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Twitter’s Valuation – More Like AdultFriendFinder or YouTube?

After the recent news that Twitter turned down a $500 million acquisition offer from Facebook, I threw this tweet out there:

Twitter for $500 million..gut says that’s too low. Twitter is the defining platform for lightweight interactions. $1 billion +…

A nice discussion followed on FriendFeed about this notion. A couple counterpoints were made:

“I disagree: their model is no longer unique. Moreover, they don’t offer any particular feature that separates them from other similar models. The best they have to offer is the user base, and the right name-brand shiny shiny with a few choice features would take most of them away.”

“It’s a glorified IM network, only less functional because it’s a centralized platform with an absurd character limit that only the most ADD among us can find usable.”

My gut feeling is based on three factors:

  1. Platform
  2. Growth
  3. Comparable transactions

Here’s where I’m coming from.

Platform

Twitter has established lightweight messaging as valuable and addictive. From the simple roots of “What are you doing?”, people have morphed Twitter into a range of use cases. Open channel chats. News updates. Sharing articles and blog posts found useful. Polls. Research. Updates peers on activities and travels.

Based on tweets, companies find out how they’re doing out in the market. Twitter search yields a treasure of information about subjects. Find like-minded individuals with whom to connect.

The platform aspect is not one to be undervalued. This is a key point – platforms are worth more than any single app. Tim O’Reilly penned a thoughtful piece in this regard. With regard to Twitter as platform, he writes:

Rather than loading itself down with features, it lets others extend its reach. There are dozens of powerful third-party interface programs; there are hundreds of add-on sites and tools. Twitter even lets competitors (like FriendFeed or Facebook) slurp its content into their services. But instead of strengthening them, it seems to strengthen Twitter. It’s the new version of embrace and extend: inject and take over.

Microsharing, as Laura Fitton calls it, certainly requires some change in people’s behavior. There’s no doubt about that. But the concept of microsharing, or as it also known as, microblogging, is powerful. It’s highly flexible and has a variety of use cases.

It’s not just early adopter/social media types that are taking notice of this microsharing trend. Click here to see how often the New York Times has written about Twitter. An article on cnn.com about the Mumbai terrorists included this:

Neha Viswanathan, a former regional editor for Southeast Asia and a volunteer at Global Voices, told CNN, “Even before I actually heard of it on the news I saw stuff about this on Twitter.”

Twitter is transforming in terms of social, accessible and findable updates. True platform companies with reach and highly flexible uses don’t come along very often. Twitter is one of those platform companies.

Growth

Twitter’s early period was marked by some uneven growth. But around March 2008, the service really took off. And it hasn’t looked back:

twitter-compete-graph-oct-2008

It’s fair to say that the network effects are getting stronger and stronger for Twitter. The more people that join, as seen in the graph above, the more valuable the service becomes. Search grows more and more in importance. So more people join, meaning it’s more valuable others to join, and so on…

Don’t dismiss Twitter’s growth either. This post on the Ignite Social Media blog, which shows traffic for 37 different social websites, illustrates how challenging it is for most social networks to maintain growth these days.

Twitter’s got huge momentum right now. That’s valuable.

Comparable Transactions

I researched purchase prices for technology companies in recent years. The table below shows acquisition prices for what I’ll call “market comparables”.

twitter-valuation-comps

Valuations are more art than science. Personally, I’m a big fan of triangulating on a value by looking at what other companies have gone for.

My point with the above table is to put some context around Twitter. Danger and XenSource were important niche plays. AdultFriendFinder was valued at $500 million. Given Twitter’s role in the emerging realm of microsharing, should it have the same valuation as AdultFriendFinder?

I know that there currently is no revenue for Twitter. It’s not like they’ve tried and failed. They haven’t even tried. But my guess is Twitter’s revenue path lies beyond punching up some ads on Twitter profiles or in Twitter streams. Those may be there, but like any platform, there will be other ways to monetize.

And let us not forget YouTube’s (non existent) revenue model when Google purchased them for $1.65 billion.

What Do You Think?

I’ve laid out my thinking here. Twitter is a rare platform play that’s hit a strong growth curve. Previous acquisitions say that Twitter should be able to take advantage of those factors for any valuation.

How about you? Weigh in on the comments below, or just answer this quick poll (RSS readers – click out to take the poll!).

*****

See this post on FriendFeed: http://friendfeed.com/search?q=%22Twitter%E2%80%99s+Valuation+-+More+Like+AdultFriendFinder+or+YouTube%3F%22&who=everyone

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Imagining an Email Social Network

Email has been proposed as a nearly ready-to-go social network. Just how would that work?

In September 2007, Om Malik asked Is Email The Ultimate Social Environment? And in November, Saul Hansell wrote, Inbox 2.0: Yahoo and Google to Turn E-Mail Into a Social Network. Both looked at the idea that email providers have most of what was needed to build their own social networks. There is potential there, but it’s not a slam dunk.

The Social Network Stack

If an email system is to become social, it needs to address the social network stack. To keep things simple, let’s assume there are three parts to the social network stack:

  1. Self-Expression = who you are, what you like, what you’re doing
  2. Relationships = people connections, of all different types
  3. Interactions = how you engage your network

Within each part, there are components that define the experience of the social network. This diagram describes those:

Self Expression: Email Needs a Profile Page

There isn’t a profile page in email systems. You log in, and you see your email. Adding a profile page really shouldn’t be too hard for Google or Yahoo. Even issues of privacy for the profile page are quite manageable for the two Web giants.

Apps on the profile page? Google’s got iGoogle widgets and OpenSocial. Not a problem.

Yahoo has demonstrated with its durable portal that it can pull together information from different sources. Wouldn’t be too much of an issue for them either. According to the New York Times’ article, Yahoo’s Brad Garlinghouse already has an idea for the profile page:

In this vision, people have two pages: a profile they show to others and a personal page on which they see information from their friends as well as anything else they want, like weather or headlines.

Relationships: They’re in the Emails, But Handle with Care

This is the biggest advantage the email providers have: they know your relationships. They’re sitting on a mountain of information about people’s connections to others. As the New York Times’ Saul Hansell wrote:

Web-based e-mail systems already contain much of what Facebook calls the social graph – the connections between people.

This is the killer advantage Yahoo and Google have over other social networks. They know your connections right off the bat. And that’s not all. They know how often you email those contacts.

Imagine how this could work:

  • Email frequency is used to set your initial relationship level with someone else. Lots of recent back-n-forth means strong bond. Lots of one-way emails to you means it’s a company. Few two-way emails means you have a weak relationship.
  • Your address book categories – personal, work – can become relationship definition metadata.
  • If you don’t have your email address book organized by relationship types, the email provider analyzes the words to categorize the relationship. Romantic, friendship, professional. Yes, this is Big Brother scary, but Gmail already does this to display ads. Still, if not done right, this might backfire big time.

I do wonder how much value this really has though. Email address books are used to kick start your enrollment into social networks like Facebook. It’s not hard to import these.

The assessment of your email connections – strength and type of relationship – is cool, but don’t you know that already? Arguably, such analysis really is a way to save time on making your own decisions about these relationships. But if you’re engaged with your network, you’re probably going to take control of this.

Subscribe or Dual Opt-In: Twitter or Facebook? FriendFeed or LinkedIn? The recent stars on the social apps scene have a subscribe model. Your can read the updates of people on Twitter and FriendFeed, just by declaring that you want to. Pretty wide open. But a key factor here: when you join Twitter or FriendFeed, you do so knowing that anyone can read your updates. People with whom you email never had that expectation. So every user either needs to opt-in to having their updates read by their email contacts, or you must send a friend request to whomever you want in your social network.

Type of Relationship: Friend, common interest, professional? This is another one that requires thought. I’ve argued previously that different social networks are good for different types of relationships. Being a one size-fits-all is not easy. It requires a decent amount of management for the user: do I share my kids’ pictures with my colleagues and the people in my Barack Obama 08 group? Dedicated purpose social networks make managing the different aspects of your life easier. Otherwise, all your co-workers will know your political preferences, party pictures and relationship status. Email providers have all of your email contacts; they need to either pick a focus for their social networks or let users create their own types.

Interactions: Watch Those Activity Streams

Most of the Interaction stack is well within the range of Google and Yahoo. Yahoo’s been in the groups business for a long time. Google relaunched the JotSpot wiki as Google Sites. A wiki can be a good group site.

Apps were already discussed under self-expression. Messages? Of course – this is email.

Activity updates are an interesting concept. The biggest current activity in email apps is…email. But I’m not sure those qualify as updates you want broadcasted:

Should emails be shared?

Emails are pretty private, aren’t they? Not really something people will want to broadcast out to their social network…

Google and Yahoo could integrate activity streams from other parts of their social networks pretty easily.

So What Are Email’s Advantages as a Social Network?

I’m not sure there are intrinsic advantages email enjoys that make it superior as a potential social network. Rather, it has these two user-oriented advantages:

  • People wouldn’t have to go to a lot of trouble to set them up. Just present them with the opportunity when they log in to their, with very few clicks or decisions initially.
  • We tend to check our email daily, hourly. So recurring engagement with your social network is a lot easier than with destination social networks.

That being said, Facebook, MySpace, LinkedIn, Bebo, Ning and FriendFeed have a tremendous head start and brand. They also have clearly defined, different experiences.

If they choose to roll out their own social networks, Google and Yahoo will start ahead of the game. But success won’t be because of the email. It’ll require a differentiated social network experience. Just like anyone else entering the space.

Facebook Fatigue: Ten Reasons

TechCrunch has a post up, “Facebook Fatigue? Visitors Level Off in the U.S.” It appears the number of visitors to Facebook has stopped its inexorable growth, and even declined in January. This is newsworthy because that’s a real change in the trendline. Facebook has been on a tear the past couple years.

I personally enjoy Facebook very much. I check it a couple times a day, and I have activities and apps I like there. But I see some of the issues that afflict the site. Below are ten reasons for Facebook fatigue.

1. Friend activity junk mail: I love seeing all the things my friends do. I hate seeing all the things my friends do.

2. App invite spam: Yeah, too much of this. There are apps you really like, and apps that force invites. More of the former, less of the latter.

3. Lame apps: I got an email from “Compare Friends” detailing my “highest rated friends”. Inane.

4. Non-friend friends: LinkedIn is great for professional networks. Facebook is really best for friends. Adding non-friend friends reduces your interest in “keepin’ it real”. [UPDATE: Robert Scoble, with 5,000 "friends", expresses his lost interest in Facebook]

5. Is that all there is? Tons of apps. But the killer activity on Facebook hasn’t yet emerged. Amend that…the killer activity for the new joiners (> 30 y.o.) of the past year hasn’t emerged.

6. Backlash by the under-25 set: For the younger crowd, maybe the growth of the over-30 crowd has killed the cool vibe. MySpace making a comeback? Bebo growing?

7. Backlash on the under-25 management conceit: It’s true that Facebook came from college kids. But too much blah-blah about how they really “get it” sours the older folks.

8. Stop the presses: Is it possible for there to be too much media coverage? Facebook, and its ecosystem get a lot (e.g. Slide’s $500mm valuation). Too much talk about how members are making these companies rich.

9. Inevitable bumps: Beacon. Scoble raising hell over lack of contact portability. Inability to delete your account. Competitors’ responses (LinkedIn changes, MySpace API, etc.)

10. Heat always dissipates: Hard to stay hot forever. Google’s been the closest thing to that.

Let’s remember that Facebook still draws massive numbers of users, and continues to drive a lot of discussion and innovation. They’ve got money and smart folks there. Looking at the list above, several are within the control of the company.

As Mark Twain said, “The report of my death is an exaggeration”.

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