What Companies Can Learn From Twitter’s Struggle to Build a Business

1Executive Summary

Third-party developers claim Twitter, with its recent moves involving third-party APIs, is crushing the ecosystem on which it used to rely. Twitter, on the other hand, maintains it is simply doing what it has to in order to grow and monetize its business. Who is right? To a degree, both. The reality is that Twitter is caught in a dilemma that many growing companies find themselves in: it needs to control access to its network for business reasons, but risks alienating some of its early supporters in the process.

Complaints about the company’s behavior center on two things: that Twitter has become much more restrictive with the terms of its API (which outside apps need in order to make use of its data) and that the service has also arbitrarily blocked certain companies so their apps can no longer connect to the network. Twitter says it is merely trying to give its “ecosystem” guidance, and trying to provide a uniform experience for users

Guidance or Repression?

App developer UberMedia got on the wrong side of Twitter’s API restrictions in February, when it had several of its Twitter clients, including UberTwitter and Twidroyd, blocked from the network. Company founder Bill Gross — a serial entrepreneur responsible for creating the search-related advertising market in the mid-1990s, which later became the foundation of the Google empire — initially wanted to use UberMedia to monetize Twitter through keyword ads. His plans were derailed when Twitter itself revealed intentions to do pretty much exactly the same thing with its Promoted Trends and Promoted Tweets ad services.

Other developers, including veteran programmer Dave Winer, seemed to feel the same in the wake of Twitter’s new API rules, which were released in March and placed even more restrictions on what outside companies could do with Twitter’s data. In particular, the new rules made it clear that while third parties could develop regular clients, this wasn’t something Twitter was in favor of — implying that if a company did so, it shouldn’t be surprised if it wound up without a business model.

It’s tempting to see Twitter as the bad guy in all this. The company, however, says it is simply trying to develop its business and provide some guidance to third parties. For example, it says the UberMedia dispute concerned operations UberMedia’s apps performed that aren’t allowed, such as storing user’s direct messages or altering people’s tweets. Twitter maintains that regulating this kind of behavior is part of its duty to provide a safe user experience on its network (and says it contacted UberMedia repeatedly about its actions).

The API restrictions were also simply guidelines, Twitter says, since it has been criticized in the past for not giving outside developers enough clarity on what aspects of the network they should concentrate on and which ones should be left to Twitter. To reinforce that, the company has recently struck some partnerships, including a deal with DataSift, to provide analytics based on the Twitter “firehose,” and a deal with a startup called Sulia, which provides smart aggregation of tweets based on certain topics.

What has made it especially difficult for some developers to accept the new Twitter is the sharp contrast between the tough regulation of its network that the company is currently engaged in and the more or less free-wheeling nature of the early days, when Twitter relied on third parties to spread the word about the value of belonging to the network. In some ways, Twitter likely would never have become as large and pervasive as it is now without the help of those smaller developers and apps, so many see the company’s recent moves as reneging on that deal.

A Natural Process

In many ways, however, Twitter is simply undergoing a natural evolutionary process. In other words, when a company is small and trying to expand its network, opening up to anyone who wants to help do this (through an API, for example) is a smart idea; as a company grows and, in particular, tries to develop a business model that relies to some extent on controlling access to its network, the benefits of a wide-open “ecosystem” become less obvious. That ecosystem then naturally evolves into a series of business partnerships, which is exactly what we’re seeing with Twitter.

For anyone whose business depends on controlling access to a network or platform, the lesson isn’t that companies shouldn’t make the kinds of moves Twitter has; it’s about how they make those moves. For example, the changes to Twitter’s API rules were posted on a little-known newsgroup and were then picked up by blogs, many of which saw these moves in an unfavorable light. The solution? Twitter might have considered holding an open forum at SXSW, just days away at the time. With thousands of developers and geeks in attendance, why not use the event to talk about the implications of the changes? Twitter might still have gotten some criticism, but could have been dealt with it openly, and in a timely fashion.

Similarly, the crackdown on UberMedia and other apps took place behind the scenes, with Twitter effectively flicking a switch behind the scenes. Nor did the company make much of an official response to the criticism that followed in the wake of those moves. When businesses make changes such as Twitter did, those alterations should be communicated widely — for example, with a blog post — so that no client feels sandbagged when the changes occur.

In the long run, everyone realizes companies such as Twitter have to make money and justify the billions of dollars venture capitalists and others have effectively invested in them. The bottom line is that there are ways to do this without appearing like you have taken advantage of smaller companies on your rise to the top, and that you see them as partners rather than adversaries. Whether Twitter will suffer any long-term effects from the way it has handled this process remains to be seen.

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