Stowe Boyd

Surprise! Twitter Ecosystem Attracting Less Investment

For a piece coming from an analyst firm with the work ‘insight’ in its name, you’d expect a bit more insight offered and not just numbers.

CB Insights has determined that ‘pure play’ twitter start-ups are getting less funding than formerly:

Pure-Play Twitter Startups Attract 50% Less Venture Capital and Angel Investment Than Last Year » CB Insights

As Twitter’s popularity has grown with users, we wondered if this popularity translated into more investment by venture capitalists and angel investors into pure play Twitter startups?  CB Insights’ venture capital and angel investor data suggests that venture capitalists and angels may be a bit less sanguine about the Twitter ecosystem than they were last year.  This is the opposite of what we saw in an earlier analysis for another hot ecosystem – Apple’s iPad and iPhone ecosystem – which saw a 220% increase in funding vs. last year.

First, the bad news…Last year (from June 2008 to May 2009), we’d seen $21.6M fly from venture capitalists and angel investors to pure-play Twitter startups.  In the June 2009 to May 2010 timeframe, the investment funding dropped over 50% to $10.4M.

Now, the good news…The number of investment rounds held nearly flat with 11 rounds in our analysis of last year vs. 10 rounds in the more recent timeframe.  This does, however, show that average amounts invested by investors has dipped fairly dramatically going from nearly a $2M average round last year to just over $1 million more recently.  We also saw a high degree of collaboration between angel investors and venture capital firms on these deals and that these pure-play funded Twitter startups were going to a diverse array of industries.

There are lots of theories on why the amount invested has dipped with the most popular explanation being a feeling of uncertainty by application developers and investors alike about the direction Twitter will go.  More recently, compounding the uncertainty are acquisitions by Twitter of the likes of Tweetie and Summize (filling holes on its platform)?  Time will tell if these moves will drive investors to be even more cautious about the platform?

Oh, damn: not ‘time will tell’; not that lame line.

The post links to Fred Wilson’s incediary Twitter Inflection Point post of last April, in which Wilson (an investor and board member of Twitter) throws down the gauntlet, and basically warns the Twitter ecosystem that Twitter will be filling the self-created ‘holes’ in the product, and many niches in the Twitter ecology will no longer be viable for third-party vendors.The following week was the Twitter Chirp conference, where Ev Williams announced the acquisition of Tweetie to be the Twitter client on iPhone, as well as a Twitter developed Blackbird client.

So, there is ‘no time will tell’ involved. Here’s what I wrote after Wilson’s comments and before Chirp:

Twitter Raising The Infrastructure: App Builders Better Run For The Ultrastructure

Here’s what is happening: Twitter is consolidating its position at the center of the ecosystem it has engendered, and as part of that functionality that is deemed necessary to the infrastructure is going to be built by them, or at least owned by them through acquisition.

The old model had a lot of holes, like search, clients, Url shortening, pictures, and geolocation. These niches had many players trying to establish themselves, creating a rich ultrastructure above the platform:

Twitter started to buy some companies to fill glaring holes (like Summize for search) and they have built some parts of other capabilities (like their own URL shortener for direct messages), but mostly the maps was still a mess.

Now, they have bought Tweetie, built a client for Blackberry, and they are moving toward a new theory of where the platform begins and ends:

Of course there is no saying that Twitter will leave the line there. They are going to have to make their roadmap clear at the upcoming Chirp developer conference, so that third parties can make reasonable investments in new applications without the fear that Twitter will step on their toes.

However, I am making a bet. I am sure that Twitter realizes the value of analytics: the treasure of information about the flow in Twitter can’t be treated as a side show, because it is the show. Therefore, I am predicting that Twitter will build or buy technology to capture all sorts of information — what links are streaming by, who’s using what hashtags, and sentiment about brands — this is enormously valuable. Acquisition of companies like Radian6, bit.ly and a few others would make sense, especially considering the value to large companies, media, and even political parties.

The other ultrastructure niches really make sense as independents. Consider games: they come and go, like hit music, and it requires a big sprawling community of developers. Not a good fit inside a single monolithic company. The same is true with communities, like Stocktwits. And obviously, niche apps.

***

So, Wilson’s shot was heard round the world, and now Tweetie is part of the new Twitter infrastructure.

This won’t mean the end of competition by players like Tweetdeck or Seesmic. These have large and dynamic communities of users. But we have to see how Twitter plays this nesw game. Will they use the same APIs as everyone else, or will they exploit their knowledge and access to the inner workings of Twitter’s technology to make their own offerings faster and more reliable, a sort of Microsoft approach? Will Twitter transform itself into a Salesforce-like platform, with hundreds of integrated offerings, but owning the CRM heart of the platform?

So, investors are steering clear of those potholes, and maybe even areas like analytics, which Twitter will want to move into, even if they haven’t done anything yet. The future is very cloudy, and the investors are looking for lower risk bets elsewhere, which doesn’t concern Twitter’s shareholders.

It does suggest that Twitter might be served by an IPO, however, since that would be the cheapest way to attract the capital it needs to build its own ecosystem of services as a competitive strategy against Facebook and other social networking giants (like Apple and Google).

related articles

• Venture capitalists tire of Twitter-y start-ups (news.cnet.com)
• Investors Squeamish About Third-Party Twitter Apps [STATS] (mashable.com)
• The New Reality of the Twitter Ecosystem (gigaom.com)

Facebook Privacygate Continues

The furor about the Facebook Privacygate continues, with all sorts of people making grand pronouncements:

Henry Blodgett, Ignore The Screams—Facebook’s Aggressive Approach Is Why It Will Soon Become The Most Popular Site In The World

Facebook often shares way more information with the world than its users know, expect, or want.  It consistently approaches innovation and privacy changes with a do-it-first-and-then-see-what-happens attitude, which enrages those who feel it should ask permission first.  And it has often done a bad job of explaining to users what it is doing, why, and when, as well as what control users have over this.

But Facebook’s aggressiveness on the privacy front is a big reason for the site’s success. The company will survive the latest PR flap, just as it has survived all the other PR flaps. And unless the latest blow-up scares it into changing its ways (let’s hope not), Facebook will continuing growing like a weed until it is by far the most popular web site in the world (and note what “most popular” means: It means that, despite the howling of a tiny minority, more people choose to spend more time on Facebook than any other site in the world).

From a business perspective, in other words, Facebook’s approach to innovation is smart. It’s not always popular, but it works. And if Facebook wants to maintain its competitive edge, it will do what it has to do to smooth over the latest blow-up, and then go forth with the same approach and attitude it has had all along.

Step back and think about what Facebook is doing here.  It is pioneering an entirely new kind of service, one that most of its users have never seen before, one with no established practices or rules.  It is innovating in an area—the fine line between public and private—that has always freaked people out. It is allowing people to communicate and share information in ways they never have before. It is making decisions that affect hundreds of millions of people.  And it is trying to stay a step ahead of competitors that would like nothing better than to see it get scared and conservative and thus leave itself open to getting knocked off.

[…]

As loud as the recent screams have been, they will likely be forgotten in a month.  If they aren’t forgotten, Facebook can just roll back some of the changes that freak people out the most, just as it did a few years ago with Beacon, but keep the rest.

I actually don’t buy this argument at all. Facebook was growing very quickly with it’s old school form of privacy controls. It’s only after Twitter rejected Zuckerberg’s offers that he decided to throw privacy totally out the window, and subsequent privacy policy changes have enraged nearly everyone that understands what’s going on. It is not smart to disregard the serious issues here, hunker down in a PR bomb shelter for a few weeks, and then get back to pissing everyone off.

I also don’t agree that Facebook is pioneering something totally new; there have been literally dozens of social networking sites with millions of users, and they all have privacy policies of some description.

I do agree with Blodgett that there is a fine line between privacy and publicy, but I don’t see that taking a pause to figure out what exactly the Facebook’s privacy policies should be cedes competitive space to competitors. And even if it does, it should be done, anyway.

Innovation should not lead to users feeling that they are being raped, even if Blodgett and other boosters think it makes for good business.

danah boyd moves in a quite opposite direction, suggesting that Facebook has become a social utility, and therefore should be regulated:

danah boyd, Facebook Is A Utility; Utilities Get Regulated

Throughout Kirkpatrick’s “The Facebook Effect”, Zuckerberg and his comrades are quoted repeated as believing that Facebook is different because it’s a social utility. This language is precisely what’s used in the “About Facebook” on Facebook’s Press Room page. Facebook never wanted to be a social network site; it wanted to be a social utility. Thus, it shouldn’t surprise anyone that Facebook functions as a utility.

And yet, people continue to be surprised. Partially, this is Facebook’s fault. They know that people want to hear that they have a “choice” and most people don’t think choice when they think utility. Thus, I wasn’t surprised that Elliot Schrage’s fumbling responses in the NYTimes emphasized choice, not utility: “Joining Facebook is a conscious choice by vast numbers of people who have stepped forward deliberately and intentionally to connect and share… If you’re not comfortable sharing, don’t.”

In my post yesterday, I emphasized that what’s at stake with Facebook today is not about privacy or publicity but informed consent and choice. Facebook speaks of itself as a utility while also telling people they have a choice. But there’s a conflict here. We know this conflict deeply in the United States. When it comes to utilities like water, power, sewage, Internet, etc., I am constantly told that I have a choice. But like hell I’d choose Comcast if I had a choice. Still, I subscribe to Comcast. Begrudgingly. Because the “choice” I have is Internet or no Internet.

[…]

Your gut reaction might be to tell me that Facebook is not a utility. You’re wrong. People’s language reflects that people are depending on Facebook just like they depended on the Internet a decade ago. Facebook may not be at the scale of the Internet (or the Internet at the scale of electricity), but that doesn’t mean that it’s not angling to be a utility or quickly becoming one. Don’t forget: we spent how many years being told that the Internet wasn’t a utility, wasn’t a necessity… now we’re spending what kind of money trying to get universal broadband out there without pissing off the monopolistic beasts because we like to pretend that choice and utility can sit easily together. And because we’re afraid to regulate.

And here’s where we get to the meat of why Facebook being a utility matters. Utilities get regulated. Less in the United States than in any other part of the world. Here, we like to pretend that capitalism works with utilities. We like to “de-regulate” utilities to create “choice” while continuing to threaten regulation when the companies appear too monopolistic. It’s the American Nightmare. But generally speaking, it works, and we survive without our choices and without that much regulation. We can argue about whether or not regulation makes things cheaper or more expensive, but we can’t argue about whether or not regulators are involved with utilities: they are always watching them because they matter to the people.

[…]

I cannot imagine that Facebook wants to be regulated, but I fear that it thinks that it won’t be. There’s cockiness in the air. Personally, I don’t care whether or not Facebook alone gets regulated, but regulation’s impact tends to extend much further than one company.  […] I just wish that Facebook would’ve taken a more responsible path so that we wouldn’t have to deal with what’s coming. And I wish that they’d realize that the people they’re screwing are those who are most vulnerable already, those whose voices they’ll never hear if they don’t make an effort.

danah takes the metaphor of being a ‘utility’ instead of an application to the logical conclusion. Other applications certainly have that characteristic, like instant messaging. Back when AOL was acquiring Times Warner the Justice Department considered AOL’s dominance in IM as a societal issue, and blocked AOL from adding voice and video support for years afterward, allowing Yahoo and MSN a competitive advantage. In essence, the Justice department was regulating that industry to ensure fairness and choice for users.

A similar case can be made for social networking, today. When so many people rely on these services — like Facebook, MySpace, and Twitter — to work and play, and the actions of the largest players in this space impact hundreds of millions worldwide, and perhaps a hundred million or more US citizens, the US government should be involved in regulating this corner of the communications landscape.

If the government takes the side of the individual in the debate about Net Neutrality, certainly it must take the side of the individual in the face of actions taken by companies like Facebook that can cause societal harm. It is insufficient, as danah states, to say to users ‘You don’t like how we are running our application? Fine, just quit!’ The phone company is not allowed to do that, and neither are internet providers, or the electric company.

I’m with danah: this marketplace is ripe for regulation and reform. New and untried forms of advertising based on strip mining users’ information, considered private only a few months ago, need to be examined closely, not matter how happy they make VCs and market mavens like Henry Blodgett.

We are moving quickly into a web where people are voluntarily sharing more and more personal information, a world based increasingly on publicy instead of privacy. This transition is happening by the decisions of millions, on an independent basis, when they reveal their location, their purchasing preferences, or what they ate for lunch. But, as I wrote the other day,

Even though I am an advocate for publicy — living life in the open on the web — I am by no means an advocate for having it jammed down our throats by a unilateral change in the Terms Of Service agreement by a powerful corporation.

from Facebook Apologists Miss The Point: Facebook Isn’t The Future

Fred Wilson parses the situation pretty succinctly:

Fred Wilson, Privacy and the Treacherous Middle Ground

 The problem Facebook is having right now is that they are sort of private and sort of public. I think of them as a public channel. I don’t post anything to Facebook that I don’t want everyone to see. But that is not how many of their users see them. I believe Facebook is going to have to choose to be either totally public or totally private or they are going to gradually cede their social graph to services that stake out the totally public or totally private territory.

Privacy is pretty black and white. It either is or it isn’t. And trying to have it both ways won’t work.

Amen.

Twitter Is Doing Exactly What Fred Wilson Said

I have been so heads down on the Social Business Edge event (1pr 19, in NYC; being livestreamed at http://www.livestream.com/socialbusinessedge starting at 9:30am) that I hadn’t read the stories about Twitter’s Ev Williams announcing their own URL shortener in in the works.

They have a URL shortener working now, for direct messages, ostensibly as a way to track malicious sites and block them, so this isn’t that new on a technical basis. However, on a business basis it is more of what market watchers all have been guessing at, based on Fred Wilson’s post last week (see Twitter Raising The Infrastructure). He basically stated that URL shorteners were just filling a gap in Twitter’s core functionality.

That suggests that Twitter will try to develop the deep analytics that Bit.ly has built: it is a natural requirement for the media and corporate users of the microblogging service. However, as has been noted by John Borthwick, the CEO of Bit.ly, URL shorteners are not constrained just to the Twittersphere, and even in the Twittersphere on a small proportion of short URLs are generated by the Twitter webpage:

John Borthwick, Bit.ly and Platforms

Twitter.com pretty much stopped using bit.ly to shorten URL’s on Twitter.com in December.    Since last fall the bit.ly team and Twitter have been talking about this transition.    Today Twitter.com represents less than 1% of bit.ly links shortened — when the transition took place in December it was closer to 3-8%, depending on the UX on Twitter.com and the day.   We continue to work with the Twitter team and we are currently figuring out how to get key whitelabel URL’s working on Twitter.com.    The default shortening partnership worked well for a period of time – approximately six months — during a period of hyper growth. Today bit.ly is growing and continues to scale — irrespective of the change in rules last December re: shortening on Twitter.com.

Borthwick goes on to state that start-ups have to be careful about platforms, because although you need to build on them, they are fundamentally unstable and uncontrollable, like tectonic plates. He makes that case that start-ups need to diversify their reliance across multiple platforms. if possible.

John also takes a poke at Fred Wilson’s ‘filling holes’ argument:

Lastly, talk about holes and filling holes in platforms is misleading at best.    Take a list of emerging to mature companies — great companies … Is Groupon a hole in Facebook? Facebook a hole in Google?? Google is a hole in Microsoft???  Microsoft in IBM????  Maybe it’s holes all the way down?    Innovation — building great companies — is about finding, filling and even creating holes.   But entrepreneurs shouldn’t — and most don’t — focus on filling holes in other people’s platforms — they should think about how to build great things — things that in 2010 may be bootstrapped on platforms but great products, products that people love, products that move people to organize their world differently, or to see the world differently.   The slogan “Think different” captured most if not all of what entrepreneurs need.   After 30yrs of personal computing history we have a lot of platform and application history to draw from — Apple understands this very well, so does Google,  same for Microsoft, Amazon, and Ebay.  And yes — once again, the cycle of innovation is turning – great new platforms are emerging and great businesses will be developed on of these new platforms.

Instructive lessons to learn all around. To Twitter, the world may look like a bunch of holes, but Borthwick points out that Bit.ly, at least, is more than a hole to be filled.

[disclosure: I am an advisor to Bit.ly and have a financial interest in the company.]

Twitter Raising The Infrastructure: App Builders Better Run For The Ultrastructure

So, Fred Wilson’s recent blog post (see Fred Wilson Plotting Twitter’s Future) turns out not to have been the ramblings of philosophical market observer: it looks more like the starter’s gun at the outset of a footrace.

He suggested that Twitter might start to fill ‘holes’ in its architecture, holes that may be occupied by other applications built by third parties. Then, the next day, they announced the roll out of a ‘official’ Twitter client for Blackberry, and today, Ev announced the acquisition of Atebits, the maker of Tweetie, the most popular iPhone client:

Ev Williams, Twitter for iPhone

Twitter has been growing by leaps and bounds around the world. Mobile has always been a focus for us—starting with SMS which lead to the 140 character limit. People everywhere should be able to access Twitter without friction or confusion. Careful analysis of the Twitter user experience in the iTunes AppStore revealed massive room for improvement. People are looking for an app from Twitter, and they’re not finding one. So, they get confused and give up. It’s important that we optimize for user benefit and create an awesome experience.

We’re thrilled to announce that we’ve entered into an agreement with Atebits (aka Loren Brichter) to acquire Tweetie, a leading iPhone Twitter client. Tweetie will be renamed Twitter for iPhone and made free (currently $2.99) in the iTunes AppStore in the coming weeks. Loren will become a key member of our mobile team that is already having huge impact with device makers and service providers around the world. Loren’s work won the 2009 Apple Design Award and we will eventually launch Twitter for iPad with his help.

Note there is no fiddle-faddle about the name: they immediately rebranded to ‘Twitter for iPhone’.

And the motivation? People are confused that there is no Twitter branded client, so Twitter has decided to do the right thing and give them one. No mention of the existing players in those niches, and all a week before the developers conference.

Here’s what is happening: Twitter is consolidating its position at the center of the ecosystem it has engendered, and as part of that functionality that is deemed necessary to the infrastructure is going to be built by them, or at least owned by them through acquisition.

The old model had a lot of holes, like search, clients, Url shortening, pictures, and geolocation. These niches had many players trying to establish themselves, creating a rich ultrastructure above the platform:

Twitter started to buy some companies to fill glaring holes (like Summize for search) and they have built some parts of other capabilities (like their own URL shortener for direct messages), but mostly the maps was still a mess.

Now, they have bought Tweetie, built a client for Blackberry, and they are moving toward a new theory of where the platform begins and ends:

Of course there is no saying that Twitter will leave the line there. They are going to have to make their roadmap clear at the upcoming Chirp developer conference, so that third parties can make reasonable investments in new applications without the fear that Twitter will step on their toes.

However, I am making a bet. I am sure that Twitter realizes the value of analytics: the treasure of information about the flow in Twitter can’t be treated as a side show, because it is the show. Therefore, I am predicting that Twitter will build or buy technology to capture all sorts of information — what links are streaming by, who’s using what hashtags, and sentiment about brands — this is enormously valuable. Acquisition of companies like Radian6, bit.ly and a few others would make sense, especially considering the value to large companies, media, and even political parties.

The other ultrastructure niches really make sense as independents. Consider games: they come and go, like hit music, and it requires a big sprawling community of developers. Not a good fit inside a single monolithic company. The same is true with communities, like Stocktwits. And obviously, niche apps.

***

So, Wilson’s shot was heard round the world, and now Tweetie is part of the new Twitter infrastructure.

This won’t mean the end of competition by players like Tweetdeck or Seesmic. These have large and dynamic communities of users. But we have to see how Twitter plays this nesw game. Will they use the same APIs as everyone else, or will they exploit their knowledge and access to the inner workings of Twitter’s technology to make their own offerings faster and more reliable, a sort of Microsoft approach? Will Twitter transform itself into a Salesforce-like platform, with hundreds of integrated offerings, but owning the CRM heart of the platform?

I am sure we will hear these questions at Chirp, and although I won’t be attending (conflict with work on my own event on 19 Apr, Social Business Edge), I will be watching the Twitter stream from the event very closely.

[disclosure: Bit.ly is a client of mine, and I have a financial interest in the company.]

Update on Saturday, April 10, 2010 at 1:01PM

This looks like the weekend’s big tech news story:

Daniel Ionescu / PC World:   Twitter Gets Official iPhone, Blackberry Apps Dare Obasanjo aka Carnage4Life:   Twitter Slaps Developers in the Face and How They Can Fix It Greg Jarboe / Search Engine Watch:   Newspaper Blogs Break Story of Twitter’s Acquisition of Tweetie Marshall Kirkpatrick / ReadWriteWeb:   Why Twitter Buying Tweetie is Great News Stowe Boyd / /message:   Twitter Raising The Infrastructure: App Builders Better Run For The Ultrastructure John C Abell / Epicenter:   With Tweetie Acquisition, Twitter Locks On Mobile Zee / The Next Web:   Twitter Acquires Tweetie. Launches on the iPhone. Mathew Ingram / Fortune:   Twitter nabs top app maker Brad Linder / mobiputing:   Twitter acquires Tweetie, introduces official iPhone Twitter app Dave Winer / Scripting News:   Twitter Week for client developers Mark Evans / Twitterrati:   Tweetie: The Start of Twitter’s M&A Activity? Ben Parr / Mashable!:   BREAKING: Twitter Acquires Tweetie CellPassion:   Twitter acquires Tweetie, to make it the official Twitter iPhone app Dan Moren / Macworld:   Twitter acquires Tweetie developer Atebits Shane Richmond / blogs.telegraph.co.uk:   Twitter buys Tweetie Stephen Bennett / GeekSmack:   Twitter acquires Tweetie for iPhone Kiet Chieng / App Advice:   Twitter Acquires Tweetie, Will Become Official Client On iPhone Jason Kincaid / TechCrunch:   Twitter Acquires Tweetie GigaOm / Silicon Alley Insider:   Twitter Buys Tweetie, Adds Fuel to Developer Fires Rafat Ali / paidContent:   Twitter Makes First Client Acquisition: Buys Tweetie For iPhone Client; What’s Next? Alexia Tsotsis / The Snitch:   Twitter, Now Filling Its Own Hole Peter Kafka / MediaMemo:   Twitter Goes Shopping, Comes Home With Tweetie. Next? Mike Schramm / TUAW:   Breaking: Twitter acquires Tweetie, will make it official and free Seth Weintraub / 9 to 5 Mac:   Twitter buys Tweetie, iPhone app to become free Charles Hudson’s Weblog:   Three Reminders about Platform Businesses (Apple, Twitter, and Facebook) Jay Hathaway / Download Squad:   Twitter acquires Tweetie, hires developer Loren Brichter Rene Ritchie / TiPb:   Tweetie to become official Twitter for iPhone Jim Dalrymple / The Loop:   Twitter buys Tweetie Ray Basile / iPhone Savior:   Twitter Buys Tweetie As Their Official iPhone App Phil Nickinson / Android Central:   Twitter buys Tweetie for iPhone; which Android client would you serve up? Krishnan Subramanian / diversity.net.nz:   Twitter Acquires Tweetie, What’s Next? Jesse David Hollington / iLounge:   Twitter acquires Tweetie, to become official Twitter app Krishnan Subramanian / CloudAve:   Twitter Acquires Tweetie, What’s Next? Scott Beale / Laughing Squid:   Twitter Acquires Tweetie iPhone Client Ben Metcalfe Blog:   Twitter continues on the offensive: now iPhone Federico Viticci / MacStories:   Twitter Acquires Tweetie, Becomes “Twitter for iPhone” Soon Free in the App Store Daniel Kaszor / FP Posted:   FP Tech Desk: Twitter aquires Tweetie, renames it Twitter for iPhone » All Related Discussion

Update on Sunday, April 11, 2010 at 9:18AM

Interesting piece by VC Mark Suster (Twitter’s Acquisition, Chirp & Managing Developer Relationships) on the Twitter Atebits acquisition and what it means.

Fred Wilson Plotting Twitter’s Future

Fred Wilson has written a post about Twitter’s future, one that reads like a market analyst wrote it. The problem is, Fred is one of the original investors in Twitter, and sits on the board, so I have to wonder what this is all about. Is this Twitter policy? Did he pass this by the management there? Is he going public with this a week before the Twitter developer conference to prepare people for a big announcement? Is he attempting to influence policy by taking an argument public?

Fred Wilson, The Twitter Platform’s Inflection Point

Which brings me to the title of this post. I’ve been thinking a lot about the Twitter Platform and Ecosystem recently. I think it is at an inflection point, much like the desktop software and hardware business was in the mid 80s as the desktop platform started to mature.

Much of the early work on the Twitter Platform has been filling holes in the Twitter product. It is the kind of work General Computer was doing in Cambridge in the early 80s. Some of the most popular third party services on Twitter are like that. Mobile clients come to mind. Photo sharing services come to mind. URL shorteners come to mind. Search comes to mind. Twitter really should have had all of that when it launched or it should have built those services right into the Twitter experience.

When you talk to a new user, they want to know how to post a photo to Twitter, they want to know “what is this bit.ly thing?”, they want to know how to get Twitter on their iPhone. Names like Summize, Twitpic, Tweetie make no sense to them. Of course, without Summize, Twitpic, and Tweetie we would not have the Twitter we have today. They and many other third party products and services filled out the holes in the Twitter product and made it work better.

But those services don’t feel like Lotus or Aldus to me. What are the products and services that create something entirely new on top of Twitter? I’ll come back to that question, but one more history lesson, this one recent history.

When Facebook platform launched, we saw a massive number of new products and services launched on The Facebook. But many were slight variations on existing Facebook features (like Superwall) or holes in the Facebook service. As Facebook closed up those holes and enhanced their own feature set, those apps fell to the wayside.

Note: Those Facebook apps that ‘fell by the wayside’ went out of business because Facebook decided to pull that functionality into the core platform. Is that what Twitter is going to do?

As one example, Twitter has rolled out its own URL shortener (http://twt.tl) which is being used in direct messages. Are they planning on replacing Bit.ly?

And then Fred goes on to suggest other areas that are likely to be hot for Twitter application development, presumably after Twitter fills the holes that other. earlier apps filled:

And because Twitter is so open and so lightweight, I am surprised that there aren’t more “new kinds of killer apps” to quote my friend who I started this post with.

Here’s are some places where I think we might see these killer apps emerge:

* Social Gaming - There have been a number of attempts to build social game experiences on Twitter. But I’m not aware of any successes of scale like we’ve had on the Facebook platform. I think we will see it emerge soon.

* Verticals - We have some successes to point to here like Stocktwits for finance and Flixup for movies but this is a wide open opportunity in most verticals and we haven’t seen as much effort here as I’d have expected.

* Enterprise - CoTweet comes to mind as well as the efforts that Salesforce has made to integrate Twitter. This is a huge opportunity.

* Discovery - This is one area where there is a significant amount of effort. Hunch, Listorious, TweetMeme, Cadmus, WeFollow, and MrTweet all come to mind.

* Analytics - While Twitter will obviously be delivering better analytics to its users, particularly its marketing and business users, I believe that there is always a market for third party analytics. Google Analytics is available for free and yet none of the large analytics providers have seen their businesses suffer. There is simply a voracious appetite for information on the Internet. So companies like bit.ly, Radian6, HubSpot, Scout Labs, and others have a bright future.

Again, I don’t know how to read this. Is Fred explaining what is to come? Is he trying to steer Twitter management? No matter what, he is not some dispassionate Twitter user wondering about what might come.

[Disclosure: I am an advisor to Bit.ly and I have a financial interest in the company’s future.]

Update on Thursday, April 8, 2010 at 5:24PM 

Nick Carlson came to the same conclusions I did.

Update on Thursday, April 8, 2010 at 5:30PM

Nick Carlson has more:

Responding to our post, Fred back-tracked, commenting, “that post was my work, not Twitter’s work. While i am on the board of twitter, I don’t work there and I don’t speak for them.”

But Twitter’s third-party developers don’t buy it.

One industry source nicely summarized what many others told us they were thinking, telling us, “Fred is lying to you.  Twitter was aware of his plans.  This was intentional to soften the blow later and provide advance notice.”

One big reason for all the skepticism? Yesterday, plenty of Twitter employees were cheer-leading Fred’s post.

Doug Williams, who helps run Twitter’s platform, tweeted, “Incredibly timely @fredwilson piece that all Twitter developers should read http://www.avc.com/a_vc/2010/04/the-twitter-platform.html.”

Ryan Sarver, Doug’s boss, re-tweeted Fred’s post and then later tweeted it again, asking his followers, “what are your thoughts on @fredwilson’s post? http://bit.ly/aruik7”

Twitter analytics lead Kevin Wheil wrote, “Wow, @fredwilson nailed it:   http://bit.ly/b5RvlO.”

Twitter product guy Josh Elmen wrote, “Great post on platforms and building innovation vs filling holes by @fredwilson: http://bit.ly/bkpqjv.”

A follower of Josh’s replied to that tweet, “I would be terrified reading Fred’s post if I was a hole filler startup. Thanks but now you die!” and Josh answered, “in the history of platforms, hole filling has always been a great place to start, but never a great place to end, right?”

All this cheerleading has Twitter developers very skittish. One of the guys behind one of the very most popular Twitter apps told us:

“It wouldn’t surprise me if they now deem it important to own more eyeballs. I don’t agree with this strategy but, as I said, I wouldn’t be surprised. [Twitter shouldn’t] underestimate the value of the innovation in the long tail. I hope this is not stifled if Twitter appear to be competing.”

We’ve asked Twitter CEO Ev Williams for a response to all this, but so far we’ve heard nothing.

Hotbed

[originally posted at Hotbed]

New York City’s tech scene is expanding at an astonishing rate these days, which raises the obvious question: why now? And, if New York has all the right ingredients to create a rich and deep technology culture, why didn’t it appear earlier?

My theory is that New York lacked, until recently, a critical factor: smart early stage investors.

The other parts of the puzzle were in place: great schools, brainy entrepreneurs, and abundant media and PR people. But without the manure that VCs provide, what looked to be a great greenhouse was cold, and very little would grow.

It is manure that makes greenhouses hot, that makes them hotbeds, and the critical factor is now being provided by folks like Chris Dixon, Fred Wilson, and John Borthwick. Chris Dixon recently made the case that the financial services downturn has dumped a lot of smart people out of financial sector, and also chimes in on the role that smart investors are having:

[…] why did New York City lag behind the West Coast this decade so much more than last decade?  Especially since the internet in the 2000’s has been more than ever about consumers, media, and advertising – traditional New York City strengths?

I think the only explanation is that the finance bubble of 2003-2008 was a giant talent suck on the East Coast.  The people I knew graduating out of top engineering or business programs on the East Cast were all trying to work at hedge funds or big banks or else felt like fish out of water and moved west.   Money was flowing so freely in the finance world that there was no way the risk/reward trade off of startups could compete.  Eventually it just became downright idiosyncratic to be a startup person on the East Coast.  The Larry and Sergey of the East Coast were probably inventing high frequency trading algorithms at Goldman Sachs.

But this is why New York City now seems poised for a technology startup boom. The finance bubble has burst and the industry will hopefully return to its historical norm, about half its bubble size.  The traditional advertising and media businesses are in disarray.  The people who work in them will no doubt find new applications for their talents.

There is also a nice ecosystem developing in New York City.  Union Square Ventures is one of the best VC’s in the country, with early stage investments in companies like Twitter and Etsy (that were followed on by top West Coast VCs at significant markups).   Bessemer is an old firm that has a managed to stay relevant with investments in Yelp, Skype, and LinkedIn among others.  There is also a new wave of scrappy Boston firms spending a lot of time in New York City – specifically Spark, General Catalyst, Flybridge, and Bain Ventures.  First Round Capital out of Philadelphia is extremely active in early stage investing in New York.  There are a bunch of veteran entrepreneurs actively investing in and mentoring seed stage startups.  Google has a big office here and many people seem to be leaving to go start companies.

Fred Wilson of Union Square Ventures, recently made the point that NYC has been slowly growing as a start-up hub for a decade:

Chris argues that for the past decade, hedge funds and wall street have been a huge talent suck here in NYC and now that they are scaling back, our kinds of companies will find it easier to attract the best and brightest. I agree completely.

But I take some offense to Chris’ view that NYC was “irrelevant” in the 2003-2008 internet boom. TACODA, Right Media, Gawker, Quigo, Delicious, Etsy, Meetup, Indeed, Tumblr, Return Path, etc, etc.  I don’t call that irrelevant. I call it misunderstood. Good thing people, including our Mayor, are waking up to what a good thing we’ve got going here.

I think a tipping point has been reached, though, where all the pieces are now connecting, and we are moving past an inflection point into explosive growth.

One of the other factors, that can’t be downplayed, was the cold water that got splashed all over the San Francisco tech environment in the fall of 2008.

Sequoia’s infamous ‘Good Times: RIP’ presentation — and the thinking behind it — infected Silicon Valley’s venture world like a zombie plague. In a nutshell, the venture firm had a secret meeting of its partners and key staff after the banking sector melted down, and shared a vision of rising financial insecurity and the need to decrease risk exposure. The result was a Valley wide cut back in deals, and a push to make portfolio companies more lean through staff cuts, decreased marketing, and slower technology roll-out. Over the next 18 months many companies would lose their funding, and thousands of developers, designers, and marketing folks would lose their jobs or contracts.

While the funded entrepreneurs and investors in the Bay area were busily patting themselves on the back for being so austere and forward-looking, the migration of start-up aspirants from Montana, Ohio, and Mumbai slowed. The big freeze stopped decades of software immigrants heading for the West Coast to start the next big thing. Now it looks like New York City might be the new tech Mecca.

Ron Conway, the great angel investor, made a presentation last November at a Betaworks brown bag lunch. He stated, more or less, that his group had made 25 investments in NYC companies by that point in 2009, out of 37 investments in total. (I may have the exact numbers wrong, but not by much.) In the previous year, he made only one investment in NYC, and in all the previous years he had been an investor, none.

Yes, this is a single investor, and it could represent a new-found willingness to invest outside of California on his part. Still, I find it indicative of the piling-on effect of smart money chasing other smart money in an environment that is creating enough innovation to justify it.

So, this new project, called Hotbed, is a vehicle for me to examine what is going into this creative frenzy, this exploding scene. I am an economic migrant, myself. In late 2009 I left San Francisco, a city I had used as my base of operations for 4 years, and I am now rerooting myself in New York City. This will be the journal of my inquiry into the peculiar chemistry of New York’s start-up explosion. I will continue to write about more global topics at /Message, as I have been doing since 2005. But Hotbed is all about New York tech start-ups, and the shifting, swirling scene that supports them.

Fred Wilson Still Loves Jet Blue, But ..

He’s not happy:

[from A VC: I Still Love Jet Blue, But ..]

Jet Blue has gotten too big for its britches.

Still way better than my recent go around with Virgin Atlantic. Of, by the way, here’s the email I got after complaining about my recent trip:

[via email]

“Customer.Relations.US@fly.virgin.com”

Thanks for writing to us.

This message has been sent automatically to let you know that we have

yours, so please don’t reply to this address. Your comments are really

important to us and we’ll write back as soon as we can, within the next

21days.

Please feel free to take a look at our website as it tells you everything

you need to know about the customer relations and baggage claims service.

The address is

http://www.virgin-atlantic.com/en/us/customerrelations/index.jsp.

Kind regards

Virgin Atlantic Customer Relations

It’s so important they are going to respond in the next 21 days! And it’s not even signed by a human being!

Freemium is a Dreamium

Last week, Fred Wilson called for a name for the now-common business model of web start-ups:

Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.

I offered this post and the term Turning Pro. But Fred has gone with the very good alternative, Fremium:

[from A VC: The Freemium Business Model]

And at the risk of calling the game before it’s over, I have to go with Freemium. I love the name, suggested by Jarid Lukin of the Flatiron portfolio company Alacra.

I am going to join in and use this term, too.

Fred Wilson on My Favorite Business Model: Turning Pro

Fred wants to know what we should call the Skype/Flickr/Trillian business model:

[from A VC: My Favorite Business Model]

Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.

[…]

The best examples of this business model are when the customer implicitly understands why the paid service has to cost money. More storage costs for photos or virtual storage are good examples. Termination costs on other carriers networks in the Skype model are another. When it is just additional features that don’t carry an incremental cost to offer, it may be harder to convert free users to paid users. But if your free service is loved and you do a good job articulating the value that comes with the paid service, you can convert to paying users with good results.

I would like to have a name for this business model. We’ve got words like subscription, ad supported, license, and ASP, that are well understood. Do we have a word for this business model? If so, I don’t know it.

I don’t think there is a term for this, but I will propose one: Turning Pro. People are free to play with the product, and there are basically no limitations on its use. And they come to love it, and use it a lot — treating the product as an amateur, who is doing what it does for love, not money — they reach the obvious juncture, and the product Turns Pro, and start paying.