Podcast Summary
Twitter's Missed Opportunity with Instagram: Twitter's decision not to acquire Instagram in 2010 had significant implications for the future of mobile, consumer, and social media. Understanding this pivotal moment sheds light on Twitter's path and its impact on our current digital landscape.
Twitter's history took a significant turn around 2010 when it could have potentially acquired Instagram instead of Facebook. This decision had major implications for the future of mobile, consumer, and social media. To explore this pivotal moment, we were fortunate enough to interview Dick Costello, the former CEO who generated Twitter's first dollar of revenue, scaled it into a real business, and took it public. This conversation sheds light on how Twitter's path diverged from Instagram's and how it continues to shape our society today, despite having fewer user numbers and revenue compared to Facebook. It's fascinating to consider how different our current digital landscape might be if Twitter had owned Instagram. As always, for those interested in honing their craft of company building and investing, consider joining the Acquired Limited Partners community. We recently welcomed Emily Chang to discuss her book, Brotopia, and upcoming LP events include a deep dive into the fundamentals of company building and investing, as well as author Q&A sessions. Now, let's dive into Twitter's story and the crucial decision that changed its trajectory.
From tech to comedy and back, Costolo identified trends and capitalized on them: Costolo's journey from tech to comedy and back showcases his ability to identify emerging trends and capitalize on them, ultimately contributing to the development of RSS as a podcast player for text.
Dick Costolo's career trajectory showcases the evolution of technology and content consumption. After studying computer science at the University of Michigan, he ventured into stand-up comedy at Second City in Chicago. Upon returning to tech, he started Burning Door Network, a web consultancy, in the early 1990s, recognizing the potential of the web for innovation. This eventually led to the creation of FeedBurner, which focused on managing syndication feeds for publishers and adding value through advertising and other services. The monetization strategy was crucial as publishers needed to make money from their content in the new digital landscape. FeedBurner's success eventually led to its acquisition by Google, where Costolo later joined as the head of Google's social media division. This journey illustrates how Costolo identified emerging trends and capitalized on them, ultimately contributing to the development of RSS as a podcast player for text.
Twitter's early acquisition discussions with Google and others: Despite significant acquisition discussions, Twitter's team believed they could create more value by continuing to build the company independently, leading to significant growth over time.
During the early days of Twitter, there were numerous acquisition discussions, including one with Google for over a billion dollars. However, the Twitter team believed they could create more value by continuing to build the company independently. Dick Costolo, who later became Twitter's CEO, was an early investor and executive, and he recounts the story of these discussions. The decision to reject these offers proved to be a wise one, as Twitter's value grew significantly over time. The informal nature of these acquisition talks was likened to teenagers trying to decide whether to go on a date. Despite the significant offers, the team believed they could create more value by continuing to develop Twitter on their own. This story highlights the importance of staying focused on long-term goals and the potential rewards of taking calculated risks.
Mark Zuckerberg's strategic acquisition of Twitter and creation of native ads: Mark Zuckerberg's acquisition of Twitter and development of native ads revolutionized digital advertising, shifting focus from various platforms to feed-based content and cost per engagement.
Mark Zuckerberg's decision to acquire Twitter before it gained significant revenue and build an advertising platform around its feed-based content was a game-changer in digital advertising. Unlike Twitter's content, which appeared on various platforms, Zuckerberg realized the need for an advertising format that could go everywhere tweets went. This led to the birth of native, feed-based ads, which later became the norm in social media platforms like Facebook and Pinterest. The innovation was driven by necessity and the idea of charging based on cost per engagement, which was pioneered by a visiting professor at Stanford named Ashish Goel. Despite Facebook's mobile struggles at the time, this decision proved to be lucrative, as it laid the foundation for Twitter and later Facebook's successful ad models.
Twitter's Ad Business Success: Product Innovation and Go-To-Market Strategy: Twitter transformed its ad business by shifting from a display ad model to an engagement-based one, hiring a strong leader to execute the strategy, and building a top-notch sales organization, resulting in a run rate of over $2 billion in just a few years.
The success of Twitter's ad business was not just about the product innovation, but also about the go-to-market strategy and the leadership brought in to execute it. When the decision was made to shift from a display ad model to one based on engagement, it required significant engineering and data feed infrastructure, as well as convincing advertisers to buy in to a new way of doing business. The hiring of Adam Bain, who had built Fox Interactive's ad stack and had a strong business development and sales background, proved to be a game-changer. With his leadership, Twitter went from having no revenue to a run rate of over $2 billion in just a few years. Despite facing competition from larger companies like Facebook, Twitter was able to grow its ad business from a challenger position. Bain's tireless work ethic and ability to build a top-notch sales organization were key factors in this success.
Building Twitter's Advertising Business from Scratch: Twitter overcame challenges in recruiting top talent and creating a self-serve advertising portal with granular targeting capabilities, crucial for its growth, despite site instability and competition from industry giants.
Building Twitter's advertising business from the ground up was a significant challenge due to the complexity of the technology and the competition from industry giants like Google. To overcome this, Twitter recruited experienced engineers and product managers from Google and other companies to help develop the self-serve advertising portal with granular targeting capabilities. However, recruiting top talent was difficult due to Twitter's reputation for site instability and the allure of higher salaries at Google. Despite these challenges, Twitter persevered and eventually succeeded in creating a successful advertising business, which was crucial for the company's growth. Another key aspect was the importance of owning the user experience for Twitter's advertising model, as users consumed tweets across various platforms. Overall, the story illustrates the determination and ingenuity required to build a successful business in the tech industry, even in the face of significant challenges.
Maintaining control over user experience and monetization: Twitter shifted from allowing third parties to monetize content to building experiences within the platform, allowing them to maintain control and avoid being held hostage.
Controlling the user experience is crucial for any business, especially in the digital space. Jack Dorsey, the co-founder and former CEO of Twitter, emphasized this point during a discussion about the importance of owning the platform and not allowing third parties to monetize the content and user base. He recounted how Twitter initially struggled with third parties aggregating their content and building their own networks, leading to the idea of creating a platform where developers could build experiences into Twitter instead of taking the content and building away from it. This shift in thinking helped Twitter avoid being held hostage by third parties and allowed them to maintain control over their user experience and monetization. Additionally, Dorsey reflected on the failure of RSS and suggested that its inability to provide a first-party control over ads and engagement was a contributing factor. The decision to focus on building an advertising business instead of a platform company proved to be the right one for Twitter at the time, despite the potential economic opportunities of being a platform. The conversation also touched upon the launch of Instagram on Twitter and the use of Twitter's API to build the network.
Instagram's unique square format led to its acquisition by Facebook: Instagram's distinctive square format and the founders' determination to stay independent led to its acquisition by Facebook for a billion dollars in 2012, disrupting Twitter's integration and user experience.
The unique innovation of Instagram, which was its simple and consistent square format, allowed it to differentiate itself from other photo-sharing platforms at the time. This, along with the founders' determination to go it alone, ultimately led to Facebook's acquisition of Instagram for a billion dollars in 2012. The acquisition was a significant blow to Twitter, as Instagram had previously allowed users to view photos directly in the Twitter feed and use Twitter's API to help find friends to follow. However, after the acquisition, Instagram photos could only be viewed on Instagram, and the social graph stopped working, making it more difficult for users to find and connect with friends on the platform. Despite the initial skepticism, the acquisition proved to be a smart move for Facebook, as Instagram has since grown into a major player in the social media landscape.
Sudden removal of Instagram photos from Twitter disrupts user experience: The loss of Instagram photos in Twitter feeds caused significant disruption and prevented Twitter from maintaining its edge against competitors
The integration of Instagram photos into Twitter feeds is no longer supported, leading to a suboptimal user experience. This change, which was implemented suddenly, caused significant disruption and broke Twitter. The team had to work around the clock to prevent the issue from causing further damage. The loss of this feature was a blow, as Instagram and Twitter complemented each other well, particularly in their asymmetric follower models. The team had been exploring ways to compete more effectively by integrating features like retweets or reposts. However, Instagram's lack of such functionality at the time made it difficult for Twitter to maintain its edge. The discussion also touched upon the alternate universe where Twitter owned Instagram and Vine, which could have led to interesting competitive dynamics. Ultimately, the sudden loss of the Instagram photo feature was a significant blow to Twitter, and it serves as a reminder of the importance of anticipating and adapting to changes in the tech landscape.
Facebook's dominance led to decline in usage for competitors: Identifying unique advantages and beachheads for competition is crucial, but facing a dominant player with a large user base and network effects can be challenging.
Once a tech company, especially a social media platform, gains a significant user base and network effects, it becomes incredibly difficult for competitors to challenge them on the same playing field. This was the case with Facebook's acquisition of Instagram, where the power of their network and user base led to a decline in usage for other platforms. Twitter, with its focus on live content and syndication, saw an opportunity to compete by allowing their content to be viewed off their platform. However, Facebook's acquisition of Periscope, a live streaming app, and their subsequent launch of Facebook Live, proved to be a flank attack that ultimately led to Twitter's inability to keep up. This food chain dynamic in the tech industry highlights the importance of identifying unique advantages and beachheads for competition, but also the challenges of outrunning or outflanking a dominant player.
Focus on core competencies and outsource non-essentials: Companies save time and resources by outsourcing non-essential functions like compliance and security to specialized providers, allowing them to focus on their unique value proposition.
Companies should focus on their core competencies and outsource non-essential functions, like compliance and security, to specialized providers. Vanta is an example of such a provider, offering a single software solution for managing security and compliance across multiple services, saving organizations countless hours of work. This allows companies to devote their resources to what truly differentiates their product and delivers value to their customers. The success stories of companies like Vanta and LinkedIn illustrate the importance of finding that game-changing acquisition or partnership to propel growth. While the idea of a podcast pivot for Twitter might seem intriguing, it wasn't a serious consideration for the company. The IPO process, as described by a Twitter executive, highlights the intense demand and financial gains that can come from a successful public offering. Ultimately, focusing on core competencies, seeking strategic partnerships, and navigating the complexities of growth are key elements for any company aiming to thrive in today's business landscape.
Unexpected challenges from going public: Going public brings volatility and disconnect between stock price and company value. Focus on internal progress and financial performance for true success.
Going public on the stock exchange can bring unexpected challenges and fluctuations in stock value, which may be disconnected from the company's internal progress and goals. During Twitter's IPO in 2013, the CEO, Dick Costolo, was caught off guard by the significant increase in stock value on the first day, leading him to address the team about the disconnect between the stock price and the company's actual value. Despite his efforts to prepare the team for the volatility of the stock market, the team was still taken aback when the stock experienced a major crash a few months later. The experience served as a reminder that the team should focus on their day-to-day goals and build resilience to the external factors beyond their control. Ultimately, the team's internal progress and financial performance would be the true indicators of the company's success, rather than the daily fluctuations of the stock price.
Twitter's Unique Features and Resilient Network: Twitter's growth may be slower than Facebook's, but its unique features and resilient network make it a valuable and distinct social media platform.
Twitter's growth has been a challenge due to its unique and less intuitive nature compared to other social media platforms like Facebook. Twitter's value lies in its hard-to-build, resilient network of unique nodes and connections, but this also makes it less susceptible to quick competition. Despite having fewer users than Facebook, Twitter generates significant revenue, but each user contributes less compared to Facebook. The lack of an easy "starter kit" for building a Twitter graph, such as importing contacts from email or phone, has made it harder for the platform to attract and retain users at the same rate as Facebook. Twitter's bidirectional exposure of followings sets it apart from other platforms, adding to its resilience. While Twitter's growth may have been slower than Facebook's, its unique features and resilient network make it a valuable and distinct social media platform.
Understanding user interests beyond demographics: Knowing what users care about can be as valuable as demographic data for certain use cases. Unexpected events can impact a tech company's user base, highlighting the importance of adaptability.
While platforms like Facebook and Twitter have distinct differences in terms of user data and targeting capabilities, the value of a user base can't be determined solely by demographic information or interest targeting. Dick Costolo, former CEO of Twitter, shares his perspective on this, expressing that knowing what users care about can be just as valuable as demographic data for certain use cases. He also mentions his surprise when unexpected events, such as receiving a call from the White House, occurred during his tenure at Twitter, emphasizing the unpredictable nature of running a tech company. Ultimately, the value of a user base and the ability to monetize it depend on various factors, and the line between platforms may blur as innovations emerge.
Balancing short-term challenges with long-term goals: Effective leaders prioritize high leverage tasks, communicate clearly, and avoid self-inflicted wounds to ensure their company's success.
Leading a company involves constant juggling of various stakeholders, goals, and unexpected challenges. The impact of decisions and events may not be immediately apparent, but they leave a wake in the form of the company's progress or setbacks. It's essential to focus on the highest leverage tasks and communicate clearly, even if it means making tough decisions that may be unpopular at the moment. Self-inflicted wounds, such as poor communication or neglecting important but less urgent tasks, can also significantly impact a company's success. For instance, Crusoe, a clean compute cloud provider, has made a name for itself by utilizing stranded energy to power its data centers, offering better performance and cost savings for AI workloads. Effective leadership involves balancing the day-to-day challenges with long-term strategic goals and maintaining a clear, direct communication style.
Regrets over past handling of hate speech and personal attacks on Twitter: Former Twitter CEO acknowledges leniency towards hate speech and personal attacks, calls for more aggressive stance, shares personal experience of receiving violent threats.
The issue of content moderation and personal attacks on social media platforms like Twitter is a complex problem with no easy solutions. Dick Costolo, former CEO of Twitter, shared his regrets about the company's handling of hate speech and personal attacks in the past, acknowledging that they were too lenient due to concerns about setting a slippery slope and maintaining their status as a neutral platform. However, he also noted that the companies already edit and moderate content, so they might as well take a more aggressive stance against hate speech and personal attacks. Costolo also shared an experience where he made a sarcastic comment on Twitter that went wrong and led to violent threats against him. He believes that people are on edge right now and the situation might get worse before it gets better. Ultimately, he feels that there needs to be a reckoning with the polarization and hostility on social media.
Twitter's efforts to manage societal impact shown improvement but more work needed: Twitter has improved in managing societal impact but acknowledges more work is required, especially in addressing hate speech and harmful content.
Twitter has made significant strides in managing the impact of its platform on society over the past year, but there is still much work to be done. Dick Costolo, former Twitter CEO, gave himself a C for his handling of hate speech and other controversial content during his tenure, but praised the company's recent efforts in areas like political ads and content moderation. He believes Twitter is leading the charge in these areas compared to competitors like Facebook. However, he also acknowledges that Twitter could do more to address hate speech and other harmful content. Overall, Twitter's efforts to manage the impact of its platform on society have shown improvement, but there is still room for growth. For US citizens, the most important thing they can do is go vote. If you're interested in learning more about company building, consider becoming an Acquired LP for access to exclusive content and a community of like-minded individuals.
