Industrial organization helps us judge the attractiveness of an industry by understanding “the five forces.” In the economic food chain, the best positioned segments are those with the greatest level of consolidation relative to buyers, suppliers, and competitors. So, for example, Amazon entered the book market as an intermediary between tens of thousands of publishers (fragmented suppliers) and millions of buyers (consumers).
In the video “market,” there are thousands of producers (millions including user-generated content) and millions of consumers — YouTube had less opposition from the incumbent video “suppliers” than Napster or Imeem did with the incumbent music “suppliers,” of which there are four that dominate the market. The video content market is extremely fragmented while the music businesses is massively consolidated. With the latter a small group can take coordinated action while the former suffers from a free rider problem.
On the Web we can extend this thinking to the data food chain. Google and Yahoo! Search (metadata players) sit between billions of pages (data players) and hundreds of millions of consumers. In these types of markets, there is the potential for natural monopolies from economies of scale (brand, operations, the “machine learning curve”). When YouTube was clearly on its way to a “video monopoly,” Google had good reason to act. When data ownership is fragmented, incentives for sharing metadata are high (think SEO). But when a content market is a data monopoly or oligopoly the company that owns the data has the potential to have a monopoly not only on the data, but also on the metadata. For example, Google should be able to offer dramatically better search on the corpus of YouTube videos because they have access to tons of non-public metadata (how long users watch a particular video, for example). Furthermore, that metadata should improve non-video search — if not now, perhaps once all audio from video is transcoded into something search engines can grok.
So what does this have to do with Twitter?
As I have mentioned before, I think Facebook is an incredibly interesting property. Well beyond what today’s conventional wisdom suggests. They have a very consolidated level of ownership of a high fidelity social graph mapped to profile information, communications relationships, photographs, application usage, and so on. In my mind, Facebook is the one company that really has the potential to give Google a run for its money, if it ever goes after search.
But Twitter also has very interesting data, and will surely carry a lower price tag. Check out Twitter Search, to find out what is happening right now. In addition to a real-time search capability, you can find out what topics are trending upward (sound familiar?). Google has aggresively injected RSS feeds into search results as of late, and Twitter offers a potentially superior signal to noise ratio than blog content. And note that Twitter’s API has been locked down a bit since the acquisition of Summize (now Twitter Search).
Twitter has the potential to offer a major search vendor the ability to not only inject real-time content into search results, but also to offer high-quality metadata to tune the ranking algorithm.
15 Comments
November 14, 2008 at 9:20 pm
Great article Mike and right on point.
I found out something interesting last month. I installed Rescue Time and discovered that I spend almost as much time searching Twitter for information as I spend Google. That blew me away.
I think Twitter will ultimately be a billion-dollar acquisition (although perhaps not in this market :)) for reasons like the above.
November 14, 2008 at 10:13 pm
Just buy Tweeter and liquidate everything but the domain name … then redo twitter but with all of the features that have been removed from scaling problems. I’m sure the A-Listers would switch for a piece of the action.
(i’ve seen other sites already injecting metadata by using 3rd party tinurls … like tweetworks)
November 14, 2008 at 10:19 pm
You can also use our application to see charts for trends on Twitter:
http://twist.flaptor.com
November 14, 2008 at 10:23 pm
But is it for sale? No. Or could be.
I think twitter would be fools to sell right now approaching the apex of enlightenment. It would be a terrible play for them.
I see twitter standing alone as its own internet titan, why sell to Google, but oh i’m sure Google has been on the front lawn along with Jerry Yang in a toga begging for piece of Twitter. All the while twitter just keeps refining their experience, staying true, and watching people.
I can yield a better pulse on what the planet thinks about a brand thru twitter than I can with search or blog or brand monitoring tools. Most of these tools leverage twitter as well to farm up the pulse. This is hugely valuable, and potentially one of many stakes in the ground as to what people will gravitate to next, and Twitter knows this.
Remember Batman Forever? Twitter is our generations Edward Nygma. (and i think that two face guy could be either facebook and myspace or maybe google i dunno)
http://www.youtube.com/watch?v=CnHO0LdJ4Ck
Its our brain on the box. Sell to Google, Yahoo.. are you mad?
November 14, 2008 at 10:24 pm
“For example, Googles should be able to offer dramatically better search on the corpus of YouTube videos because they have access to tons of non-public metadata”
You’re right — they should — and yet, it’s been over 2 years since Google bought them and their search still kind of sucks. The only improvement I’ve seen is that it uses Google’s spelling corrector now. (To put it in perspective, Youtube was less than 2 years old when Google bought them. That is, if it was just integration pains, they could have rewritten Youtube from scratch for a new platform by now.)
Google just doesn’t “get” video search. They tried building it on their own, and the best their guys could come up with wasn’t very good. So they bought Youtube, but that didn’t magically make them smart about video search. If you hire 3 guys who are geniuses about video-on-the-web, and stick them in a 20,000-employee company, their knowledge doesn’t spread by osmosis; at worst, their energy is diluted.
Google doesn’t even offer a Twitter competitor at all. If they bought Twitter, is there any reason to believe they wouldn’t just pull a Youtube?
Twitter has a lot of interesting data, but it’s almost all gossip. I can’t imagine wanting even the interesting tweets in my web-search results. I guess it would be good for Google because I’d be spending marginally more time with my eyeballs pointed at a Google server, but I don’t see how it’d be good for me.
November 14, 2008 at 10:50 pm
Mikey,
1. I think Google is doing a good, although not great job integrating YouTube into their search results. With over 300MM unique visitors per month to YouTube, they certainly haven’t blown the acquisition as many others have done in the past.
2. Summize (now Twitter Search) is awesome. I check out the buzz on companies as part of my diligence on new investments and smart startups keep a pulse on their product quality doing the same thing. Brand marketers are using Twitter Search to tap into the buzz around their products. It’s much more than “just” gossip.
3. Gossip is incredibly valuable. Check out research by Robin Dunbar (e.g., Dunbar’s number).
November 15, 2008 at 12:55 am
Why Google should stay the hell away from micro-blogging services that work:
1. http://www.jaiku.com/
http://www.techcrunch.com/2007/10/09/google-buys-social-mobile-startup-jaiku/
They did this over a year ago, and that service was nearly devastated beyond repair as a result of neglect.
Sure, the service is “as was” now, but Google did nothing, and will do nothing, with this service… YouTube turns a lot of revenue through ad-streams, the attention is there for a reason.
November 15, 2008 at 2:19 pm
Monetizing search is very different from monetizing conversation.
The nature of intentions underlying the interactions are very different and thus require very different economic models.
Do you think Google could change their economic model to make Twitter a worthy acquisition?
November 15, 2008 at 3:42 pm
Yahoo! is going to have to buy *something* to stay in the game, isn’t it?
November 16, 2008 at 9:45 am
Why would google buy rather than build? With the “microblogging” trail somewhat blazed, would you not see large players integrate the feature into existing services? For example, I haven’t touched IM in a while since gmail integrated chat, making it more convenient than using an additional tool. For that matter, why wouldn’t apple just make “status update” a standard feature of the next iPhone rev? Are these players just waiting for it to cross the chasm?
November 16, 2008 at 9:06 pm
One thing you left out of your post is del.icio.us, which Yahoo! already owns. In terms of adding value to search, I think a collection of posted bookmarks is more relevant than the collection of twitter updates - which may point to content, but may also be irrelevant status updates.
I think Yahoo! has missed a huge opportunity by not turning del.icio.us into a mainstream service. To me, it has a great combination for a successful internet product:
1. It solves a problem for individuals
2. It becomes more valuable as more people use it
Some may argue that del.icio.us is already a successful product, but I think it’s only successful in a narrow market segment. There’s a ton of opportunity still left on the table, and rather than buying something like Twitter, I would say that Yahoo! could benefit by taking del.icio.us to the mass market and adding some additional capabilities like status updates/microblogging. Then you’d have a great additional set of data for your search algorithms, and you wouldn’t have to buy anything else.
Why this wasn’t done right away after the del.icio.us acquisition, I have no idea . . . but that seems to be a common theme at Yahoo!
November 17, 2008 at 5:47 pm
That’s exactly right delicious has had the entire twitter plumbing system just sitting there for years. It’s also a natural tinyurl server (to handle extended tweet metadata). Big companies aren’t nimble enough to take advantage of that (however obvious) I guess. Easier to wait and buy.
November 18, 2008 at 12:29 am
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November 24, 2008 at 9:25 pm
Looks like Facebook nearly bought Twitter a few weeks ago.
http://finance.yahoo.com/tech-ticker/article/134529/When-Twitter-Met-Facebook%3A-The-Acquisition-Deal-That-Failed
November 25, 2008 at 7:06 pm
And it looks like Twitter bought I Want Sandy! and Stikkit…
http://venturebeat.com/2008/11/24/twitter-buys-a-company-closes-it-keeps-its-founderengineer/
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