The social platform war is Facebook’s to lose

May 14th, 2010

Topics: Facebook, Social

Summary

  • Twitter is expanding their core audience
  • Twitter is the No. 2 search engine
  • Zynga may revolt
  • Ning figured out the paid model
  • Skype: the sleeping dragon
  • Standard eventually catch up to everyone
  • X-factors: diaspora, revenue sharing and more

There is no doubt that Facebook is leading the pack of suitors to win the war over social media platforms. With a $20+ billion valuation and the strongest momentum, Facebook is the best positioned making this war theirs to lose. Facebook isn’t too big to fail though. Facebook has seen increasing pressure to address privacy issues. Yesterday they held an all-hands meeting on the topic and news broke of a scandalous IM conversation that paints Zuckerberg in an unfriendly, aggressive light. If they want to stay on target, they’ll need to keep their eye on a few trends that threaten to take the wind out of their sails. As users of the platforms, our futures are inextricably tied to this unfolding story making it one worth watching. Here are some things I’ll be paying attention to.

Twitter as a threat

twitter Twitter could be a threat to Facebook. Currently, Twitter has 100 million users. At Chrip, their investors mentioned multiple times that they’re focused on the half a billion user mark, which is a 5X growth in registered users from where they are today. It’s also more than Facebook currently has. Let’s look at a few supporting trends from Twitter.

Twitter is expanding their core experience
tweetie-1 About 75% of Twitter’s activity goes through their API and the remaining 25% happens on their website. That means that Twitter has not controlled the core user experience for most of its users. As of Chirp, Twitter has announced that they will expand their core user experience, which included their acquisition of Tweetie to become the official iPhone app from Twitter (pictured at right). They will likely acquire one of the desktop clients as well. Twitter also indicated at Chirp that they will begin hosting media like photos. With an expanded core user experience and hosted media, Twitter will have an offering that matches many of the most popular capabilities of Facebook.

Twitter is fixing their usability issues
Using Twitter is confusing to many people. Twitter knows this. At Chirp they played a painful video of a college student attempting to start using Twitter. All of us in the audience could empathize with the learning curve in front of her. I breathed a sigh of relief for not being in her shoes having to learn Twitter-speak and how it works. Twitter has vowed to change all of that. Concepts like retweeting, hashtags, linking to media vs. embedding it, and more are disorienting to new users. Twitter functionality will get a shiny coating of user experience polish that will preserve the functionality we know and love while making the experience more accessible to all users, which improves their chance of reaching half a billion users.

annotation

Along with fixing their UX, they’re also adding cool new features to improve usability. One such feature is Annotations, which are meta data that have an open name space (pictured above). We’re not sure how open the space will be because Twitter is still working out the details. We do know that expanding meta data opens myriad new development possibilities from search filtering to narrowcasting support to optimization. Those are powerful capabilities in a noisy marketplace of ideas that will attract more users.

Twitter’s audience is bigger than their registered users
users While Twitter has 100 million users, they have 180 million unique website visitors (not sure over what period). That means there are 80 million people that consume Twitter that aren’t registered users. If you consider that 75% of users don’t regularly use the website and that they only have about a 20% active user base, then you know that 80 million number is likely something much higher like 100-120 million readers (pure speculation, not math supported). In the last two years, Twitter grew from a 5% awareness in the American public to a whopping 87% awareness (thanks in large part to CNN and Oprah). All that awareness is driving non-registered users to the website. But, for what?

Twitter is the #2 search engine
Searches. They want to know what people are talking about on Twitter. They want to hear what Oprah or Ashton is up to (celebrities are our royal families afterall). They want to know what happened last night on Dancing with the Stars. They want to know what’s going on in Tehran or Haiti at the time it’s occurring from people that are there on the ground. All of those searches, 19 billion per month in total, have made Twitter the second largest search engine on the web. The largest is Google+YouTube at 88 billion. The next closest is Yahoo! with 9.4 billion. If Twitter achieves it’s 5X growth goal and searches followed in a linear growth pattern, Twitter will outpace Google and YouTube combined to provide almost 100 billion searches per month. And guess what. That 19 billion number DOES NOT include the searches served by Google, Bing, and others.

top-search-engines

Twitter won’t need to monetize registered users. They can simply monetize their search traffic. Remember, we’re talking about Twitter potentially serving 20% more searches than Google and YouTube today combined, which has made GOOG worth many billion dollars.

Resonance is the new PageRank
Google’s PageRank powered search isn’t going to die. It does still do the best job of finding some results. My prediction, however, is that Google will see a dip in search volume then will stabilize. The new king algorithm of search will be based on Resonance. Resonance is a score given to tweets based on the engagement around them such as number of retweets, clicks, etc. The first product Twitter announced that will be powered by Resonance are promoted tweets (pictured below via AdAge). Promoted tweets are tweets that appear at the top of search results and are displayed based on the keywords used in the search. Resonance is being used to determine how long a promoted tweet can appear. The higher the Resonance, the longer the promoted tweet appears. Smart.

starbucks-tweet

Promoted tweets are in beta and at Chirp, Twitter was candidly open about the experimental stage they’re in with promoted tweets. At the moment, they are only testing promoted tweets with a handful of customers, only on search.twitter.com, and only 1 promoted tweet per search result page. It’s not hard to imagine a future where Twitter’s Resonance score powers multiple paid media products and that they’ll increase the available inventory per search result page to accommodate them. They also said that they will extend promoted tweets out to API searches and will share a 50/50 revenue share (less expenses) with site owners. Damn! That’s a sweet deal! With Twitter’s broadly adopted API and strong developer community, you can bet that many sites will integrate Twitter search results the way they do AdSense today. Only it will be better with a higher payout. Really smart.

Twitter is all public and no profile
bio Twitter doesn’t have the privacy issues that are facing Facebook. First, the only profile data they have on registered users are name, 140 character bio, location, and a link (pictured at right). All of it is optional except your name, which can be punkbandlover or a celebrity you’re roleplaying.

Twitter has a clear public and private line. Direct Messages (DMs) are private and everything else is public. Twitter also enjoys the good fortune of gaining it’s network effect value from public participation. In other words, while they do offer private profiles, few people use them so Twitter can respect their privacy. Twitter doesn’t have to change its privacy policy in order to monetize its service and subsequently disturb the ecosystem and thereby jeopardize their long-term success. Brilliant.

Conclusion on Twitter
The expanded core service and improved usability makes Twitter an attractive refuge from a Facebook sinking under the weight of privacy concerns that do not plague Twitter. Their strong monetization path will allow them to grow from the 175 person organization they are today in a multi-thousand employee corporation capable of providing the social platform needs of a global market.

Twitter as a complement

If Facebook’s privacy issues don’t cripple their growth, then Twitter could still have a viable complimentary role alongside Facebook. Everything I pointed out above that gives Twitter a strong path to monetization in harmony with happy users, doesn’t require Facebook to fall. At the moment, Twitter doesn’t maintain deep profile data nor do they currently offer the range of communication features that Facebook does. Users do want those things and that is what Facebook offers. So, if Facebook doesn’t stumble and Twitter doesn’t have/want to move into fill the void, then Twitter should have no trouble growing a thriving media business interconnected with Facebook communication.

Then again, maybe Facebook will just buy Twitter.

Zynga’s revolt and the rise of social gaming

zynga Zynga is the most successful game developer on the Facebook platform with titles like Farmville and Mafia Wars. They are making $600 million per year and are currently valued at $4 billion. That fat stack of cash comes from virtual currency use inside Zynga’s games. Facebook is now requiring platform developers to use Facebook Credits, where Facebook gets a 30% cut of the action. Given that bank merchant accounts charge more like 1-2% and payment processors like PayPal and others don’t exceed 7%, Zynga sees Facebook Credits 30% fee akin to usury.

So, Zynga is creating Zynga Live and striking out on their own.

billion-dollar-social-game At Inside Social Apps; VP of Business Development at EA, Sebastien DeHalleux, shared a killer presentation on the coming arrival of the billion dollar social game title (pictured at right). In fact, he believes a breakout social game could achieve upwards of $3 billion. A single game title!! If users online social interaction needs are met from online gaming, then I could see many of them either deleting or neglecting their Facebook accounts. This could increase if Zynga or EA offered methods of communicating on the system that weren’t game dependent, such as Zynga Live.

Social gaming is likely more of a disruption than a serious threat to Facebook and the pursuit of a social communication platform, but it’s a powerful force to keep our eyes on.

Ning and the Paid models

ning Ning has done a radical thing: they transitioned into a paid account model. No social network at scale has operated with a paid account model. It’s an unproven approach that offers a very attractive value proposition: ownership. A user that pays for the storage, delivery, processing, and presentation of their data is entitled to make the rules for access. If user concern over privacy turns into a full-on Renaissance, then motivation to protect one’s interests could drive users to paid models.

And there’s one player that could benefit the most from such a demand for data ownership.

Skype, the sleeping dragon

skype At over 560 million users, Skype has more users than Facebook. And they have a paid model: VoIP. Skype also offers a cross-platform video conference service that just got updated to support group video. If Skype decided to offer profiles and social networking features as part of their core experience, they could become the largest social network over night. And they have a unique advantage: People are used to paying for Skype. Even better, people are used to paying for landlines, so if I can trade a phone bill for Skype and end up with more features, that’s an attractive offer. You reading this Skype?

The coming standards

No matter who reigns supreme for the next 5 years or so, every player is replaceable by open standards. MG Siegler wrote a great piece about the cyclical nature of the Web where he observes the cadence of closed systems driving innovation then spawning open systems to commoditize technology. This is likely the inevitable path for social platforms. Facebook or someone else will become the new Google, peak around 2015, then slowly loose out to standards adoption across the open web. Might not happen, but history tends to repeat itself.

X-Factor forces

diaspora Some macro environmental forces will likely play a pivotal role in how the social platform wars shake out. The obvious one is the economy. If the credit crisis in Greece comes to our shores or some similarly devastating event, then funding and an IPO path would be adversely impacted. A downturn in the economy could also decrease the amount of time spent socializing online either due to less leisure time or a dip in overall Internet use from aging devices and unpaid connectivity bills.

Emergent trends like the NYU project Diaspora could replace Facebook the way Facebook ate MySpace’s lunch.

Revenue sharing models for social networks could be interesting too. There are currently no social networks employing a revenue sharing models to incentivize registered users to switch from Facebook. But remember, it took Facebook less than 2.5 years to reach 50 million users. If Facebook flails, watch for breakout networks to overtake them.

What happens after the social platform war?

This is the real question you should be asking.

  • http://borasky-research.net/2010/05/10/what-are-you-pretending-not-to-know-mr-zuckerberg/ M. Edward (Ed) Borasky

    Well … some questions you have to ask?

    1. What if Apple buys the game companies (Zynga, Foursquare)?

    2. Why hasn’t Google bought Skype?

    3. Nobody “does it all” – media, search, social, location, games, communication – yet.

    And as a Twitter developer, I hope Twitter succeeds – I’m pretty much irrelevant except as a bad example if they don’t. ;-)

  • http://www.melissalion.com melissalion

    You have 10,000 followers?!?! Whoa!

    Sorry. I was going to tell you that I thought this was a fantastic post but got distracted. 10,000?!?!

    Ha!

  • http://www.bigdealpr.com Carri Bugbee

    Fantastic post, Justin! You’re delving into Owyang territory here.

    I hadn’t thought about the Skype angle. Interesting thesis – and plausible.

    In reading about Twitter’s plans to enhance built-in functionality, I couldn’t help but think of what Kveton said at the Webtrends meetup about Chirp and f8 last month: Twitter’s biz model is kind of a “f*ck you” to the third-part app developers who have created the tools that makes Twitter useful and powerful.

    But I do have one question: you say people role-play on Twitter as celebrities? What kind of desperate wanna-be would do something like that?!! ;-)

    @CarriBugbee
    Social Profiles: http://www.CarriBugbee.com

  • http://www.imagineyourreality.com/blog/ Taylor Ellwood

    Very insightful post Justin. It seems to me that Twitter has a unique opportunity right now to get ahead, though as you mentioned skype could also really take off if they incorporated social media.

    Your last question is a very good one to ask. When I think about the answer to it, I wonder how the finalized version of social media platforming will continue to evolve toward a more mobile lifestyle and experience.