Twitter’s multibillion-dollar mistake happened five years ago

There’s been a lot of attention paid to Twitter recently, thanks in part to a disappointing earnings report that caused the stock to fall by more than 20 percent, wiping about $8 billion from the company’s market value. But this is about more than just a quarter that failed to meet the market’s expectations for profit or revenue growth — it’s about whether Twitter can ever meet those expectations, given the way the service is constructed and the strategy that it has chosen to follow.

Ironically, many of the things that currently hinder Twitter’s success arguably originated because of the company’s attempts to generate the kind of financial results that would meet Wall Street expectations.

Freelance tech analyst Ben Thompson has written about many of these issues recently, both on his Stratechery blog and in his email newsletter . In one of the latest, Ben argued that Twitter needs new leadership, in part because it can’t seem to figure out how to generate enough growth in new users and because its advertising strategy is all over the map. The current leadership of the company simply hasn’t shown that it can meet either challenge, he says:

The trouble for Twitter is that awareness of the service has long outstripped its usability. And yet, despite the fact that Twitter has struggled with new user growth for years, almost nothing was done to improve the product or on-boarding experience until just the last few months, when the company finally rolled out a new logged-out page meant to entice people with Twitter’s content, as well as an instant timeline that helped people get started. Unfortunately, both efforts seem to be too little too late: Twitter admitted on the earnings call that neither improvement had increased retention.

Bulldozing the third-party ecosystem

In addition to all of that, Ben also focuses — both in his latest post and in some of his more recent writings — on something that I’ve thought a lot: Namely, a crucial turning point in Twitter’s evolution that arguably helped put it where it is today, both in a positive sense (it is a publicly-traded $25-billion company) and a negative one (its growth potential is in question and its strategy doesn’t seem to be working). And that turning point happened about five years ago, when Twitter decided to turn its back on the third-party ecosystem that helped make it successful in the first place.

Screenshot from 2015-04-30 13:18:40

This process began gradually, with the acquisition of Tweetie — which became Twitter’s official iOS client — and restrictions on what third parties could do with tweets, including selling advertising related to them. But it escalated quickly, and arguably became an all-out war with Twitter’s moves against Bill Gross, the Idealab founder and inventor of search-related advertising, who was busy acquiring Twitter clients and trying to build an ad model around the public Twitter stream. The idea that someone could monetize Twitter before Twitter itself got around to doing so was what one investor called a “holy shit moment” for the company. As I wrote at the time:

Critics have accused the company of “nuking” the developers and services that helped it achieve its early growth in its drive to monetize its network, in much the same way that Hunch founder and angel investor Chris Dixon criticized the company last year for “acting like a drunk guy with an Uzi” after it acquired Tweetie. Anyone who is still under the impression that Twitter is the friendly, touchy-feely company that co-founder Evan Williams used to run — the one that admitted it “screwed up” relations with developers by moving too quickly — is living in a dream world.

The board of directors and Twitter’s executive team clearly believed that in order to manage the growth of the company — and in order to generate enough revenue to justify the multibillion-dollar valuation given to it by its investors — Twitter needed to take full control over every aspect of the service. So third-party clients were shut down or restricted, API access and advertising rules were strictly enforced, and so on. For many of the developers and startups that helped generate user growth for Twitter in its early days this was a kick in the teeth, but that didn’t matter. Twitter was going public and getting a good valuation was top of the list of must-have items.

Could it have taken a different path?

Twitter obviously felt that this was the only route available to it — but is that true? I don’t think so, and neither do others, including one of the earliest Twitter employees: Alex Payne, who ran the developer and platform side of the company for a long time. After he left in 2010, he described a letter that he had sent to the executive team arguing that Twitter was making a mistake by closing down the network, and that it should have made the opposite decision: that is, by becoming as open as possible. In a nutshell, he said, Twitter’s choice was to become more open — to decentralize the network — or die like other walled-garden platforms before it.

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Ben makes a somewhat similar argument in his “Twitter and What Might Have Been” post: although he doesn’t say Twitter will die because of the decisions it made, he does say that the company could arguably have generated as much or more value by taking the open path rather than shutting down the ecosystem. And that’s because the core value of the service is the “interest graph” of its users, not the app itself or timeline views or whatever other metrics the company has come up with to satisfy Wall Street. And monetizing that interest graph might actually be better accomplished with partners rather than trying to do it all within the native app or website:

I would argue that what makes Twitter the company valuable is not Twitter the app or 140 characters or @names or anything else having to do with the product: rather, it’s the interest graph that is nearly priceless. More specifically, it is Twitter identities and the understanding that can be gleaned from how those identities are used and how they interact that matters. If one starts with that sort of understanding — that Twitter the company is about the graph, not the app — one would make very different decisions. For one, the clear priority would not be increasing ad inventory on the Twitter timeline (which in this understanding is but one manifestation of an interest graph) but rather ensuring as many people as possible have and use a Twitter identity. And what would be the best way to do that? Through 3rd-parties, of course!

Last year, Twitter effectively admitted that it needed third-party developers and apps to achieve its growth potential: the company had a developer conference and talked about how it wanted to work with outside entities to build things that would work with the API, including some new ventures aimed at turning Twitter into a single-login identity service and other initiatives collectively known as Fabric.

For anyone who had worked with Twitter in the past, however, this was a little bit like Fox Inc. asking for chicken volunteers to help it build a new hen-house. As far as I can tell, there’s little or no evidence that Twitter’s outreach program is working.

What would Twitter be like today if it had embraced its ecosystem and tried to build on it instead of cutting it off at the knees? I don’t really know, and I’m not sure anyone does. But I think it would have a lot more goodwill to spend — both with developers and with users — than it does now, and I think many aspects of the service that it is now trying to build up, including smart recommendations and curation, would be a lot better off with outside input than they are now.

Would that help Twitter justify its multibillion-dollar market cap? I don’t know. But as a user, I think it would ultimately be a better service, and maybe even a better company.

EU publishers sign deal with Google, but are they focusing on the right enemy?


According to a number of sources — including the Guardian, as well as journalism professor Jeff Jarvis and Capital New York columnist Ken Doctor — Google will announce tomorrow that it has formed a partnership with eight European publishers, including the Guardian, the Financial Times, El Pais and Die Zeit and is creating a 150 million Euro “innovation fund.”

It’s probably no coincidence that Google has been under fire in the EU of late, with allegations that it has distorted search results as well as a burgeoning antitrust investigation into allegedly anti-competitive practices. Many publishers have also complained for years about Google News “stealing” their content, and the partnership deal is roughly similar to other deals the search giant has cut in Belgium and France. Says the Guardian piece on the announcement:

In the new partnership with eight publishers, including the Guardian, Google is to establish a working group to focus on product development as well as providing a €150m (£107m) innovation fund over three years, alongside additional training and research. Publishers are keenest to explore the product development which Google promises will aim to “increase revenue, traffic and audience engagement”.

While publishers and media types in the EU celebrated the announcement, others said they would much rather than publishers do their own innovating instead of relying on Google to do it for them — or to pay them to do it. On top of that, I have to wonder whether the media outlets involved in this deal are cutting a deal with the wrong enemy. As social discovery overtakes search (particularly for millennials), it feels as though they should be more concerned about Facebook rather than Google.

A crowdsourced list of the top 50 cult movies

I’ve been thinking for some time now about movies I want to introduce my teenage and twenty-something daughters to — and we’ve already been through a bunch of great ones like Terminator, Blade Runner, Breakfast Club and Groundhog Day. But then I thought about some of the great lesser-known cult movies, the weird or bizarre or campy ones that I remember from my youth.

So I asked my Twitter followers about their favorite cult films, and got some great responses (I also triggered a kind of Twitter war over whether quoting people’s tweets using the new embed feature is rude and/or noisy, but I will leave that for another day). Here’s a list of the top 50 suggestions — I didn’t include every one, but they all appear in the tweets I’ve embedded below. Thanks to everyone who contributed.

Buckaroo Banzai
Napoleon Dynamite
The Hunger
The Ninth Configuration
The Wicker Man
The Man Who Fell to Earth
Time Bandits
Evil Dead 2
Mad Max
Phantom of the Paradise
The Dark Crystal
Fifth Element
Twelve Monkeys
The Warriors
Big Trouble in Little China
Johnny Dangerously
Withnail and I
The Lost Boys
Tank Girl
Local Hero
Shallow Grave
Howard the Duck
Weird Science
Donnie Darko
Paris Texas
THX 1138
Doc Hollywood
Pulp Fiction
The Big Lebowski
A Boy and His Dog
Seven Samurai
Plan 9 From Outer Space
Brother From Another Planet
Escape From New York
Logan’s Run
True Romance
Ghost World
Harold and Maude
Run Lola Run
Bill and Ted’s Excellent Adventure

The seven most interesting things in that huge Gawker-BuzzFeed interview

If by some bizarre twist of fate you have a life that doesn’t revolve around new-media entities like BuzzFeed and their impact on journalism and advertising and content in general, then this probably won’t interest you. But for anyone who does pay attention to such things, the idea of an interview between Gawker and BuzzFeed editor Ben Smith and founder Jonah Peretti about the site’s deletion of posts involving advertisers is like a candle flame to a moth — in other words, pretty irresistible.

The actual facts being referred to in the interview — that is, the posts that were deleted and BuzzFeed’s justification for why it did this, as well as editor-in-chief Ben Smith’s admission that he made a mistake — has been written about quite a bit (including a post by me). The interview post, however, is so gigantic and disjointed and rambling that I found it hard to follow, so I tried to pull some of the really interesting parts out.

The interview was triggered by the deletion of two posts, both of which were removed by Smith in what he later admitted was a breach of the site’s standards guide. Those deletions and the attention they drew in turn convinced the site to review all of the posts that had been deleted in the past. At the beginning of the interview, Peretti and Smith talk about why some earlier posts were deleted, including the hundreds that Gawker writer Keenan Trotter wrote about last year:

Jonah: This was a period where we didn’t have a deletion policy. If you were an editor and you wrote something and then you thought later, oh, this is kind of dumb and I was to delete it, you could delete the post.

Ben: And that was fine. And there’s not huge numbers of them, but there’s a fair number of those, there were posts that were dup—

Jonah: Duplicates, or errors, or text tests, or stuff like that.

Which is church and which is state?

According to BuzzFeed, the Dove post and the Monopoly post were deleted because they were “hot takes” and the site is trying to cut down on those, not because they involved an advertiser. But Smith admits that there were a couple of posts that were deleted that did cross the boundaries between editorial and advertising in an unpleasant way, both of which involved Pepsi and were written by Samir Mezrahi. And the discussion of this decision-making process is interesting. One post was a humorous take on what might be under Pharrell Williams’ hat:

Ben: It was actually a great post. There were many hilarious things under his hat, including doge. And Samir had taken the GIF of doge coming out from under Pharrell’s hat. Or, I’m not even sure if he’d seen it. But I got a complaint from the creative side that editors were taking their stuff and remixing it and not crediting their post or Pepsi. It was a confusing situation. Not—it was just a confusing situation. And I said to him, hey, we’re working, our creative team—which at this point is across the hall—is working with Pepsi on this social stuff, so don’t take their stuff, don’t use it in an editorial context. Church and state.

Jonah: One of the concerns is the impression that an editor was posting positive things about a brand because they were an advertiser. And that’s something I think, you know, as we grow, I don’t have much experience with church and state stuff. But as we grow, you start thinking, ok, if someone really loves pumpkin-spice lattes and they write a whole post about it and then it turns out that Starbucks is an advertiser, does that create the impression that they were influencing editorial, even though they had no idea that someone was an advertiser, and so there was—


The second post by Mezrahi was a critical one about accounts you should unfollow on Twitter, and that included Pepsi. What is most fascinating about this whole situation is that — as Smith points out — when Mezrahi posted about the soft-drink company, the Twitter account for Pepsi was actually being operated by his BuzzFeed colleagues across the hall. In other words, staffers from the advertising and marketing part of BuzzFeed, the part that operates like a digital ad agency, were in charge of the account that he was criticizing and/or praising. And this is what Smith and Peretti seemed most concerned about — that this would look bad.

Ben: It depends how you look. But when the priest wants to reach over—I’m sorry, I’m [unintelligible], block that metaphor. When church, when edit, what is our rule about edit playing in our advertising? Not in advertising in general, not around advertisers, but specifically with advertising being created across the hall by people at our company. And this is something I had never in my life considered, but seemed actually like a thing that we should absolutely not do. So we deleted the post, which at the time was what we did with posts that were inappropriate.

Keenan: What was the problem? Say more about what the problem was.

Ben: That you had an editor who was engaging specifically with things that were created—specifically with stuff that our creative team was working on, twice that week, with the same project.

Keenan: What’s wrong with that, exactly? What do you mean by “engaging”? It was clearly critical of it.

Ben: Well, no, the first one he was promoting. The second one, he was critical but—maybe the post is lost, but there was other celebratory stuff in there. He was just, like, touching it, you know? He was writing about advertising that was created by BuzzFeed that he knew, or that I believed, that was…

Ben: It’s obviously an appearance issue. It’s something that I feel really strongly about, it’s in our standards, you’ve probably seen it. There’s an exception to that, which is news. If there’s an ad on BuzzFeed, if there’s an ad—you know, if The New York Times carries an open letter, and it’s news, New York Times reporters will write about it as news. But the bar is at least as high, and probably a little higher, I think, just for—because, what are you doing? It seems really obvious to me.


The downside of having an internal ad agency

A lot of critical reaction to the interview has made BuzzFeed out to be some kind of horrible monster for having an internal ad agency that designs or crafts content for brands like Pepsi — and even in some cases runs their Twitter account during certain events — and for having a policy that supposedly prevents BuzzFeed from writing about advertisers. But that’s not really what Smith is saying at all. The policy appears to be not to write either positively or negatively about specific advertisements that either appear on BuzzFeed and/or are created by BuzzFeed’s in-house staff, because it might create the appearance of a conflict of interest:

Ben: So basically, in our standards, it says, “Please do not write positively about advertising that appears on BuzzFeed. Please do not do ad criticism about ads that appear on BuzzFeed. If it’s newsworthy that’s an exception to this rule.” That feels appropriate to me. Well, I don’t know, do you guys do that? Have you ever written about, like, this is a gorgeous banner?

Keenan: I just don’t see what the problem is with criticizing advertisements on BuzzFeed.

Ben: I don’t think in principle it is [a problem], I think anybody who doesn’t work for BuzzFeed should do it. But I don’t want our editors engaging in either criticism or, what we do much more, celebrations, of advertisements that are on BuzzFeed that are created by our creative team.

Keenan: But what is the scope of “advertisements”? Does that mean the brand, or—?

Ben: No, it does not mean the brand, it means specific campaigns, it means, they were creating content for this Twitter feed that he was talking about, that week, at the Super Bowl, where he was talking about the Super Bowl. It’s narrow. It does mean the company, it does not mean, hey there’s an ad on another site from an advertiser.

An important principle, flawed execution

DSC_5696 (Case Conflict)

What’s interesting to me about this whole debate is that BuzzFeed and Smith are arguably on the side of the angels in this one — at least in the sense of the journalistic ethics around advertising. Yes, they have an in-house ad agency that creates content, but my sense is that they want to maintain as firm a wall between advertising and editorial as possible, which is theoretically what journalistic ethicists would want them to do. And yet they are being criticized for doing so (and admittedly, the way the deletion of posts was handled was flawed, as Smith has admitted).

Ben: To me, it’s just like, you want readers to know that edit and advertising are separate things and that they don’t touch each other. And if that’s reporters, as happened twice in a week, if that is reporters promoting advertising, if that’s reporters criticizing it, no thank you. There’s an infinite number of things to write about, it just feel like, whether you celebrate it or criticize it, you just winding up blurring a line that readers are always struggling to understand in the best of times.

Ben: I think this specific question of advertising that is created by our advertising team is actually a really weird—a strange, marginal case, and a very small one, and one that I had never in my life thought about before, but that once we thought about, and I talked about with my team, we had a long conversation, internal and external, about standards. Starting with this post, we wound up thinking, that is a very strange little case, and it’s one that makes us—I would be very—here’s the real thing, I would be very uncomfortable with a post that was, this ad that I saw on BuzzFeed moved me to tears and I think it’s the most brilliant thing in the world. That would be a very strange thing, don‘t you think, or no? Do you think I should publish that?

There’s no question that having ad agency staff creating content for brands in the same building as the editorial staff writing what’s supposed to be journalism can cause problems. In at least one case, according to Smith, someone moved from creating advertising — where they worked on the Microsoft account — over to the editorial side, where they started writing about the company. The software giant complained, and Smith said at first he rejected their complaint, but then he thought more about it and decided that this shouldn’t occur. And that feels like another case where the site tried extra hard to make the division between editorial and advertising even clearer.

Jonah: He was working on their business, doing work for Microsoft, and then switched to edit and started…

Ben: And started writing about Microsoft. And they complained. And inititally I was like, I don’t care if you complain. And then they said, well wait, this guy was making ads for us last week. And that felt to me, OK, that’s a really legitimate, strange situation. So we’re going to make a rule that in the very unusual cases—there’s one woman now, she’s a designer who crossed from advertising into editorial—we’re going to have a six-month cooling off period where you can’t write about ads. So that was the other one.

So what’s the bottom line here — is BuzzFeed some kind of evil empire bent on distorting or perverting journalism? I don’t think so. If anything, it seems to have bent over backwards to try and appear as ethical as possible, to maintain a line between editorial and advertising, or church and state as the old metaphor goes. Is it confusing to have a single company both creating ads or doing social marketing for brands and also doing journalism? Sure. And I get the feeling that Smith and Peretti are both trying to figure out how that works exactly. But at least they are being public about it.

Winter is coming: Print revenue could be headed for another cliff

I meant to write about this when it happened, but I was busy getting ready to fly to Italy for a conference (I know, I know) and so I didn’t get the chance. But I think Clay Shirky pointed out something interesting in a recent conversation with New York Times public editor Margaret Sullivan about what the future holds for traditional media entities like the Times — and it’s something that I confess had not really occurred to me. Namely, the idea that instead of declining slowly over time, print advertising revenue could suddenly hit another cliff and go into free fall.

The subject came up after Sullivan posted a column about the Times’ continued reliance on the print side of its business, something that still generates over 70 percent of the company’s revenue — as it does for most newspapers. According to the public editor, more than a million people still buy the Sunday paper each week, a number that has declined from 1.8 million in 1993. The average age of a print reader is 60.

The suggestion from Times executives was that print would likely be around for some time, and that print subscribers and advertising would also likely continue to generate a large chunk of revenue for some time. But in an emailed response to the column, Shirky suggested a “darker narrative” — in a nutshell, he said he expected the pattern of print-revenue decay, which is currently fairly slow, to accelerate.

“The people you quote — Baquet, Caputo — seem to be betting that the current dynamics of slow decline form the predictable future for your paper. I doubt this, and the alternate story I’d like to suggest is that print declines will become fast again by the end of the decade, bringing about the end of print (by which I mean a New York Times that does not produce a print product seven days a week)”


And why does Shirky think the decline of print-advertising revenue will pick up speed again? Because he argues that there is a kind of cliff approaching when it comes to the willingness of advertisers to support the paper financially when its readership in print continues to dwindle. Beyond a certain point, expensive ad campaigns won’t make sense given the small number of readers:

“Both your Sunday and weekday readerships are already near important psychological thresholds for advertisers — one million and 500,000. When no advertiser can reach a million readers in any print ad in the Times (2017, on present evidence) and weekday advertising reaches less than half a million (2018, using the 6 percent decline figure you quoted), there will be downward pressure on CPMs.”

This is the part that hadn’t occurred to me — that advertisers have a psychological point beyond which it isn’t worth spending much on a print campaign. And although I don’t know for a fact whether Shirky is right about the numbers, the argument itself seems plausible. And as he goes on to point out, even as revenue is declining sharply, the costs of producing the print product will not. The problem with print, he notes, is that “the advantageous returns to scale from physical distribution of newspapers become disadvantageous when scale shrinks.”

“The ad revenue from a print run of 500,000 would be 16 percent less than for 600,000 at best, but the costs wouldn’t fall by anything like 16%, eroding print margins. There is some threshold, well above 100,000 copies and probably closer to 250,000, where nightly print runs stop making economic sense. This risk is increased by The New York Times’s cross-subsidy of print, with its print+digital bundle.”

Is Shirky right about a second cliff? I don’t really know. But I think his argument should be required reading for newspaper executives who still believe that the decline of print advertising revenue and readership will be a gradual sailing-off-into-the-sunset kind of affair. It could be anything but. Sullivan said she plans to post more about her conversation with Shirky, so hopefully this discussion will continue.