Twitter is not a social media company – like FourSquare, it is an “80/20” company

Twitter’s testing a new redesign – that makes it look more like Facebook. This comes on the heels of disappointing user growth that sent the stock plummeting as user growth is stalling at ~241M – compared to Facebook’s ~1.2 billion. Twitter has a long way to go to grow its audience and really generate value from its advertising and potential commerce products. Ostensibly the redesign is meant to deliver a more mainstream experience that will attract more users and drive higher engagement

 

But, in trying to be Facebook, is it chasing the wrong pot of gold?

 

Contrast Twitter to Foursquare…Foursquare continues to limp along, as far as big social products go, at 45M users worldwide (30MM as of 2012) while it repositions itself as a local recommendation engine – a crowded space dominated by Yelp.

 

But Foursquare may have realized something that Twitter has not, something that may be crucial to both companies’ survival: its real value may be in selling data to others, not in aggregating the biggest audiences possible and selling ads.

 

While Foursquare expects to 10x its revenue from 2012 to 2013, it is still only estimated at $20M. Without a larger, more engaged base of users, the ad/merchant deals segment of revenue isn’t likely to grow (in comparison, Yelp, the local recommendations leader, expects annual revenue at ~$224M on a user base of almost 3x Foursquare’s (~120M)).

 

So where is Foursquare’s growth engine? Selling the data that comes from its core users.

 

Foursquare recently inked a deal with Microsoft to provide deep integration into its tracking and location services for Microsoft devices. It seems that, in spite of its relative limited mass of users, those users allow Foursquare to collect a significant amount of explicit content (reviews) and data exhaust (location and movement patterns) that is actually valuable to a lot of other people. Beyond Microsoft, Twitter (Vine), Yahoo (Flickr) and Pinterest are all leveraging the data generated by Foursquare’s core users to earn revenue in ways other than simple advertising and merchant deals.

 

Foursquare is a great example of an “80/20” company which generates value via the Pareto principle – a network with a small core group of users (~20% of online population) that generates valuable content which can be monetized by presenting it to the other 80% of the population who do not necessarily use the product itself.

 

Twitter’s recent moves– looking to create a more mainstream-like experience, courting advertising, expanding into commerce – all presumes it is a business based on scale – huge audience, huge impressions, long engagement. But the reality is far from this as very few users actually tweet or interact. The relatively small set of Twitter users (which, remember, is one-fifth the size of Facebook) primarily are on Twitter to read the content and conversation that is generated by the even smaller set of highly active users. This use case does not support a move to a Facebook-like experience. Certainly Twitter has been building to this for quite some time, in particular by introducing photos and videos directly into its news feed, hoping to get Instagram-like engagement.

 

But as Foursquare shows, there is a lot of money left on the table if Twitter only chases Facebook. Certainly Twitter has forged media-driven relationships to feature Twitter content (notably with CNN and ESPN), and even hired Vivian Schiller (formerly of NPR and The New York Times) as its Head of News Partnerships – but they have huge opportunities with information companies who trade on trends – financial companies, advertisers, news outlets – that may suffer if they blindly chase user acquisition and advertising.

 

Instead, Twitter should take a portfolio approach similar to Foursquare, and ensure it has initiatives that:

• Make its power users happy. They are the ones making Twitter valuable. They are the ones they should be looking to super-serve (they obviously still need to pursue new users, just not at the expense of power users). How can Twitter build power users’ brands? How can Twitter help them monetize? 
• Build on its strength as the leader in real-time conversation to be the leader in real-time insight. Don’t surrender this to partners. Conversation will continue to drive acquisition, but being able to convert that into insight will accelerate the revenue opportunities. Acquire and hire the analytic and editorial talent to generate revenue from this rich data source.
• Monetize the news feed content via their API. Twitter has rightfully guarded access to their API given the riches it can generate. Building out their insights capabilities will require them to be even smarter about access to their API (and for many potential clients, insights will be even more valuable than the API). But…certain conversations in the news feed will be valuable to different partners. Twitter can respect customer privacy, insulate their insights business and still enable key content from the API to be monetized via partners.

 

At the end of the day, the pot of gold for Twitter is not in just chasing Facebook. In fact, blindly doing so could erode its biggest sources of value.