Social media companies have always struggled with monetizing the big user base that they have. Especially Twitter, the social media platform that lets users send out 140-character messages, has been operating on investment money instead of profit. At the time of their IPO, Twitter was making $500 million dollars in revenue but did not make any profit.
Although Twitter is not profitable, it still had a valuation of $24.9 billion at the time of IPO. But, if there isn’t any profit, what is that valuation based on? The answer is innovation and the prospect of monetization. Many big companies have been outcompeted by startups that applied innovative business models. For instance, Blockbuster got replaced by Netflix and Barns & Noble got replaced by Amazon.
Social media are replacing our old ways of communicating. The reach and influence of Twitter has become enormous but profits are lacking behind. Still, Twitter is valued highly because investors predict that Twitter will find a way to monetize on their influential position in the social media world.
That moment of monetization might just be upon us now. Twitter is introducing their ‘’Buy Now’’ functionality. In September 2014, Twitter started testing a way to buy products directly from their site and app. Together with payment-startup Stripe, they have developed the Buy button. This button enables retailers to turn their Twitter account into a web shop. Consumers just add their credit card details to their account and click the Buy button whenever they see a product they like on Twitter. Of course, part of this revenue will go to Twitter.
Twitter is a great example of the value of the network effect. First, they created an enormous network of people relying on Twitter to stay up-to-date. Only after the massive user base was established does Twitter introduce ways to turn that network into large revenue.
The monetization will not end with the Buy button. Recently, a MKM Partners Internet analysist stated that Twitter can reach a $100 billion valuation if they find more ways to monetize and improve user experience. That statement alone made Twitter stocks rise significantly and Twitter will work hard to reach the ‘’unicorn status’’ that is a $100 billion valuation.
Although Twitter is finally monetizing, many still call Twitter and other startups overvalued. Do you think that Twitter is overvalued or not? Share your thoughts in the comments!
There are thousands of apps around. For multiple platforms (iOS or Android) or in multiple browser. You probably use them on many devices: Your phone, tablet or laptop. But all those applications have very limited functionality on their own. Only by communicating to their user, connecting them between each other and swapping all kinds of information they become powerful.
And that’s where APIs come in. API stands for Application Programming Interface and describes the information and rules software programs interact with each other.
The traditional way of development focusing on web frameworks (e.g. Microsoft .NET, Ruby on Rails, PHP) can require costly integration into other software when not set up properly. Adaption to special needs can easily amount to a project in middle five figures.
An API centric piece of software executes most or all functionality through API calls. So why is this important?
With API-Centric Design the core function of a software (for example the Twitter Stream of new Tweets) is build separately from the way a user accesses it (in our example Twitter can be accessed through a browser, an iOS app from an iPhone, iPad, Android devices, aso.). There is only one core product running in the background and then many different customized front-end ways of accessing the core product running in the back-end. All the communication between those parts happens over? You guessed it: APIs!
No more changing and tweaking the core product because on a windows phone was a display error. You just handle that over the windows phone front-end client.
Bah…. that was a lot of techie talk. So what?! Well that brings us to our next big thing:
The Internet of Things
There are estimates that until 2020 there will be more than 50billion connected devices. That’s a lot! And it will shift who and what communicates over the internet. Today people communicate with people or people communicate with machines and systems. But in the age of the internet of things systems mostly communicate directly with systems. And they don’t care about pretty graphical interfaces on some gadget with touch screen. For those systems to work you need solid APIs connecting many back-ends fast and in a reliable way. And what would be more suitable for this task than software created through API Centered Design?
Oracle recently released an API Management Tool. So did IBM and Intel. These big corporations undertake those steps to be well prepared for what is about to come: The internet of things. It’s gonna be a paradigm shift.
But Where is the Money?
APIs aren’t new. And there are a lots of them. In the Programmable Web Database are more than 14’000 APIs registered. But with the emergence of mobile and the internet of things, they’re in the spotlight again. API centered software enables micro services that fit a specific need an solve a well detailed problem. Other programs can build upon existing APIs using their functionality to expand and build their own. This layer structure can help to automate tedious tasks by integrating and arranging the right APIs. There are many offerings already that allow fast creation of API-based back-ends (e.g. Treeline or Stamplay). APIs therefore build a solid foundation others can build upon. Google does that for a while already and offers a ton of APIs for others to use (e.g. Google Maps). But if you and especially your users call them regularly you have to pay for them. And they’re not cheap:
This example brings us to our first business model with APIs: If you’re providing some service that is of value to others, you can charge for every time a user or program is calling your API and uses its functionality. Even if it’s just a couple cents per call, if your API gets used thousand times a day, that’s steady income.
Another business case is to offer your API for free and animate other developers to build upon your existing API. Through referrals from that software you then generate additional sales. Uber does this with success: By offering their API for free they animate developers to build upon their core product. If someone signs up for Uber through another program that uses the Uber API, they pay the developer who build the new product a commission of $5-10.
There will be many more business models emerging around API. Especially connected to the Internet of Things. The paradigm shift opens up new business opportunity ready to exploit.
What business models including APIs do you see? I’m very interested in reading about them, so please leave a comment!
There are enough companies who tweet just to tweet. Create an account, once a week send a tweet and never look beyond what others say. Simple and it does not cost any extra money, after all sending a tweet is just a mouse click away. Occasionally there will be a new follower and the company also follows every follower. The question is, however, do you really follow everybody?
You start with simply “follow” someone, actually read all the tweets is a second. And then even respond to tweets is for many companies a very different story. But sometimes, just sometimes, there is a company that really knows how to deal with Twitter. Respond quickly is a must. These companies passed the stadium of “just check my Twitter account during the coffee break”. It has become an effective call for one or more employees.
Do you travel frequently by train and do you use Twitter? If so, you’ll know the Twitter profile of the NS (Dutch Railways). Since March 2010 they’ve send over 315,000 tweets. With over 110,000 followers, NS is one of the companies most discussed. Commonly used hash tags to messages with the NS are #fail, #vertraging, #Utrecht and #ns.
Twitter would like to go public, as it announced in an appropriately delivered Tweet last week. The first thought I had was rather positive, but as soon newsmedia picked up this message, the sentiment on this IPO rather quickly drawn a lot of comparisons to Facebook’s initial public offering, and I was quite surprised by this pessimistic sentiment, as another big tech company from silicon valley enters the stock market. So in this blogpost, I would like to share some positive reflections on this IPO. I thought it would be interesting to place an emphasis on a medium that is highly academically used in this course and related research, but also on the implication side, as its IPO should have an impact for the users of Twitter?
(You all know Twitter, so I will not bother you with a general introduction)
On September 12th Twitter revealed via its own micro-blogging service that it had begun a process with America’s Securities & Exchange Commission that should ultimately lead to an initial public offering (IPO) of shares in the company. Should the firm’s plans go through, the IPO is likely to take place in 2014. Twitter’s listing will be the most eagerly anticipated tech-company flotation since Facebook’s, early last year. Twitter’s listing will be the most eagerly anticipated tech-company flotation since Facebook’s, early last year. The company yet is worth billions upon billions of dollars, and its founders will become extremely rich sometime in the next year. But Twitter, as we experience it, is also set for a radical redesign sometime soon. The company’s finances are set to change; but its looks may be changing just as much
Avoid a debacle like Facebook’s IPO
Of course, Twitter’s hope is to avoid its IPO turning into an overhyped debacle like some other technology companies. Facebook’s IPO, in particular, is seen by Twitter executives as a cautionary tale, the source said. Asked the other day if he had any advice for Twitter’s expected public offering, Facebook CEO Mark Zuckerberg joked “I’m kind of the person you would want to ask last on how to make a smooth IPO.”
But I think, alike with some others I found; Twitter’s IPO will be significant for several reasons:
Twitter is going public sooner than Facebook went public. Zuckerberg waited more than eight years to conduct a Facebook IPO and by the time he made the decision to go public, primarily due to CEO Mark Zuckerberg’s notorious dislike of public markets, public disclosures, and public pressures to perform, there was so much hype and pre-IPO money invested in Facebook that it almost made the IPO unmanageable.
Secret IPO Filling
Keeping its IPO filing secret until the last minute could help Twitter avoid the overheated anticipation that Facebook had to deal with ahead of its disastrous IPO. It could keep its financial details away from rivals for a few extra months, as it grows a mobile advertising business that might compete with Facebook’s or LinkedIn’s. And if Twitter would rather keep some of its early history under wraps, it could avoid an outside audit and submit just two years of financial statements, as opposed to the customary five.
Advice of Facebook’s Zuckerberg
Twitter’s hope is to avoid its IPO turning into an overhyped debacle like some other technology companies. Facebook’s IPO, in particular, is seen by Twitter executives as a cautionary tale, the source said. Asked the other day if he had any advice for Twitter’s expected public offering, Facebook CEO Mark Zuckerberg joked, “I’m kind of the person you would want to ask last on how to make a smooth IPO.” Zuckerberg not only overcame a very challenging post-IPO period as he successfully transitioned Facebook to being more of a mobile business, he also learned something from the process and recently gave this advice to Twitter.
Powerful media company rather than a technology company
It will further underline the power of social media—in Twitter’s case, short text messages of no more than 140 characters—as a tool for mass communications. It will mean that the all of the biggest social-media behemoths, including Facebook and LinkedIn, will have left the shadows of private ownership for the spotlight of the public markets. And it will add another dimension to the growing rivalry between America’s leading tech firms, who are increasingly invading one another’s strongholds. (economist)
As Twitter has evolved, particularly over the past couple of years, from a simple, text-based service toward something richer and fuller: users can now embed everything from pictures to Vines to full-on mini-apps within their tweets. It’s like a stream gradually becoming a raging river. Twitter has transitioned from a technology company into a powerful media company in its own right.
Morgan Stanley’s powerful tech team, which led the Facebook IPO, will not be the lead underwriter for the Twitter IPO. That role will be filled by Goldman Sachs. This is a big change in Silicon Valley, where Morgan Stanley has ruled the hottest tech IPOs in recent years, like the IPOs of Facebook, Groupon and Zynga, all three of these IPOs did not go well.
It’s not clear yet if Twitter has picked an exchange to list on, but another difference would be if the company chooses to move away from Nasdaq, which for years has been the exchange of choice for Silicon Valley. Nasdaq was widely criticized for its role in the botched Facebook IPO and Nasdaq paid a $10 million penalty to settle SEC allegations stemming from its “poor systems and decision making” during Facebook’s IPO.
The area of growth that would most likely garner user outrage after a Twitter IPO would be the addition of more obtrusive advertisements to the Twitter feed. But that is nothing new to Twitter, which already monetizes heavily through advertisements. (In line with the platform’s use as a second screen, Twitter even works with advertisers to help them target specific television audiences). Because Twitter already employs an ad strategy that relies heavily on mobile and targeted ads, it’s more likely a change in advertising would come around Twitter’s other features, not the Twitter feed. One part of the user experience that may change will be an influx of new features and partnerships, particularly around entertainment, television and ecommerce. Twitter recently hired former Ticketmaster president Nathan Hubbard to run commerce for the platform and bring shopping to the Twitter feed. The added transparency that comes with filing earnings documents each quarter will mean more features for users.
One thing is certain: Dick Costolo, Twitter’s CEO, won’t be showing up for the Wall Street road show in a hoodie.
Looking forward to your comments with your thoughts!
The word ‘prediction’ triggers an uncomfortable feeling inside of me, since I read Nassim Nicholas Taleb’s book ‘The Black Swan – Impact of the Highly Improbable.’ The author demonstrates the astonishingly bad track record of human predictions and elaborates on philosophical, statistical and psychological issues that make it impossible for us to predict. McAffee and Brynjolfsson – , however, state in an article that was required for this course that ‘using big data leads to better predictions, and better predictions yield better decisions’. Now I would call this, two contradicting points of view.
Interestingly enough, Taleb recently wrote an article in Wired Magazin about the flaws of Big Data entitled ‘Beware the Big Errors of Big Data’ – . His view is that Big Data gives us more information, but also more false information. Consequently, he argues, the sheer amount of data makes it easy to find statistically significant relationships between variables. We humans like the simplicity of thinking that a certain effect has one or at least a few understandable causes – a phenomenon Taleb calls Narrative Bias. To bring this blog back in line with our course, let’s consider the example of taking twitter activities as the bases for prediction of stock markets, as mentioned in Luo et al.’s article -. The article states that twitter activities are ‘significant leading indicators of firm equity’. Just like the student 322165pk before me, I doubt this relationship. People are self-aggrandizing and therefore not honest on twitter. To base predictions on this sort of data seems careless. Nevertheless, my key concern is not the quality of the collected data but Big Data itself, which sources from twitter etc.. Big D. makes it virtually impossible not to find relationships like the ‘twitter predicts stock market’. The researcher can easily fall for a confirmation bias, so a quest to search for information to confirm their own point of view, whilst disregarding contrary or opposing data.
To visualize this point, please have look at the following: The graph shows that the more variables and information we have the more false correlation we will obtain.
Obviously, as a BIM student I would like to know why I should learn about Big Data, if I am that doubtful about its predictive abilities. Big Data can show how people use your products in ways that you have not expected, for example, services like tumblr started out with a focus on erotica and later the makers discovered that their site was mainly used for other, less wicked purposes. Generally speaking it can serve as a tool for self-measurement, as Mouton  puts it, and tell us the things we do not know instead of confirming the things that we would like to know.
I hope I could spark some interest about the author and his books ‘Black Swan’, ‘Fooled by Randomness’ and the freshly released ‘Antifragility’. If you are interested then you should join me to Amsterdam on the 4th of October, as Nassim Taleb is holding a lecture in the Pathé Tuschinkski. [https://www.nexus-instituut.nl/en/events/137-nassim-nicholas-taleb] Get your tickets!
 McAfee, A., and Brynjolfsson, E. 2012. Big Data: The Management Revolution. Harvard Business Review 90(10) 60-68.
 Luo, X., Jie, Z., and Duan, W. 2013. Social Media and Firm Equity Value. Information Systems Research 24(1) 146-163.