nicole42n7: why internet marketing

Today I’m announcing that GRP Partners is doubling down on the Twitter ecosystem by investing in DataSift, a company who provides a real-time data platform and tools to third-party developers and corporations.

Our goal is to make the enormous volume of real-time information more manageable for the 99% of companies that lack the infrastructure to process these volumes in real time. Think of DataSift as turning the fire-hose into a cost-effective and manageable tap of running water. Or in utility speak, they are transmission and we are last-mile distribution.

And better yet, the company has a product that will turn the stream into a lake. What does that mean? The Twitter stream like most others is ephemeral. If you don’t bottle it as it passes by you it’s gone. DataSift has a product that builds a permanent database for you of just the information you want to capture.

Finally, DataSift has an enormous about of historical data already stored we we can help you go back and retrieve some older data for analytical purposes.

We’re co-leading the $6 million investment with Roger Ehrenberg at IA Ventures in NY and one of the most respected early-stage investors in the country in “big data” companies. As a former hedge fund guy, Roger immediately saw the value in helping companies better sift through the masses of data; often to gain better insights into financial information.

And while DataSift is a provider of multiple real-time data feeds, I would like to be clear that Twitter is by far the most important and dominant of the real-time publicly available data that exists on the Internet today, which is why today’s bet for me is on the Twitter ecosystem.

Some will cite my investment two years ago in social-media advertising company Ad.ly as an example of why I shouldn’t be investing in the Twitter ecosystem any longer. Those people misunderstand Adly, this recent investment and Twitter’s potential.

So with DataSift I’m doubling down.

Twitter as a company has encouraged this by granting DataSift “re-syndication rights,” which means that the company can ingest the full Twitter fire hose and resell subsets of it to other parties who want to consume a smaller stream, which is more cost effective in data licenses and in IT resources needed to consume the data. DataSift is one of only two companies today that has the rights to re-syndicate the way it does.

Twitter knew the importance of providing a long-term contract to DataSift to encourage investment in the company, which they wanted to see.

So let me explain what I see as the importance and sustainability of Twitter as well as why I believe it’s still a great platform for startup companies and investors.

The Importance of Twitter

Twitter’s significance stems from the fact that it is a real time, open, asymmetric, social, viral referral network that is often location aware and provides both explicit and implicit interests and preferences.

Whew. That was a mouthful of buzzwordtopia. But each point is actual and can be explained to avoid hyperbole or other SAT words.

1. Real time – Much has been written about the real-time nature of Twitter’s news. I am one of those that learned about Bin Laden’s death, the Japanese Tsunami, Michael Jackson’s death and many other topics 20 minutes before they were in the mainstream news.

What is less considered is just how valuable the real-time nature of information is. Think about this: The investment banks and trading houses across the globe have invested billions of dollars in computing equipment and staff in order to process news that affects stock prices milliseconds before the rest of the market can process & transact on this same information.

Providing near real-time information to financial traders made Michael Bloomberg a billionaire and helped create the powerhouse Reuters. Real-time information drives commerce.

Real-time information drives decisions about marketing spend on movie releases. Normally studios would have to wait for box office receipts of opening weekend to make these decisions. Twitter data has shown a correlation in predicting box office success a priori.

But the applications are limitless. Consider political campaigns that are judging voter reactions or the political pundits that like to comment on such data. Or the ability of the Center for Disease Control to be able to track pandemic distribution of viruses. Or just the sheer power of people being able to self organize as they have done in Egypt, Iran or Tunisia.

In a world where real-time data is exploding, those that can provider synthesis, insights & structure out of information will have an edge.

That is what I Tweeted when I saw DataSift present as a finalist at TC Disrupt last year. DataSift will be one of the major platforms to enable these real-time insights because without reducing the dataflow and without tools to interpret the data most companies will just be staring at data.

While Twitter is not the only source of real time data today it is the largest and most important.

Why?

2. Open – Twitter made a decision from inception that it was intending to be an “open network” – the information you post there is publicly available. When we starting using the product we knew the rules so everybody (except maybe Anthony Weiner) understood that they should only provide data that they didn’t mind being read publicly.

This turns out to be one of the real differentiators for Twitter. While Facebook currently has more users and more engagement, much of this data is behind a firewall and therefore only useful in so much as Facebook can serve ads against it or get people to spend money there. Facebook continues to try and convince people to make more data publicly available. But that’s not the deal they made with us when we signed up.

So while Facebook has other advantages, Twitter is in the driver’s seat for valuable data that can be openly interpreted and acted upon in business.

Perhaps the least understood advantage comes from Twitter’s follower model, which is asymmetric.

3. Asymmetric – Before Twitter most social networks had “symmetric” relationships meaning that when somebody wanted to follow you, you had to follow them back in order for us to be connected.

Not so on Twitter. People can follow me and I don’t have to follow them back. I have about 40,000 people who follow me while I only follow 700. That’s normal. If I followed 40,000 people I’d never see the information that I wanted by the people from whom I most wanted to hear.

And of course in my 700 are people like Bill Gates and Barack Obama, neither of whom follows me just yet Asymmetric works both ways.

So what is now happening is really interesting. First, you’re noticing that TV journalists and news shows are listing their Twitter handle and saying “you can send messages to @anchorman.” Our Twitter handle has become our identity, on par with an email address. This is becoming more popular with individuals than telling people your Facebook page, which unless it’s a “fan page” requires them to follow you back.

But asymmetry provides another very important thing: it expresses my interests. If you were to run an analysis on me you’d find that I tend to follow a number of people in the VC industry as well as tech professionals. You’d find out that I’m more interested in getting my news from the BBC or NYTimes than from other sources, which I’m sure would tell marketers something.

The asymmetric follower model where we also follow news, celebrities and senior executives at companies is one of the reasons people often refer to this as an “interest graph” because it is an expression of what I care about.

4. Social – Asymmetry is one of the big drivers of Twitter. But one of the other major factors in Twitter is the fact that it is also “social” in that people have conversations with their peers and friends.

This is another obvious source for business intelligence. You can learn a lot about who are my real friends or business associates by how often I retweet them or send @ messages. Companies like Klout already use this information to determine who has influence. Or as founder Joe Fernandez recently told me, “we’re building the ‘PageRank’ for people.” They have focused much of their initial work on Twitter data.

Ad.ly is already providing these kinds of insights to the celebrities that use its system including Serena Williams, Paris Hilton, Linkin Park and, of course, Kim Kardashian (with her 8.2 million followers).

Ad.ly has now made these analytics available to the public. Here’s some examples you can infer from the social data:

@SnoopDogg has more Twitter fans in Texas than he has in New York.
@ParisHilton shares 1.7 million fans in common with @KimKardashian, but has more than 2.1 million fans in common with @BritneySpears.
@PaulPierce34 knows that the only people that talk more about him than the Celtics fans do are Lakers fans.

They know this because Twitter is social, open & asymmetric.

5. Viral – One of the most important value drivers of any social network is the degree to which it makes content go viral. In the industry they call this the “viral coefficient.”

Twitter is inherently viral. One of the most common ways that Twitter users try to add value to their followers (other than Tweeting themselves) is to “retweet” other people’s Tweets.

The Retweet IS viral adoptions. And it is part of the psyche of Twitter. So by now everybody know that 30% of all of the Tweets from the first week of July were about Google+. One story is, “Hey, maybe there’s something to this Google+ product?”

The more missed story is, “Holy shit. Twitter is really the place where the public conversation is happening. It is the town hall. It is “Speakers’ Corner.” It’s where Google goes to create real Buzz (I know, I know). It is a must have if you’re building a technology product these days. To not lure in users through “social hooks” of Twitter would be madness.

You all know that Turntable.fm is hot right now. Let’s be clear: its growth and awareness was driven through viral hooks that they pushed out onto Twitter. I kept seeing my friends play this or that in “chillout room” on Turntable.fm.

6. Location Aware – According to Dick Costolo’s statements at CES, up to 40% of all Tweets are sent via mobile devices, which is a hugely powerful asset for Twitter. Many of these Tweets will have information about the user’s location that makes increases the value of the data enormously.

If I Tweet about the Wynn Hotel while I’m in Las Vegas that Tweet has a different value to local business than if I Tweet it from my office in Los Angeles. Real time + location equals marketing opportunity.

And that’s exactly what happened to me last year. I sent out an “open” Tweet saying, “has anybody been to the Wynn Hotel? Is it worth walking across town for?” Aside from the people who chimed in with points of view, the Wynn Hotel offered me free chips if I’d come down and play.

Real time + location + Klout + interpreting my demographic data could = goldmine. How about if they knew how often I came to Vegas? I might be different if I’m there 1x / year versus 1x month.

Twitter = amazing business & marketing engine for companies. DataSift = platform for companies to develop cost-effective applications using this Twitter data to gain advantage relative to their competition.

7. Referral Network – Twitter started as a way to integrate web messaging with text messaging. Since SMS has a maximum length of 160 characters, Twitter decided to limit you to 140 characters so that 20 could be reserved for other things.

While it’s true that the basic service that we know and use today was the exact one that the founders envisioned, one of the most important components of it, “link sharing,” could not have been imagined.

Because Tweets are limited to just 140 characters, users who wanted to talk about other websites had to put in a link as part of their 140 characters. In order to minimize wasted characters we started using “link shorteners,” the most popular by far is Bit.ly.

And from this simple accident came the most powerful driver on Twitter. Because we include links in our Tweets, Twitter has become one of the most powerful sources on the Internet for driving traffic to websites, blogs and news sites.

8. Explicit – Because we can track the open, real-time links you’re sharing we know something about your interests. If you’re sending lots of Tweets about “gay marriage” we can likely ascertain whether you’re for it or against it based on the “explicit” links you’re sharing.

Again, this is made even more powerful by knowing your location. Maybe you’re not even using Twitter on a mobile device but we have enough information about the propensity of people you follow and their locations to determine that you’re likely in New York State.

And imagine we’re an interest group that wants to enlist you to lobby your congressman on our behalf on this topic. Twitter will be the source in the future for political parties finding you and even for communicating with you. You’re simply an @message away from my reaching out and asking for your help in putting pressure on our local congressman.

Every action you take in Twitter: Whom you follow, which links you send, what words you use in your Tweets, any location you give us, whom you retweet, etc. will tell us something about you.

And DataSift will help others companies make sense of this data.

9. Implicit – Do you follow Fox News, Rush Limbaugh, Sean Hannity and Glenn Beck? Well if you also follow Keith Olberman and Rachel Maddow then I can interpret something about you. If you follow the former and not the latter I can interpret something else.

No interpretation will be 100% accurate but companies will run correlation analyses to determine probabilities that you are a, b or c. Even if they’re not using this to target you with information sent via Twitter, they might use it in aggregate to determine things like the likely electoral votes in a region that will swing for a candidate. Or the probability of Southern Democrats to buy cable versus satellite or an Android versus an iPhone.

Companies like LocalResponse are using this implicit data to help merchants offer better targeting to loyal customers and help them figure out whom their customers are in the first place. It is an awesome example of the power of implicit data.

The Twitter Ecosystem for Startups & Investors

When I think ecosystems that are ripe for partnering with I consider the following: will the platform be valuable, is management communicative and committed to third-party developers and does the company have a long-term vision.

Let me quickly take these in turn.

Twitter Provides a Valuable Ecosystem – I’ve already highlighted my views on this topic in the first section. Twitter is a valuable and unique service. Twitter is not replacement for Facebook (or vice versa) and while it is competitive it is mostly competing for: user time, brand dollars and 3rd-party development resources.

In the area of third-party tools Twitter is behind but it has huge network effects and totally unique attributes. I believe this makes Twitter the perfect ecosystem for development.

Twitter’s Original Sin - Twitter was formed from what one of the most famous business thinkers, Henry Mintzberg, called an “emergent strategy.” This basically means that the success of Twitter as we know it today was not planned. As is known now in folklore, it was a side project at the company Odeo.

As a result not enough thought in the early days went into thinking about whether it was a “pure platform” that was independent of how its data would be consumed or whether it wanted to build an end-to-end system while still making its data available for third-party integration.

So it fostered a community of “try anything you want” developers and many people did just that. Because the company was under resourced relative to the size of the opportunity and its growth rate, it never had an industry-leading client from which to consume Tweets.

In the computer space you therefore had the emergence of many desktop clients such as TweetDeck, Seesmic, HootSuite and many others. These have all broadened but they all started as pure Twitter clients.

In the mobile space you had leaders for every platform: iPhone, Blackberry & Android: None of these was originally built by Twitter.

So while many articles have been written about the management changes at Twitter and what this means, I would point out that what it means to me as an investor and what you might consider as a developer is that Twitter is open for business.

They recognized and decided that their main business had to be an end-to-end service where they controlled the experience of user consumption. This is important both to maintain a consistent user experience (think the cleanliness of Facebook UI versus that of MySpace where users controlled the UI more) as well as to have advertising be an important part of their economic future.

So they went after controlling the user clients. In my opinion they could have had a smoother communication about how & why they were doing this but I never argued with the logic of what they wanted to achieve.

I point all of this out because I believe it’s the main reason the press still focuses on whether or not they are a good development ecosystem. To understand this you need to look at all of their other moves.

Communications by Management – If anybody might have been worried about Twitter as an ecosystem it would have been me. I made an early investment in its ecosystem by backing Ad.ly. Shortly after announcing that Twitter wanted to control the clients and would start filling in holes in its offering: Photo sharing, link shortening, advertising, etc.

But Twitter’s management team wasn’t hostile. They spelled out their views in their terms-of-service for people to digest. Ryan Sarver who was heading up platform development was active in the developer forum giving guidance to worried third-party developers.

Behind the scenes Dick Costolo was reassuring investors who put money into the ecosystem that he wouldn’t be hostile. He laid out clear areas where Twitter felt it needed uniform standards to control the user experience and made it clear where Twitter wanted to monetize.

No guarantees – just guidance. He even gave some suggestions as to what he believed the market wanted and what areas Twitter currently had no plans to build.

This is all you can ask for as a developer: a communicative management team who wants to foster an ecosystem and who will play fair enough as it changes its own course.

I wrote extensively about this at the time of their first acquisitions, including this passage:

I saw a lot of this first hand in Salesforce’s acquisition of my company, Koral, which was a content management (CMS) company. Naturally every other content management company was pissed off and felt that they had wasted all of their investment in integration with Salesforce.

Immediately after the acquisition we held meetings with all of the integrated CMS vendors and highlighted to them which bits we were going to make our core platform and which bits we weren’t planning to offer ourselves. We didn’t have the resources to do it all.

Salesforce was very good at managing the 1-year roadmap so at any point in time we had a pretty good idea about what we would be developing and what we wouldn’t. We also knew what we wanted to build but wouldn’t be able to get to.

Importantly, all of this was done privately, as it should be.

Twitter now has the human resources to deal with its developer community and to outreach to VCs who would back them.

How Does Twitter Stack up to the Rest of the Ecosystem? – I would argue that Twitter has been behaving more like that Salesforce model than many other players in the ecosystem.

Consider Apple: they change their rules of operation at any time and with no notice to third-party developers. Just ask TapJoy who had built a large incentivized download model and woke up one day to find out that Apple prohibited their service.

Every developer who builds on the Apple ecosystem bites their nails waiting for the annual WWDC conference to see whether their company is on the “kill list.” And in typical Apple still they tend to remain very tight-lipped until the day of their announcement.

Or how about Google? They change their search algorithm on a regular basis and as highlighted in John Battelle’s excellent (must read) book ‘The Search’ companies are literally put out of business with each change. And ask any publisher and they’ll tell you that there’s very limited access to the search algorithm team following a release to appeal anything that affects your business. In fact, they seem intentionally opaque.

Facebook? Read this story that is typical of many entrepreneurs with whom I talk. Most wont write stuff publicly because they fear retribution. This story could be written about any major platform, not just Facebook.

Let’s look again at Adly. We contacted a senior official at Facebook about running ads on Facebook Fan Pages where the celebrity had authorized the ad. A senior Facebook official told us, “Great idea. Go Ahead. I can’t put it in writing but I won’t stop it.” He then left the company.

Not long after with no substantive dialog with the company we received a “cease and desist” letter. We wanted to point out that other parties were running similar ads but doing it in a way that was less valuable to Facebook. There was no interest in a discussion. Cease. Desist.

OK. That’s life. We started focusing on how to better work with the platform in ways that would stay within Facebook’s specified terms.

On Platform Development – I point out the Apple, Google & Facebook examples not as criticism but to point out the rules in dealing with platforms. You need to build with multiple platforms in mind because as the rules change you need to have relative strength to adapt.

But most companies get a free pass by the press for their market moves where Twitter has received more scrutiny. In many ways they seem more open to encouraging developers these days.

I think that today’s journalists want a simple story: “Twitter hasn’t yet proved its business model” but I think that misrepresents the long-term value. As an investor and person whose job it is to figure out future value drivers before others, my bet has been on the long-term value of Twitter.

So I’m doubling down on the Twitter ecosystem by investing in DataSift. Like any company I’d advise, we’ll be focused on multiple streams both because our customers demand it and to maintain our stability as an independent company.

But as I stated, Twitter is at the core of today’s service. And I feel great about that.

Read more posts on Both Sides of the Table »

nicole42n7

Monday, August 1, 2011

why internet marketing

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