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May 6, 2014

There is a ton of chatter today in the news about the expiring lock-up of Twitter shares and what it means for the company and its prospects long term.

There have been a ton of headlines over the past few weeks comparing Twitter to Facebook. The narrative goes something like this: “Twitter usage is not growing fast enough, therefore, it will never be as mainstream as Facebook, and thus, is a much less attractive company long term.”

I don’t have a meaningful horse in this race, as I don’t own any Twitter stock. But I’ve had a long held belief that most people make a flawed comparison between Twitter and Facebook. Facebook is a social network, and Twitter is a media company. Two totally different types of businesses.

But beyond that, I have a pretty strong belief that in the long-term, Twitter will be a thriving service much longer than Facebook.

Why is this? Facebook wins so long as it is the dominant communication medium between one’s social network.  But what we’ve seen is that there is massive fragmentation happening around this use case, and it’s only accelerating.  Want to send messages to your friends? There are dozens of messaging apps for that.  Want to interact around products? There are networks like Pinterest for that.  Want to interact around photos and media?  There are others for that.  Facebook totally realizes the threat of this network fragmentation, and so far, has masterfully used M&A as a means to stave off massive losses of mind and time-share of their users.  But it’s amazing to think that in the short history of the company, they’ve already had to address the threat/rise of massive services and been forced to pay ungodly amounts of money to keep them (and their audience) within their ecosystem.  I think that this is just evidence that the pressure on Facebook to maintain its network dominance will only get greater and greater, and at some point, there will cede their position.  It will happen faster than people think.

I find Twitter to be pretty different.  Twitter wins as long as it remains the easiest, fastest way that anyone publishes to the public.  If the content producers leave, the service will die.  But as long as the content producers find value, the service will have immense value.  And that value is not entirely captured by the number of times one’s Twitter feed is refreshed.  It exists every time you hear a news story mention content that was generated on Twitter, when you see photos from faraway places capturing major moments through Twitter, or when you consume other content or information that is surfaced to you because of what is trending on Twitter.

The importance and impact of the Twitter ecosystem goes way beyond page views.  As a result, I just see it as a more durable property long term than Facebook.  It’s a lot harder to think about competing content publishing services that have been a real threat to Twitter in the past few years. There have certainly been fewer threats than Facebook has faced.  If you were to compete against Twitter on this dimension, I don’t know where you would even start.

All this said, Twitter’s ability to monetize does (currently) depend on the size of their direct audience on their own stream.  And the growth challenges certainly dampen some of their prospects.  Perhaps it is true that Twitter’s valuation is pretty rich compared to its current revenue generation potential.  And perhaps Twitter is never destined to be at the scale of Facebook, and thus is overvalued now.  But I do think that in the longer arc of time, Twitter will survive, and has a better chance of thriving.

  • egalston

    Interesting delineation of Facebook as social and Twitter as media. As Facebook trends towards distribution platform, do you see those lines blurring more? Also, how do you balance with analysis that contest “lasts longer” thereby greater reach on FB? Is your suggestion that Twitter’s ultimate reach (include non-platform mentions/distribution) is wider/deeper than FB?

    • robchogo

      I think Facebook would like the lines to blur more because they recognize there is more long-term sustainable value there. But thus far, I think that 99.9% of real activity on facebook (broadly speaking, including Instagram, etc) is as a social network. Agencies sell Facebook likes and other FB engagement to brands and marketers, but that’s a tactic to drive monetization, not really in line with the way users interact with the service. At least that’s what I think.

  • Jeremy Toeman

    Interesting post. I think more context is needed around “around longer” as a concept. For example, I’d believe that both will eventually wane – not that that’s a “huge” idea – all things die. BUT, I’d make these statements along the way:
    1) Twitter will never have more active users that Facebook.
    2) Twitter with a $19B market cap is still massively overvalued, and only survives as a much much smaller company
    3) “Regular people” never flock to Twitter as a personal broadcasting tool – lurkers only.
    4) When Facebook dies – it craters rapidly, with double-digit monthly loss.

    • robchogo

      Those are pretty good statements. I think I’d agree with most of them. But I think the jury is still out on 2), or at least the second half of the statement. It’s probably over-valued now, but I believe it can grow into it.

      Another way to think about it is that I think there is a decent shot that in 5 years, I’ll think that Twitter’s best days are still ahead. But for FB, I think that’s next to impossible.

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