the long labor day weekend Google announced a serious change in the way Google News will relate to the various wire services and the newspaper industry. The change could have a dramatic impact on the traffic Google News sends to newspaper web sites. There have been several commentaries on the developments and Techmeme has been a great source tracking them.


The New York Times, ironically carrying a Reuters syndicated article, said


                Google is playing host to articles from four news agencies, including The Associated Press, the company said Friday, setting the stage for it to generate advertising revenue from Google News.

            The news agencies — the Press Association of Britain, Canadian Press, Agence France-Presse and The A.P. — now have their articles featured with the organizations’ own brands on Google News. The companies have agreed to license news feeds to Google.
            The five-year-old Google News service previously searched the Web to uncover links to news articles from thousands of sources, and clustered links on similar subjects together.”

The impact of the decision was also well understood by the Reuters writer:

            “Because of Google’s campaign to simultaneously reduce duplicate articles, the original wire service article is likely to be featured in Google News instead of versions of the same article from newspaper customers, sapping ad revenue to those newspapers.”

It is worth viewing this incredible serious news in context. Newspapers are reeling from a very recent and sudden drop in classified advertising revenues. Many of the top publications saw falls of more than 20% in Q2 alone. Last week the Washington Post’s Sam Diaz published a story covering the most recent trends. Techmeme’s gathering together of the conversation is here. The Washington Post piece is here. The conclusion, which Don Dodge articulates well is that:

    “The Next Big Thing – Online classified ads, local search, and mobile search are huge markets, with no dominant leader, and lots of opportunity for innovation. New business models will emerge and a new set of leaders will reap billions in profits…pennies at a time.”

Or, to put the same thing another way, newspaper classified revenues are likely to continue to decline as online classifieds revenue grows. If true this will represent a blow to the newspapers to compound the impact of the Google News decision.

 

My own research – and as ceo of edgeio I have a strong stake in the game so I have done a lot – suggests that these trends are both strong and relatively irreversible. But it also suggests that online classified revenues are not yet growing sufficiently to stem the decline in print classified revenues.

Here is the entire US advertising spend since 2001. It has grown every year.

The newspapers share of this spend has declined.

More graphically:

Now, within that decline there has been a growth of online revenues for the newspapers as the following chart shows:

But, this growth has been too small to make a big difference. If the newspapers are to survive they need to attract more traffic and more advertisers than they have so far been capable of. Dodge suggests that this will be achieved by becoming more “local”, even “hyper-local”. I have to say that I believe he may prove to be right, but not for many years. There is no current evidence that individuals are adopting a strong local mindset when using the Internet. Rather the contrary. The growth of blogs like Techcrunch (disclosure: i am a shareholder) GigaOm, ReadWriteWeb, PaidContent.org and many others suggest that online behavior is shaped more by ones work/interests/hobbies/passions than where one lives. Vertical editorial content is growing in traffic. Local editorial is not growing so fast.

Google has benefitted most from the growth of vertically focused traffic, as the following chart shows. Search advertising – including that embedded in hundreds of thousands of publishers sites, has grown whilst classified advertising has stayed flat as a share of Internet Advertising over the 2001-2006 period.

 

Classifieds are of course not only local. Magazines have perfected the ability to target ads at vertical interests for many years. Boat ads in boating magazine, job ads in almost every vertically focused publication, car ads in classic car magazines, furniture ads in House and Home publications and so on.

 

Beyond all of this there is still a big opportunity for newspapers to grow revenue.

As the chart alongside shows, the newspapers still command a giant number of absolute dollars. There is time to figure out how to do classifieds online. The stand-alone classified sites (eBay, Craigslist, Monster, Careerbuilder) have built awesome businesses that mirror offline publications like Autotrader in the US and Exchange and Mart in the UK. They are stand-alone, classified-only environments.  Together they accounted for only $3.1 billion in revenues in 2006.

There is a much larger pie to be figured in discovering how to embed classified advertising in editorialized environments in a manner that is targeted at the readers of those publications.  In other words, to do online what the magazine industry has done so well offline. This may well be an opportunity greater than $15 billion a year in new revenues.

So… it is still all to be played for, and it will be fun being involved. The online classified players, the newspapers and the magazines are all likely to be involved as this plays out. And all stand to grow revenues.

Google Acquired YouTube – Here’s the Call

When Google acquired YouTube in a $1.65bn deal, earningscast.com made the call available via podcast. Here it is:

Google Q4 2005 Earnings – Stock slumps 15% in after market

Google had a great quarter (earnings up 82% year over year and revenues up more than 22% quarter over quarter).

But they missed Wall Street expectations by more than 15%.

The stock took a 15% hit in the aftermarket. It is now down almost $100 from its previous high.

My personal opinion – huge buying opportunity.

Links:

EarningsCast

Business 2.0

Inside Google

Google launched Dbase, circa 1985, but with less functionality.

Google launched GoogleBase last night. What a disappointment. Whilst Google Reader clearly points to somebody at Google “getting” the importance of edge published content and real-time indexing, GoogleBase is a throw back. Basically a dumb flat-file database system for the world to throw content into. It’s actually embarrasing for the whole of Silicon Valley. I know insiders who desperately do not want their name associated with it. Can’t say I blame them.

Not to be abusive but why would millions of people who run web sites, and databases, and blogs, suddenly feed stuff into GoogleBase (an act of duplicating their already web based data into another database run by Google)? Maybe to get better search results. But this is an act of pure laziness from Google. The same results could be achieved in a manner far more consistent with the distributed data model that the world is currently flocking to. Google, just define a few extensions to RSS, make it easy to publish a feed with those extensions, and suck in the feeds. It works!

Oh well. Back to work 🙂

Update: well I guess the primary reason this is disappointing is that we expect Google to innovate. This just isn’t innovative. See Mike Arrington’s assessment on TechCrunch

Google adds RSS to Personalized homepage

This is a screen dump of my Google personalized home page. Note the Techcrunch and Earningscast modules on the top right. These are the result of adding their respective RSS feeds to Google.

Cool!

Google passes $300 Mark

Wow!

Here is the minute it happened: