Can Twitter be the pulse of the people… and their celebrities?

In a recent post on Twitter, I speculated on their business model by working backwards from their design priorities. Now, TechCrunch has leaked the internal Twitter documents which shed a lot more light on what’s going on in Twitter’s head.

I noted that Twitter seems to want content on the network above all and is obsessively keeping up a hip image. Thus it has de-emphasized search, following, monetization and partnerships. But when it comes time to monetize, Twitter will be torn between becoming a mass messaging platform and a tool for elite influencers to broadcast to the masses.

Looking through these documents, we see a strategic morass where Twitter is really hoping to become both a mass platform and a hub for influencers but these are likely incompatible goals:

• Twitter’s goal is to become “the pulse of the planet” with 1 billion users. Doing this requires being “open to scale” on all devices using the “lowest common denominator” techologies like SMS.
• But Twitter has no idea how to monetize this vision. $1 per user is a purported goal, but it sounds like a total shot in the dark akin to the “if we just get 1% of the market” revenue estimates found in bad business plans. The reality, as Twitters management realizes, is that “most users are not monetizable” and this is made even worse by having an open SMS-like distribution. Becoming the pulse of the planet further dilutes the possibilities: can Twitter monetize 50 million users from Brazil at $1 per user? Unlikely.
• Thus Twitter speaks at great length about monetizing corporations, celebrities and pursuing distribution deals with Google, Microsoft, etc. but they can’t bring themselves to do anything other than “verified celebrity accounts.” Twitter’s management views these as a way to get some revenue “without mobilizing the whole company around something” but that’s troublesome. It means they’re going with a tactic that is incompatible with their strategy. Servicing celebrities, ask anyone in Hollywood, is completely unlike dealing with regular users. More requests will come in from the likes of Diddy who feel that Twitter should be paying THEM for their contributions to the network. If there’s competition from better monetized sources like Google or Facebook, that just may happen.

A final issue which Twitter management seems to be struggling with is “brand”. For instance, it rejects acquisition by Facebook and partnerships with Microsoft and Google largely based upon how its brand might be perceived or developed. These brand concerns are short-hand, I think, for many issues like how do you keep early adopters happy while bringing the masses on-board, how do you keep direct relationships with users while supporting an abundance of third-party apps and how do you fend off future competitors?

The key to finding a successful brand will be making Twitter stand for an aspiration not a feature. Being the “pulse of the planet” is a feature, and indeed one that is hopelessly complicated. How can one reduce 6 billion heartbeats in multiple languages to a true pulse? Look at the case of MySpace whose CEO recently lamented that MySpace users “don’t know if we’re a social portal, a music site or an entertainment hub.” That may be right but the greater problem is that users don’t know why they should come to MySpace instead of Facebook, PEPSI instead of Coke. This is another reason why these online brands need to develop some revenue: you can’t create brands for 1 billion people just by changing “status” to “what’s happening?” You need advertising, people and a lot of expense.

Here’s my first take at an aspiration for Twitter that would emphasize the focus on celebrities: Be Somebody.

Twitter lets you hobnob with celebrities and be the cool kid that people look up to even if they don’t really know them. Where Facebook is about reflecting your static social graph, Twitter is about growing it. The business model for that implies that influencers like celebrities should be treated with kid gloves and seen as the driver of adoption. In reality, they are. Most of the 1 billion users are going to join Twitter to follow the celebrities they already know.

The users who want to become influencers, who aren’t yet celebrities, should be charged for the opportunity to promote themselves on a powerful network. These charges can be as simple as $20/user for tools and tips that help them use Twitter more effectively but they can also include charges for directly embedding video in Twitter posts, etc. There should also be an option to pay for placement in searches by topic: for instance, people who want to find “Advertising” influencers.

Finally, Twitter should provide consulting and analytic services. It’s remarkable that companies are paying consultants hundreds of thousands of dollars to train them in how to use Twitter effectively but Twitter corporate itself provides no services – not even to those consultants.

Similarly, an abundance of third-parties are building businesses which help corporations, recruiters, stock analysts and so forth to find information on Twitter. Twitter should acquire and manage many of these services for the reason that supporting them will require development by Twitter of data structures and APIs to suit them. For example, in recruiting, data structures need to be built which allow resumes and applications to be linked to job hunters and referral networks on Twitter. These changes are not inexpensive to make, market and maintain. It behooves Twitter to try to capture some value from the work it does here.

What does all of this require? More management, more focus (which will upset some employees). Tough things for a company to embrace as it grows from 50 to 500 employees but absolutely essential given Twitter’s ambitious goals.

Bits and pieces on OpenTable and the new CPA

TechCrunch has an article up today on pre-IPO restaurant reservation platform OpenTable which is spawning lots of vociferous user comments in response to journalist Sarah Lacy’s criticism of OpenTable for not “offering a real consumer service (i.e. Yelp)” and suggesting they should use their IPO money to hire some talented UI designers.

Lacy makes a decent strawman for the naivity of some Silicon Valley pop business journalism but I won’t go there. Instead, her “call for business models” makes a good lead-in for me to discuss the subject of online-to-offline acquisition I think will, someday, be the “next big thing” which most Web 2.0 social start-ups will turn to to save their business model.The problem is that most won’t be equipped with the basic pre-requisites. I’ll speak to those in a bit.

But first, let’s look at OpenTable. I found an excellent article on OpenTable by blogger J. Bryan Scott who clearly loves technology is also also getting a proper education in finance. It contains this powerful table within it:

What’s the key metric? It costs a restaurant 69 cents per diner to book reservations on OpenTable. I think this is incredibly cheap for a CPA acquisition campaign!

OpenTable probably isn’t charging more than 20% of the value it creates for members. Aside from the paying customers you’re getting into seats, consider the benefits of free advertising to millions of users on OpenTable, having a useful IT system to supplant pencil & paper and having access to a post-purchase communications channel directly with the customer in a business where most unhappy diners just walk away and never return.

I believe that implementing an online-to-offline acquisition model will become key for many Web 2.0 start-ups struggling with limited online advertising models. The problem is that most Web 2.0 start-ups lack the pre-requisites for building the CPoA (cost-per-offline-acquisition) + Service model:

• You need to focus from Day One on inciting action. It doesn’t matter if the site is entertaining, the question asked by customers is will it bring me customers? This is the difference between Yelp and OpenTable. Yelp is a good, but not as great as focused communities like Eater.com, source of information but it sits at the back of the purchasing food chain which runs from awareness -> interest -> choice set -> intent -> purchase -> customer service.
• You need critical mass in a focused area. Facebook cannot replicate OpenTable’s functionality despite millions more users. The problem is more than just screenspace: there isn’t enough room in members’ minds to see Facebook as the Swiss Army knife of their world. This is why most Facebook Apps failed to get past the You’ve Been Bitted by a Zombie phase: Facebook is for child’s play in author-community investor David Silver’s well-chosen words. This is also why you see Proctor and Gamble owning so many brands of detergant and keeping Tide in the laundry room not the kitchen.
• You need traveling salesmen who hit the streets, get meetings, attend conferences and sign up customers who will use your solution. Salespeople need lists and a well-defined target market unlike technologies. There are no easy armchair solutions like “search engine marketing” for building an online-to-offline CPA model. Illustration of this in action: Facebook made much of poaching a Google executive whom I happen to know to be “Director of Business Development” then made him “Director of Platform” 10 months later.
• You need some clunky proprietary solution like a terminal that breaks, customers complain about and is almost certainly not elegant in its UI design. But that dumb box that’s not hooked up to the Cloud is enough for99% of real world business owners and, most importantly, it’s scarce and troublesome to distribute to 8,000 locations. In other words, there are some barriers to entry that a 22 year old programmer can’t leapfrog.

My view is that this business model is applicable to any industry with millions of potential customers, thousands of competitive retailers, product information available online and impediments to customer customer purchase intent like travel time, scarce inventory (or appointment times) and the passing of momentary impulses.

The trouble with this model is, as Lacy identifies, that you have to serve your customers. It’s just that they’re your paying customers who are a lot more difficult to please than Yelpers. That’s probably the reason why OpenTable charges so little: they’re trying to encourage adoption while ensuring that competitors don’t find the profits attractive enough to compete against them in this early stage.

Planning for the robotic future

By 2020, there may be more robots in the U.S. Army than deployed soldiers. Most of these robots will be controlled remotely by a new breed of “white collar” soldiers from offices scattered across the United States. How did we get there and what are the implications? Those are some of the issues contemplated in the military’s own scenario planning which you can get a glimpse of in this article on Robots at War.

“The ability to compute and then act at digital speed is another robotic advantage. Humans, for example, can only react to incoming artillery fire by taking cover at the last second. But the Counter Rocket Artillery Mortar (CRAM) system uses radar to detect incoming rockets and mortar rounds and automatically direct the rapid fire of its Phalanx 20 mm Gatling guns against them, achieving a 70 percent ­shoot-­down capability. More than 20 ­CRAMs—­known affectionately as R2-D2s, after the little robot in Star Wars they ­resemble—­are now in service in Iraq and Afghanistan. Some think that the speed of such weapons means they are only the start. One Army colonel says, “The trend towards the future will be robots reacting to robot attack, especially when operating at technologic speed. . . . As the loop gets shorter and shorter, there won’t be any time in it for humans.””

The military has long used scenario planning for even seemingly remote possibilities. After all, even a remote possibility can become real: in 1908, there were only 208 Ford Model T’s in service. Ten years later there were a million.

Scenario planning helps to anticipate these possibilities by picking a distant, even possibly far-fetched, end-point and working backwards. This is quite different than most strategic planning in a company setting which starts at today and extrapolates forward. But as we know from Steve Jobs, you can’t connect the dots looking forward.

Another scenario look at robotics comes from a paper by Robin Hanson entitled “Economic Growth Given Machine Intelligence.” This considers the possibility that artificial intelligence will enable capital to do more than just complement human labor, as in most Cobb-Douglas production functions, but also directly substitute for it.

The results of these sorts of studies are provocative, but I suggest exactly what companies should do every so often. Discussing multiple scenarios in detail won’t tell you whether they will come to fruition. It’s not realistic to develop an operational plan based upon a remote possibility. But preparing and discussing multiple scenarios suggests ingredients which are plausible, have immediate implications and should be monitored as they become more or less likely:

• Will artificial intelligence be a complement and substitute to human labor? Cha Cha is doing it.
• Are military and industrial applications where the future of the computing industry lies? Surfing the web is essentially a “labor intensive” task. It requires little computing power and a dumb box which is becoming cheaper and cheaper. Will computers turn into a sort of wearable fashion in a world where computing parts cost less than $20?
• As technology becomes increasingly mobile, will computing power shift from the mechanical to the biological? Will a biotech firm become the next Intel?

You never know.

Microsoft-Verizon: Who Won and What Now?

Verizon CEO Ivan Seidenburg let slip today what was once long rumored: Microsoft is the “winner” of a deal to provide search services on Verizon’s 70 million+ handsets. The other bidder was Google.

We don’t yet know what’s being exchanged in the deal, but it is odd that Microsoft was able to outbid Google despite being a distant third in search.  Google is reputed to be immensely more profitable than Microsoft’s search arm on every metric, so we’d expect Google to win the deal because they have more to gain from it. That’s usually how auctions go and why Verizon won the 800mhz auction and not Google.

So why did Microsoft win? One alternative is that what applies on the web does not apply to mobile. Microsoft could actually be more profitable than Google, perhaps because they can build the services  on diverse hardware cheaper (after all, they just wrote a gazillion new Vista drivers and those people need devices!).  But if Microsoft has the mobile secret sauce, why is Windows Mobile such a laggard?

The more likely answer is that Microsoft is much more optimistic than Google about distant future profitability. Since textual search is pretty mature and unlikely to actually increase in profitability, we should anticipate that Microsoft expects to build some new web services for Verizon mobile phones. These could include e-mail (bringing push Exchange e-mail to all devices), multi-media (e.g. make V-CAST compatible with Zune Marketplace), mapping (marry VZ Navigator with Virtual Earth) and new forms of geographically aware search. Live Mesh should also have a place in the picture.

As for Google, they are probably resigned to the view that consumers will always have the option to choose them from Verizon devices just as most Internet Explorer users choose Google as their default. Arguably, this becomes a greater problem as the hardware systems become more advanced.  The more advanced a system becomes, the more difficult it is to keep it closed because a system that showcases advanced capabilities also makes users feel reasonable to ask: if you can do this, why not that? Why can’t I have it my way? And they switch, or find a competitor that’ll let them.