Twitter has acquired dozens of companies since its inception and contrary to popular belief, these are not exclusively talent deals. The acquisitions of Crashlytics (Jan 2013), an app crash testing tool, MoPub (Sep 2013), a mobile ad exchange, and TapCommerce, (Jun 2014), a mobile app retargeting tool, have reportedly each cost the company over $100M and have added core mobile products that it is leveraging today.

So what’s the purpose behind all of these acquisitions and how are they linked? Twitter answered that question on October 22 at its Flight Conference when it announced Fabric, a modular mobile software developer kit (SDK), which leverages parts of each of these acquisitions, as well as capabilities it built in-house.

What is an SDK? It’s a set of software development tools that allow third party developers to build applications for a particular company or software package. Its primary purpose is to simplify otherwise time-consuming development tasks for developers and hopefully provide value to the company offering the SDK (in this case Twitter).

Fabric SDK has three modules, described briefly below.

Twitter Kit

Twitter Kit has three main features. “Sign-in with Twitter” simplifies the authentication process for new users. “Native tweet embed” makes it easy for developers to integrate tweets into their apps. “Digits” allows new users to sign up for apps with just a phone number.

Crashlytics Kit

Crashlytics Kit also has three main features: Crashlytics, Answers, and Beta. Crashlytics allows app developers to see what part of the code caused a crash and which users were affected, in order to quickly stabilize the app. Answers provides analytics on app usage. Beta allows developers to do beta testing and get user feedback.

MoPub Kit

MoPub Kit integrates with MoPub, a mobile ad exchange, to place ads into 3rd party apps so developers can monetize their traffic.

For a more information on Fabric, check out Twitter’s press release.

So why has Twitter invested hundreds of millions of dollars to launch an SDK – especially when two of the three modules don’t seem to relate to the core product (tweets)? Fabric allows Twitter to deepen its relationships with app developers, which can help create additional network effects and attract new users to its core product.

Being a platform business is the Holy Grail for technology companies. If executed well, you can create network effects, barriers to entry, and significant scale leading to enormous returns. Just look at Apple and Google – their aggregate market cap exceeds $1 trillion! This is in large part because of the iOS and Android platforms that allow them to profit from the explosion of mobile devices and the related ecosystem.

Companies like Twitter and Facebook don’t have the ability to develop a mobile OS, which is pretty clearly a two-horse race now. So how do they avoid being relegated to just another app sitting on your home screen, or worse yet tucked away in some folder?

They need to leverage their assets – the real-time communications layer and the social layer, respectively – to build or expand platforms they do have. Facebook has done this through acquisitions such as Parse, a mobile back-end-as-a-service provider of development tools, which is the basis for some of its SDK offerings. Twitter is hoping that Fabric will allow it to become an indispensible resource to developers as well.

How can Fabric create network effects for Twitter? Below are two examples:

  1. Offering developers an easy sign-in process (Sign-in with Twitter or Digits), which will drive higher app usage (by removing sign-up friction), which will drive more developers to use the SDK. Part of the Twitter Kit is tweet embed, so the hope is that developers will also integrate this feature into their apps thereby expanding Twitter’s distribution and hopefully accelerating new Twitter user sign-ups.
  2. Offering developers a tool to monetize their app traffic (MoPub). As more developers use the MoPub Kit, more advertisers will want to buy ad inventory, which will drive more developers to use MoPub. Twitter clearly benefits from this, as it will earn a share of the advertising revenue.

Ultimately developer relationships come down to proving your value. Can your SDK help developers grow and monetize their user base? If Twitter can do that, developers will happily use Fabric SDK and Twitter will benefit from the additional distribution and monetization.

References

https://blog.twitter.com/2014/introducing-fabric

 


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Network effects are the widely discussed benefits that arise when a greater number of users are connected to a service or platform.  Less studied, however, are the reasons why having a greater number of users (and fewer platform choices) may actually decrease the value of a platform, what I’d like to call “network dis-effects” for the purpose of this blog.  I’m not referring to logistical reasons, such as when a network is incapable of handling a certain volume, but instead, to fundamental reasons.  I break these into two categories which seem to be more prevalent in today’s online economy: first, the value of having segmentation among groups, and second, the value of having segmentation within a given user.

In the first case, it appears that certain platforms are actually better off when the network is smaller and more carefully defined by common interests.  This can be for a multitude of reasons.  In the social sphere, groups often prefer to cluster based on commonalities – for example, online dating sites that are religion-focused (e.g., J-Date) or moms’ group sites that are geographically-focused (e.g., Park Slope Moms).  In these examples, the value of the network is based more on the quality of the members, as defined by their commonalities, than on the quantity of members: for J-Date, finding a religious match is more important than finding “just anybody”; for Park Slope Moms, getting after-school activity advice from a local mom is more important than hearing the view of a mom across the country.  Interestingly, Facebook initially started off as an Ivy League-only platform, predicated on the notion that the elite would prefer to interact only within themselves.  One has to wonder what would have happened if Facebook had maintained its initial status segmentation – would social networking have developed as a series of small (potentially interconnected) platforms based on common interests, instead of the winner-take-all market that it is approaching today? (1)

In the second case of network dis-effects, people like to segment themselves into different, distinct categories that do not overlap; as a result, the consumer gains value from being present in different ways across different platforms, and platforms are therefore more beneficial to the user when smaller and more tightly defined.  One of the most prominent examples of this is the simultaneous existence of both LinkedIn and Facebook.  Theoretically, a person’s connections overlap in that some of their work colleagues are also friends, and vice versa.  Wouldn’t one platform that combines these two networks make the most sense?  I argue no, because portraying different versions of oneself within these two contexts is critically important.  The consumer would therefore prefer to have two separate logins, pages, etc. in order to maintain a distinctly professional (vs. social) persona.  This category of network dis-effects assumes that within one person, multiple “users” exist, and that in some cases, segmenting these “users” within a given person can be beneficial.  I argue that this is particularly strong when discretion is a highly valued component of the platform.

(1) According to http://www.statista.com/statistics/265773/market-share-of-the-most-popular-social-media-websites-in-the-us/ and other sites, Facebook has more than 50% market share today (as defined by traffic), and is continuing to grow.


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Wise Banyan recently opened beta testing of its online investment management service. They are the most recent competitor to enter the $4B market (growing >200% YoY) for automated investment management (aka robo-advisors). These companies allocate client accounts to a pre-set portfolio of ETFs holding stocks, bonds, commodities, and alternative investments. Built on modern portfolio theory and emphasizing passive investment, online advisors tout their ability to be constantly vigilant and invest with messy human emotions and fears.

So what makes Wise Banyan’s product special? It’s free. Their launch marks the final step in the price war waged between the online advisors. Traditional asset managers (those with a pulse) charge upwards of 100 bps to manage client money. The first online advisors entered the market charging clients about 50 bps. Wealthfront started charging clients only 25 bps, managed the first $10,000 for free, and offered an aggressive referral program–$5,000 managed free for each recommended friend. Seeking the largest accounts, Betterment dropped to 15 bps for accounts over $100,000.

Wealthfront relied on network effects (the referral program) to grow AUM. However, investing is typically a solitary activity. Even talking about money is taboo. There just isn’t an inherent network effect to the online investing product. Grafting network effects onto the offering facilitated faster growth, but it did nothing to prevent competitors from entering the market.

Building sustainable competitive advantages in the financial advising space is tough. All of the advisors are utilizing the same fundamental investment strategy: modern portfolio theory. Nothing about that strategy is proprietary–here are the equations on Wikipedia. However, even if a company developed a superior investment strategy, the competitors are going to work tirelessly to reverse-engineer, approximate or steal the winning method. Any advantage will be quickly eroded.

With no other significant arenas in which to compete, the robo-advisors have been forced to compete over price for their commodity product. Earning any money in an ecosystem with a free option is going to require differentiation along new dimensions. One successfully differentiated online advisor is LearnVest. They have selected a unique target market (young adults, specifically women) and focused heavily on education and financial literacy. Another differentiated advisor, Kapital, has focused on gamifying the investing experience.

In the past year, we’ve seen hints of the largest advisor, Wealthfront, seeking to rebrand itself as the online advisor built for Silicon Valley. The upwardly mobile developers are sitting on a good deal of investment money. Wealthfront has sought these customers with promotions and low fees. This tech-savvy and cost-conscious customer-base seems like the most willing to move their money to the cheapest option. If I were at Wealthfront, I’d be spending these critical months between Wise Banyan’s beta test and full launch finding a way to make my clients sticky.

 


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When I heard the news that Snapchat rejected Facebook’s all-cash $3-billion dollar takeover, I had a lot of questions. First of all, why did Snapchat reject such an offer given its non-existent business model? Secondly, what does Facebook see in Snapchat? How can Snapchat add value to Facebook’s business?

On first glance, it could seem like Snapchat is merely a fad. Users can send pictures or videos to their friends and decide the time frame within which their friends could view the sent message. Following this logic, it seems as if Snapchat should be able to learn a lot about their users based on the pictures that users have uploaded. However, is this really scalable? Unlike words, it is a lot more difficult to categorize and collect user information based on pictures in Snapchat’s current format. Also, Snapchat allegedly deletes messages that have already been viewed by the recipient, which makes information gathering even more challenging.

I think Snapchat has three main value propositions to its users:

  • Users can select their audience – Unlike Instagram or Facebook where an uploaded photo is visible to all your friends or friend categories, Snapchat allows its users to select who the picture goes to. This allows users to communicate in a more focused manner.
  • Users can communicate in the medium that most accurately depicts their message – Every message is a story and stories can be told differently depending on the content. Snapchat allows its users to express their story through art, text and media.
  • Time commitment required is minimal – Snapchat is accessible through a mobile device and each message lasts 10 seconds at most. Time to access messages is limited to 10 seconds, and time to craft a message is also shortened because users know that this is short-lived.

Although these are all valid propositions, it is still difficult to justify why it should be worth $3 billion because none of these value propositions are revenue generating. A closer look into Facebook’s user base shows that 78% of them are mobile users, which means that they directly compete with Snapchat for attention. Furthermore, Snapchat surpasses Facebook’s photo uploads by 50 million images on a daily basis. As Snapchat takes user time away from Facebook more and more, Facebook’s value proposition to its advertisers is starting to erode. Is this worth $3 billion dollars? To Facebook, it probably does – especially so since Facebook’s IPO has faced a lot of investor scrutiny with regards to whether they can provide a reasonable shareholder return.

Whether Snapchat is eternal or ephemeral really depends on how well it can sustain its user base. From a features stand point, there is definitely a lot that Snapchat can do to constantly keep its users hooked.

In the meantime, Snapchat could benefit from cashing in on its large user base. One way to do so is by requiring users to login using their Facebook account. That way, Snapchat could access more detailed user information and target users more accurately. This would be a good value proposition to companies who are looking to advertise. On the other hand, user disruption could be limited by only showing ads after receiving 10-15 Snapchats.


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In preparing this blog I decided to take a more reflective approach vis-à-vis pontificating on a particular conclusion. I simply want to express some thoughts / questions on the matter and welcome responses.

Personal Situations:

We live in an era of technological and online advancement that is quite mind-numbing. Just thinking of the progress we’ve made on these fronts over the past decades makes me wonder what’s to come. I also wonder if we’ve reached a steady-state or tipping point, where online and networks have become overwhelming and force us to make trade-offs between doing more online vs. following more humanistic traits such as having a conversation face-to-face. I’d also like to think optimistically and attribute these same advancements to improving our efficiency and connectedness, which help us enjoy more time off doing the things we like to do. But I find being optimistic a bit tough when I look at the evolution of activities such as dating, which has been historically very interactive and required more face-time. The shift here started with dating sites (e-harmony and the likes), which are very helpful tools for meeting people, to applications like Tinder, which effectively perfected the art of helping you select or reject people (based on a few pictures) within seconds. Not saying these services are good or bad in anyway, but rather asking, what’s next?

With regards to personal / social networks, my general thought is to maintain (and grow) a network with those we value or know in some way (amongst a variety of other personal filters). However, this isn’t always the case- sometimes we add family members, co-workers, etc. that may make us less comfortable posting and commenting freely. So with this simple example, what’s the point of growing your network if it’s not in the best interest for you? I’d also say that this is obviously personality dependent- some people have an easier time posting regardless, while others may see growing their network as a counter-productive move that hinders their ability to make the best use of their network. Further on this topic, is it better to over or under communicate on these networks? Understandably, there’s a comfort zone for everyone, but at what point do you begin to dilute your own brand and online identity by over sharing? This again takes a less than favorable turn when people in your own network “un-follow” you, or even remove you from their network completely.

Organizational Situations:

With regards to enterprises and their advancement it’s no surprise that more / faster is generally the desired outcome. However, things are getting quite crowded online and consumer distractions are plentiful. There’s probably a service and app for pretty much everything these days, so switching or trying something new seems easier than ever. With this in mind, I believe Network Effects are going to get harder and harder to achieve over years to come and it will also be trickier to continuously sustain them in this evolving environment. “The network effect is a double-edged sword, Ken Sena, a consumer Internet analyst at Evercore. “The network effect allowed these companies to grow so fast, but the decline can be just as ferocious,” Mr. Sena said. “If any of them misstep with users, they can leave, and the network effect goes into reverse.” The textbook case is Myspace, once the most visited social networking site, that is now a shadow of its former self.” “A positive network effect is also supposed to exclude competitors, but Groupon has long suffered from the perception that it’s vulnerable to competition. There are now so many that sites have sprung up to help consumers sort them out. One of these, localdealsites.com, listed 167 sites…“(NY Times 8/18/2012 – “When the Network Effect Goes Into Reverse” http://www.nytimes.com/2012/08/18/business/Sites-Like-Groupon-and-Facebook-Disappoint-Investors.html?pagewanted=all&_r=0).

A separate scenario with negative network effects is also depicted by the Farol Bar problem created by Brian Arthur. “The problem is named after a bar in Sante Fe that used to have live music every Thursday evening. In the formulation of the problem, the bar has seating for only 60 people, and so showing up for the music is enjoyable only when at most 60 people do so. With more than 60 people in attendance, it becomes unpleasantly crowded, such that it would be preferable to have stayed home. (Networks, Crowds, and Markets: Reasoning about a Highly Connected World By David Easley and Jon Kleinberg – http://www.cs.cornell.edu/home/kleinber/networks-book/networks-book-ch17.pdf).

So in short, I believe that balancing online advancement and network effects on both a personal and organizational level is of upmost importance. More/ faster isn’t always the solution, particularly if it doesn’t fit your personality or current business model / stage. Again – more question marks than conclusive statements here, but I hope this helps stir some thoughts regarding the future of us and how we co-exist with our growing online economy.

 


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