So Twitter has started to unveil how they’re going to monetize their audience, it’s really getting interesting to observe.
First because as Twitter starts generating revenue, their relation with third parties is going to evolve, in a positive way in my sense, as now any third party in the ecosystem will know how to position itself against the platform owner. So exciting for anyone interested in software platform strategies !
Then, Twitter starting monetizing might change the leadership in the Web economy. As Scott Karp wrote back in 2006, « if Google is the new Microsoft, that?s precisely why they shouldn?t be feared », mentionning the precariousness of market leadership. He couldn’t be more true, as we’ve seen then the rise of Facebook, and now maybe Twitter’s.
But I want to focus on another aspect of Twitter’s decision to turn on revenue : their success or failure will feed the debate on growth strategies, i.e. building the audience first with a free product and monetize after versus monetizing first to build the audience then.
The former often implies lots of funding on high valuations, allowed precisely because there is no business model : anyone can speculate with its own dreams on the potential as Mike Arrington explained it well last year. These times are over now for Twitter, as their first revenue figures will allow more classical valuation methods. I can’t wait to see how they will succeed in this exercice, to understand better this growth strategy.
When you’d have been better not generating revenue
Today another story illustrates the differences in these two growth strategies. If you follow Twitter development, you’ve probably heard about Foursquare amazing growth and the attention it gets from VCs and potential acquirers.
But did you know about Where, a similar product with three times Foursquare audience, and profitable ? They definitively don’t have the hype Foursquare has in the web/tech sphere. Maybe because Foursquare has a better product. Or maybe just because Foursquare let’s anyone have its own idea of the potential, to follow Arrington’s Revenue Dilemma. Whatever the reason is, the consequence is that they get less attention in the web/tech sphere, and thus less important valuation I assume.
Does it mean any entrepreneur should follow the audience strategy ? I don’t think so, and I think both let you know quickly the real potential. With the audience strategy, you really need the best produt ever to be the number 1 in your market, and the market quickly eliminates bad products. With the monetization strategy, you need a perfect execution to sustain the growth, and you know also quickly if the business model works or not.
Obviously, all recent leaders (Google, Facebook, Twitter) followed the audience strategy, and all entrepreneurs are dreaming to be the next one. But it would interesting to get some statistics on the number of successful companies with this strategy, versus the number of small profitable companies you’ve never heard of. Anyway, this is an ongoing debate in the innovation sphere, the most important for the entrepreneur remains to be passionate for his work 🙂