A few months ago, I wrote a post on Value Creation Vs. Value Capture. Here are additional thoughts, on the dark horse of social media. Twitter.
Google connects seekers of information to relevant content. Facebook connects our personal network. Both companies have leveraged the value they create for users and built great business models. Therefore, both Facebook and Google capture a lot of value for themselves and their investors.
On the surface, Twitter is a social network. However, once you use Twitter, one realizes that the core use case of Twitter is vastly different. It is an interest network or a hobby network. I use Twitter for one major reason -Investments. I connect with other investors, network, share, and discover relevant content. You can connect with me @LatticeworkInv. Over the years, Twitter has become indispensable to my investing process. Twitter also offers incredible value for discovery, connection, and curation to users in other interest groups. Sports, Science, Politics are just a few.
Despite this value creation for users, the business of Twitter has been unable to capture any of this value for itself and its investors. Over the past 5 years, Facebook's’ business value has increased by 164%, Google’s value has increased by 152%, while Twitter’s value has decreased by 1%. Why?
Has Twitter effectively communicated the value that its network offers? To most non-users, Twitter is either for celebrities or interesting people. “I don’t have anything to say” is the most common gripe of non-Twitter users. The onboarding process is un-intuitive. Therefore, even when someone tries to use the product, it discourages them. Despite a similar duration of existence, Facebook has 180 million users in the U.S., Twitter only has 33 million. Most importantly, Twitter lacks a targeting algorithm for advertisers to effectively reach relevant users. For example, most of the Ads that I see in my stream have low relevance to me. Therefore, an advertiser’s return on investment on Twitter is much lower than competitors. Fewer users, fewer advertisers equal fewer revenues and profits.
The past only equals the future if you live in the past! Twitter has opportunities that it can capitalize on with the right improvements. Only time will tell.
In the rise of personal computing era in the 80’s and 90’s, Microsoft and Intel captured the majority of the value, while the hardware manufacturers fought over the crumbs. In mobile internet era, Facebook and Google have captured the majority of advertising dollars. Twitters creates value, but cannot capture it. The efficacy of the business model makes all the difference. Entrepreneurs focus on building value for customers. Value creation is important, but not enough. Building a business model that can capture that value is even more important.
This material does not constitute an offer or solicitation to purchase an interest in Latticework Partners, LP (the "Fund"). Such an offer will only be made by means of a confidential offering memorandum and only in those jurisdictions where permitted by law. An investment in the Fund is speculative and is subject to a risk of loss, including a risk of loss of principal. There is no secondary market for interests in the Fund and none is expected to develop. No assurance can be given that the Fund will achieve its objective or that an investor will receive a return of all or part of its investment.
This material contains certain forward-looking statements and projections regarding the future performance and asset allocation of the Fund. These projections are included for illustrative purposes only, are inherently speculative as they relate to future events, and may not be realized as described. These forward-looking statements will not be updated in future.
I am an investor and these are my personal thoughts on investing, behavioral finance, markets, and sports viewed through the prism of a Latticework