Yesterday I wrote about ambient intimacy as a first response to Tim O’Reilly’s post about why he loves Twitter.  Today I’m going to tackle his contention that the value of social media sites lies in the data rather than the interface.

He describes it thus:

In many ways, Twitter is a re-incarnation of the old Unix philosophy of simple, cooperating tools. The essence of Twitter is its constraints, the things it doesn’t do, and the way that its core services aren’t bound to a particular interface.

It strikes me that many of the programs that become enduring platforms have these same  characteristics. Few people use the old TCP/IP-based applications like telnet and ftp any more, but TCP/IP itself is ubiquitous. No one uses the mail program any more, but all of us still use email. No one uses Tim Berners-Lee’s original web server and browser any more. Both were superseded by independent programs that used his core innovations: http and html.

What’s different, of course, is that Twitter isn’t just a protocol. It’s also a database. And that’s the old secret of Web 2.0, Data is the Intel Inside. That means that they can let go of controlling the interface. The more other people build on Twitter, the better their position becomes.

Intuitively I buy this.  The data is what gives Twitter it’s vibrancy and is the hard bit to re-create.  The interface though, is important ad based for monetisation – you need the real estate.

Tim points out that Facebook is becoming a ‘ghetto’ populated by a bunch of other apps (not least Twitter, which is the source of 60% of Scoble’s friends’ FB updates), but they are at least generating some revenue from that traffic.

When I think about the web businesses which have been most successful to date they have all owned the interface to good effect – AOL, Yahoo!, Google, and now Facebook.  All of these have great data at their core – everything great at Facebook stems from their social graph data and Google is in many ways all about data – but monetisation comes from the real estate.

By contrast no-one has made much money directly from the protocols Tim likens to Twitter: TCP/IP, telnet and FTP.

So it seems to me that owning both data and the interface is ultimately the best route to building a big and valuable business.  I get that the way Twitter has encouraged people to develop their own interfaces by having a very open API has been a big driver of growth for them, but I wonder if the trade off with monetisation potential is worth it.

All of this is a very narrow shareholder driven view.  From the different perspective of changing the world rapidly then the protocols listed above have had more of an impact than the successful companies I mentioned, and Twitter’s extremely open strategy is spot on.

What do you think?  This is a new area for me, and very interested to hear your views.

  • Hi Nic,
    I think the key is having your users use your interface, which is I guess how you get the data. Facebook does not mind people porting their data elsewhere as long as they come back to Facebook and use it as the primary interface for updating their data. Facebook can then control how that data is ported and ultimately monetise it.

    Other people can make money from building stuff on top, but ultimately, if you have the value proposition to ensure that your core base of users always come back to your site, use the interface and update their data, then you are still in control.

    Henry

  • Hi Nic,
    I think the key is having your users use your interface, which is I guess how you get the data. Facebook does not mind people porting their data elsewhere as long as they come back to Facebook and use it as the primary interface for updating their data. Facebook can then control how that data is ported and ultimately monetise it.

    Other people can make money from building stuff on top, but ultimately, if you have the value proposition to ensure that your core base of users always come back to your site, use the interface and update their data, then you are still in control.

    Henry

  • Perhaps a comparison to a real world supply chain? Distribution performs a vital role in moving value between the supply and it’s demand. And so too in the online world, data and the platform for trafficking that data as a distribution business can be very desirable. But ultimately, it’s only one slice of the value chain.

    If any project is done for free for the technical/ social benefit of everyone, that is a laudable thing. Thank you. But for the rest of us that either want or need a commercial model – your post does a great job of highlighting the dangers of starting something without knowing how it’s going to pay for itself. Did Twitter have a business model for when they became successful? Did Youtube? Facebook? I bet it was ‘eyeballs’ for ads (aka data for one specific client – advertisers).

    I think most startups see the benefit of owning the interface and the data. But they rely on the data as a fall back plan for a business model for their great interface ideas, “Somebody will buy all this data!”. In the process of generating loads of data, they create goodwill by providing the customer facing interface for free. Does this goodwill protect their data business? Make them more sustainable?

    Perhaps we – as online businesses – can be more creative in finding ways to add value with the interface, and being able to convert that value into something other than goodwill. The interface may be the best and most widely used, but your data trafficking business is under threat when someone else finds a way to get better quality, coverage and faster. We need to be creating and extracting value at each step of the chain. I think there is money left on the table if you’re just about the data.

  • Perhaps a comparison to a real world supply chain? Distribution performs a vital role in moving value between the supply and it’s demand. And so too in the online world, data and the platform for trafficking that data as a distribution business can be very desirable. But ultimately, it’s only one slice of the value chain.

    If any project is done for free for the technical/ social benefit of everyone, that is a laudable thing. Thank you. But for the rest of us that either want or need a commercial model – your post does a great job of highlighting the dangers of starting something without knowing how it’s going to pay for itself. Did Twitter have a business model for when they became successful? Did Youtube? Facebook? I bet it was ‘eyeballs’ for ads (aka data for one specific client – advertisers).

    I think most startups see the benefit of owning the interface and the data. But they rely on the data as a fall back plan for a business model for their great interface ideas, “Somebody will buy all this data!”. In the process of generating loads of data, they create goodwill by providing the customer facing interface for free. Does this goodwill protect their data business? Make them more sustainable?

    Perhaps we – as online businesses – can be more creative in finding ways to add value with the interface, and being able to convert that value into something other than goodwill. The interface may be the best and most widely used, but your data trafficking business is under threat when someone else finds a way to get better quality, coverage and faster. We need to be creating and extracting value at each step of the chain. I think there is money left on the table if you’re just about the data.

  • I had a mull over this with respect to Twitter a few weeks on my blog and suggested that Twitter is in a difficult monetisation space as its own share of traffic generated in Twitter (i.e. the amount of traffic through a proprietary interface) is low and falling. If they do nothing about this then they will be forced to monetise through selling access to its API. This seems a “fair” exchange – and arguably the one likely to see the most success – but would certainly redefine the modus operandi in the web 2.0 world of free exchange.

  • I had a mull over this with respect to Twitter a few weeks on my blog and suggested that Twitter is in a difficult monetisation space as its own share of traffic generated in Twitter (i.e. the amount of traffic through a proprietary interface) is low and falling. If they do nothing about this then they will be forced to monetise through selling access to its API. This seems a “fair” exchange – and arguably the one likely to see the most success – but would certainly redefine the modus operandi in the web 2.0 world of free exchange.

  • Martin Owen

    I do not think Xerox made any money out of inventing ethernet (or the modern computer for that matter.

    On the other hand Altavista didn’t make Google’s money from search tech even when they had near monopoly (even in relative terms of audience)… so there is no sure thing.

    But if you want a good example of sharing sale of data and the best of interfaces, the prize has to go to iTunes. Amazon can beat them (or level them) with a price war. Apple’s monopolistic prices have been bad for consumers but good for Apple’s medium term profit. I don’t see Amazon pulling off the same trick with the Kindle but there may be other vertical systems out there where data, interface and platform form a virtuous circle of great profit. I hope so.

  • Martin Owen

    I do not think Xerox made any money out of inventing ethernet (or the modern computer for that matter.

    On the other hand Altavista didn’t make Google’s money from search tech even when they had near monopoly (even in relative terms of audience)… so there is no sure thing.

    But if you want a good example of sharing sale of data and the best of interfaces, the prize has to go to iTunes. Amazon can beat them (or level them) with a price war. Apple’s monopolistic prices have been bad for consumers but good for Apple’s medium term profit. I don’t see Amazon pulling off the same trick with the Kindle but there may be other vertical systems out there where data, interface and platform form a virtuous circle of great profit. I hope so.

  • nic

    Some great comments guys, thank you. I wonder if O’Reilly doesn’t really think about money when he assesses technologies.

  • nic

    Some great comments guys, thank you. I wonder if O’Reilly doesn’t really think about money when he assesses technologies.

  • “Google and Facebook separately announced the general availability of their respective data portability programs on Thursday.”
    http://www.pcworld.com/article/154988/
    Looks like Facebook are happy to allow data portability as long as the control it….

  • “Google and Facebook separately announced the general availability of their respective data portability programs on Thursday.”
    http://www.pcworld.com/article/154988/
    Looks like Facebook are happy to allow data portability as long as the control it….

  • How did online boards make money?

  • How did online boards make money?

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