The Twitter IPO: Some Initial Analysis

Twitter just tweeted that it has filed a confidential S-1, with the appropriate disclaimer. Here are a few reasons why this filing and IPO warrant close scrutiny.

  • Twitter is the last of the Big Four to go public. In the social networking ecosystem, Twitter is seen as a must have in terms of a social strategy, and is the only major player left that is still up for grabs — YouTube (owned by Google), LinkedIn (IPO), and Facebook (IPO) are all spoken for. Other upstarts like Pinterest are just getting started so Twitter is going to be the talk of the town into 2014, which is the earliest the IPO can be expected. There will be a certain “last call” mentality to the Twitter IPO that wasn’t there for Facebook.
  • Confidential filing gives Twitter control. Twitter took advantage of the JOBS Act pass last year, which allows firms with less than $1 billion in revenue to file an S-1 confidentially. This means that unlike Facebook, Twitter won’t be subjected to a microscopic dissection of every word of its filing. This is a good thing, because Twitter’s business model isn’t the easiest to explain. As Twitter begins the roadshow, they’ll be able to roll out their story to investors in a systematic, orderly way that enables them to tell their growth story to the world.
  • Timing and Friends benefit Twitter. Twitter should be saying a big “Thank You” to Facebook for carving out the path before them. Facebook has spent the past year educating the market about social media advertising, doing much of the heavy lifting and laying out the red carpet for Twitter.
  • Challenge: Twitter’s Advertising Model. The biggest challenge that Twitter has is that its main form of revenue comes from “sponsored tweets” which is a form of native advertising (see Altimeter’s just-published report on Native Advertising). The problem with these sponsored tweets is that they are not, at present, a standard ad format that can travel outside the Twitter platform. That makes ad buying — and scaling to media buyers — more difficult.
  • Discipline to Stick to the Business. The tweet that Twitter posted one minute after the “filing” one shows everyone at the computers with the next, Now, back to work.” The company has been preparing for this day, and realize that it’s a long, long slog for the next approximately six months before the actual IPO. The team will need discipline to focus on the work, rather than pulling out spreadsheets to calculate their potential net worth. Not an easy thing to do!

These are still early days, and I anticipate that we’ll learn a lot more about Twitter’s business over the next few weeks and months. I, for one, am eager to not just see the numbers, but also to hear their story. Because as one of the four foundational platforms of the social space, they have the ability to shape the future as they envision it unfolding. And the vision that Twitter CEO Dick Costello and his team roll out is sure to be interesting.

Obama vs Romney in Social Media: Who’s Using It Best?

[crosslinked from LinkedIn]

As someone steeped in social media, I’ve been watching each of the presidential campaigns closely to see how they are using social media well – or not. [Disclosure: I worked on Obama’s campaign in 2008 and have donated to it this election season. I also went to the same high school and business school as Romney. To the extent possible, I’ve tried to be objective in my analysis, but inevitable, my biases will come through.] Here are some observations, as well as opportunities for the future:

  • It’s Not About the Numbers. I’ve seen many commenters point to the overwhelmingly higher numbers of Likes and Followers that Obama has over Romney on Facebook and Twitter, respectively. It’s easy to get lured by those numbers, but they are highly misleading because Obama has had four years as candidate and President to gather his followers. What will matter in this election is how engaged these followers are, in not only amplifying their candidates’ message, but whether they can get people they know to vote.
  • Each Campaign Plays to their Strengths. My colleague, Susan Etlinger, who researches social media analytics, cautioned that looking at the stats alone don’t tell the full story. As an example, she pointed me to recent data from Pew that shows Democrats and liberals as being more engaged politically than Republicans. Her advice: Look at each of the respective campaigns from the perspective of where they are starting from. With Republicans less likely to energize their base via social networking sites, they are more likely to focus on awareness and outreach to Independents, whereas Democrats will be keen to get an disengaged base fired up to get out the vote of intended Democratic voters.
  • Romney Makes Smart Use of Facebook Marketing. Romney has made good Facebook ad buys, especially with Sponsored Results where Romney ads started showing up next to search terms such as “democrat” and even “obama”. The results have been significant – Romney has been gaining Facebook Likes at twice the rate of Obama.
  • But Romney Misses the Opportunity to Be Personal. While his campaign has mastered social media marketing, Romney hasn’t capitalized on social media’s ability to be personal and be direct. The tweets are annoyingly in the first person when it’s clear that Romney is not writing them. My hope is that the new-found, more personal Romney that is currently on the campaign trail – telling his personal story directly rather than through surrogates – will also make an appearance via social media. While Romney himself may not feel that comfortable engaging in the back and forth of social media, even a video of him speaking directly to people in social media, would be a bonus.
  • Obama Appears On Uber-Cool Reddit – But Dodges Tough Questions. Obama  appeared on social news site Reddit, where he engaged in thirty minutes of “Ask Me Anything” (AMA). While Obama gained serious social media cred with his appearance, answering 10 questions and saying that the Reddit experiences was “not bad”, he also avoided by several tough and popular questions such as the legalization/regulation of marijuana dispensaries, aliens (!) and lobbying. While the Reddit session may be called “Ask Me Anything”, it could be more correctly characterized as “Ask, but I may not Tell”.
  • Obama’s Social Media Team: Masters of The Moment. The Obama campaign tweets between 10-20 times a day. That’s usually 3-4 times more frequently than the Romney campaign. The result: Obama’s team has a lot more practice and better sense of what resonates and gets spread. This culminated in the picture-perfect moment during the Republican National Convention when Obama’s Twitter account sent out a picture of the President sitting in his chair, a response to Clint Eastwood’s discussion with a the invisible Obama. What the Obama campaign did was leverage what Hamish McKenzie so eloquently described as the emotion of the moment and created the most tweeted post for the entire Republic convention.

The key for Romney in these closing days of the campaign is to tap into his loyal base on sites like Facebook and Twitter to share with their undecided friends the Mitt that they know and believe in. But socialgraphics – the social behavior of key audience groups – are stacked against him. According to Pew, only 25% of Republicans are likely to recruit people to get involved with political issues that matter to them, as opposed to 35% for Democrats. But even worse, social networking site (SNS) users (84% of SNS-using Republicans and 79% of SNS-using Democrats) say little or nothing of their recent posts have anything to do with politics.

My takeaway from this analysis is that while the campaigns are using social media in creative ways, they both still miss more opportunities than they capture. The biggest is that neither has created a culture of sharing with their followers. Activity is still focused on messaging, and a predictable call-and-response routine of asking for donations and the cash register singing.

In the end, votes win elections. With a dismal 58% of the US eligible voters actually voting in the 2008 election, the campaigns could be doing so much more to engage people in a dialog, encouraging us to share our views not on politics but the issues we care about. But in the polite company of our friends, we do just the opposite and hide our political leanings from each other. My hope is that in the waning days of this election cycle that more of us will be inspired to engage in civil discourse directly with each other, in the social channels that we inhabit.

Google+ The New Enterprise Social Network?

by Charlene Li and Chris Silva

Google announced Google+ for Enterprises today with Hangouts integration into Docs and Calendar as well as administrative controls such as default posting to only within the company. We’ve been doing some research on the topic of enterprise social networks and, with Google moving into this market, have some thoughts around why this is a bigger deal than just another Google feature announcement.

IMG
Google In The Office, Image Courtesy Of A Prescient Post On Using G+ At Work By Digital Telepathy

Google has a few things going for it that the pure plays like Yammer and Socialcast in this market don’t have and that tools like Microsoft’s Sharepoint have not yet built out:

  • Google Plus wins on affinity. Google has been steadily building it’s devoted network of over 5,000,000 enterprises that initially looked to the search provider for email support based on cost, and stayed due to apps and integration. Many have seen additional cost savings given the ability to move away from costly office suites as Google offers a parity of experience for simple document editing and sharing, with additional features such as support for mobile environments and better collaboration tools. Adding Google+ with tight integration just sweetens the pot. If social networks are a communication and community buy and not a technology buy, the affinity power of the Google stack of apps and services is a formidable foe for pure plays like VMWare’s Socialcast tool but less so for tools that integrate with larger systems such as Salesforce’s Chatter. It’s worth noting that, as of the announcement, Google was mum on what integrations with other, third-party enterprise apps would take place to allow Google+ to feed other stores of information. their ultimate decision on this advanced level of integration could determine long term success against tools like Chatter and, to a lesser degree Microsoft’s Sharepoint.
  • Google lowers the enterprise social barrier to entry. Many businesses will be tempted to try social networking inside of the org for the first time since the product comes at no additional cost. Some may migrate from their existing third party tools like Yammer or Socialcast to Google+ given that it works with a wider swath of tools that competitive offerings when considering integration with Google Apps. There’s a downside to this Googlification of the enterprise, however. Many users will have an existing personal Google identity they’ll need to reconcile Google+ to, though support for switching is possible across multiple accounts on most Google services of late. A more pressing problem is that someone could have TWO activity streams on Google+, which would be confusing at best, downright creepy at worst. This concern may not be too much of a hurdle given the overall challenge it’s been to get consumers to embrace the network, but it is a problem that other social networking sites like Facebook and LinkedIn have figured out because they are not tied to a specific email address but to a person.
  • Google has figured out how to make its tools intriguing. Elements like Google+ Hangouts were the stand outs at the time of the original Google+ launch, but relegated to the walled garden of the Google network. The company has smartly started to expand potential use of the tools outside of simple social contexts by adding Hangouts to Google Mail, recently Google Docs and what believe is the killer feature, Google Calendar. Companies that don’t yet “get” social are likely to see the addition of Hangouts as a collaborative tool with a great audit trail. And the social interaction — as well as the inter-team communication that it fosters — will be an organic side benefit. That said, Skype is a solid asset in the Microsoft arsenal with no small user base – wel over 400 million at last count – and making similar integration with existing office tools should be a minor addition for Redmond; having said that, it hasn’t taken place yet, which boggles the mind looking at a company so focused on the idea of collaboration.

Will Google+ for enterprises save the oft-maligned network? We think that a better way to think of this is what Google+ for enterprise reveals about Google’s intentions for its social efforts. Google+ doesn’t seek to be the biggest social network or the one where people spend the most time. Instead, Google+ seeks to be the most embedded social feature in the lives of its loyalist users so that they will never want to leave Google.

Look at Facebook’s biggest problems — it needs to constantly innovate and offer new features to fight off upstarts and retain its users. LinkedIn struggles to get people to even come to their site for more than a few minutes a month. Google+ isn’t a destination — it’s a ubiquitous presence that’s always there and now all the more so if  you’re a Google Apps user. This is about social being where you need and want it to be — it’s social being like air.

Do you think Google+ for Enterprise will make a difference against competitors? Do you agree that it makes Google+ more relevant — or will it have little impact? We’d love to you know your thoughts so please share with us!

Analysis: Why Buying Yammer Makes Sense for Microsoft

Microsoft announced that it would buy Yammer for $1.2 billion, after a week of speculation that the deal was imminent. From my perspective, having researched the enterprise social networking space (see report), the acquisition is a continuation of current trends in the industry and makes a lot of sense for both MSFT and Yammer.

Yammer CEO David Sacks wrote in a blog post about the acquisition, “When most people thought social networking was for kids, we had a vision for how it could change the way we work.” When Yammer launched at TechCrunch four years ago, it won the “best in show” award from judges and it’s been on a rocket ride since then for two simple reasons — it’s free and people love using it. The result: 85% of large companies have Yammer inside their walls.

That love-driven virality is a key reason why Microsoft bought Yammer — after all, who would use the word “love” to describe Microsoft or a product like SharePoint? The fact is that Yammer and its competitors are creating new way for work to get done, that is not only effective but also — dare we say it — makes work fun. Microsoft knew that it was behind in the enterprise social networking space and could either build organically within SharePoint or acquire. I think they did the smart move by buying Yammer as it gives them not only the largest independent player, but also penetration into virtually every company that already is using its products.

The challenge going forward is how Microsoft will integrate Yammer into its Office offerings, in particular, SharePoint. Yammer already enables integration with SharePoint that inserts microblogging capabilities right into SharePoint, making the enterprise app much more social. Up to this point, the main selling points of ESNs has been that they just had to be better than SharePoint’s built-in social tools. That is no longer the case, so you’ll see other enterprise apps companies scrambling to snap up remaining players like Moxie. Here’s a graphic from my ESN report from February that shows how the world (used to) stack up in terms of players — this is a game being played by the big enterprise players now.

Fig. 7 Enterprise Social Networking Technologies Evolve From Three Scenarios

While there is concern that adding Yammer makes worse an already-confusing mix of Microsoft offerings, it’s nothing compared to the bewildering situation facing CIOs when it comes to ESN. One CIO shared with me that he faces a situation of having Salesforce’s Chatter, VMWare’s Socialcast, Yammer, and SharePoint all running within his organization. And that didn’t include rogue installations of Box and Google+.

In the end, it makes sense for each company to have one — and only one — enterprise social network in order to ensure universal access. Thus ESNs like Yammer become battlegrounds in the way that other foundational enterprise tools like email, IM, and CRM have become. In this way, Yammer makes a whole lot of sense for Microsoft, as it becomes more integrated into all of its offerings, rather than remain a standalone. Here are some examples:

  • Any organization with a SharePoint installation will now get supported integration of an ESN into their organization – and more importantly, make sure that the technology actually increases business value.
  • Any organization with Yammer but that doesn’t have SharePoint will become a lead for Microsoft.
  • Office 365 gains a huge foothold into SMBs that may have already implemented Yammer, but would never consider SharePoint. If they are already using Google Apps, integration between Office 365 and Yammer becomes a potential switching point.
  • Microsoft Dynamics has a potential answer to Salesforce Chatter.
  • Provides a counter to IBM’s Lotus Connections.
Taking all of the above into consideration, the $1.2 billion price tag begins to make sense. But the intangible brand value goes back to where this blog started — the potential that we as workers and companies will again love Microsoft. Even if that translates to just a chance for a mild “like” for Microsoft products because they enable social connections, it will have been worth it for Microsoft to acquire Yammer.

 

Beyond the IPO: Ten Implications of a Public Facebook

By Susan Etlinger, Charlene Li and Rebecca Lieb

The run-up to Facebook’s IPO reminds me a bit of a wedding: everyone’s attention is on the big day (expected to be Friday May 18), without much regard for the weeks, months and years afterward. Charlene Li, Rebecca Lieb, and I sat down to discuss some of the implications of a newly public Facebook: on shareholders, business and Facebook itself. — SE  (Cross-posted from altimetergroup.com.)

Whether or not Facebook’s IPO ends up being one of the world’s largest (this Washington Post article places it 6th, between AT&T Wireless and Kraft Foods), it will certainly earn a respectable position in the history of the public markets, a lofty spot for an eight-year-old company in a relatively unproven business.

We identified ten areas where we are watching Facebook closely, as an indication of its success in the future.  We picked these topics because they intrigue us, because they provoke discussion and, ultimately, because we believe they are the issues most central to Facebook’s future.

#1. Leadership

 In a media frenzy in which anything (such as, for example, wearing a hoodie on a road show) can spark a news cycle, it’s to be expected that Mark Zuckerberg would have kept the lowest possible profile during Facebook’s quiet period. But now during the roadshow, on the first day of trading, and afterwards, he’ll need to step out, step up and set the tone for how he will lead this company into its next major phase. Can he pull it off?

The decision Zuckerberg must make, as a CEO who’s famous for his a “go away; we’re working on it” attitude, is whether he will use this milestone as an opportunity to cultivate his newest constituency: investors. As CEO, Zuckerberg needs to be accountable to his shareholders–not to a stock price per se, but to their faith in him. We will start to see clues to this decision during the first earnings call (a trial by fire for any CEO of any newly public company).

Of course, it’s all fun and games until there is a major hit to the stock price.  We know, generally speaking, what the triggers will be: a new, poorly received product, a privacy issue, slowing user growth–the registration statement is full of examples.  When this happens, Zuckerberg will have to demonstrate a completely new level of leadership. He’s chosen his executive team wisely in that both COO Sheryl Sandberg and CFO David Ebersman are strong, respected executives who have been through this process before. And, despite his youth, Zuckerberg has learned from previous missteps like member revolts, privacy, and Beacon.  If you still wonder if Zuckerberg is ready for prime time, imagine how you’d react if a major, highly unflattering motion picture had been made about you while you were still in your twenties. The issue isn’t if he can avoid controversy, but how well he can quell the concerns of skittish investors.

#2. Innovation

 Facebook has a hacker culture; its development mantra, “done is better than perfect,” is at the root of both its growth and its biggest failures. Given the massive number of monthly active users (901 million according to the latest released numbers) the strategy has been to release product to the market and learn as it goes.

But as a public company, Facebook will need to choose whether it will continue to release products the way it has in the past or take a more cautious approach.  How will it behave when it’s not just the pundits on Twitter, but the shareholders who react?

Although they’d hate the comparison, there’s a strong role model in Google, which, even as a public company has managed to maintain its agile development strategy. Granted, there’s always the risk of a Buzz (Google) or Beacon (Facebook), but Facebook has demonstrated considerably more focus from the start than Google.  Furthermore, the company sent a strong signal in its last quarterly statement that it will continue to make investments for long-term growth, even at the cost of short-term profits. It’s setting expectations that it’s investing for the future, not just for the quarter.

#3. Brands

 Will brands buy what Facebook’s selling? Facebook is, after all, a media company, and while it has other sources of income through partnerships, brand dollars are what will ultimately make not only the IPO, but the company itself, succeed or fail. With close to a billion users, Facebook is the biggest media company that’s ever existed, in any medium, ever. Advertisers go where the eyeballs are, which is Facebook’s undisputed advantage. After that, it gets a bit trickier.

Facebook is at the vanguard of developing products that merge and conflate advertising and marketing, that blend content, conversation, paid, earned and owned media with media buys. Advertising is media buying, but those other aspects: owned media (premium brand pages) and earned media (the conversations and comments and interactions brands have with their fans, users and yes, detractors) are part and parcel of what Facebook is working to monetize. It’s still experimental. Brands are still testing the waters and are far from establishing best practices or firm models in a “brand” new environment.

#4. Data

Facebook is also in a position, thanks to its staggering user base, to possess and be able to leverage data on a scale we’ve never before seen. Likes, affinities, social graphs, recent behaviors – it’s all there, together with the basic demographic information. Again, the ability to package, parse, productize, make understandable and actionable this vast quantity of data is as formidable a challenge for Facebook as it will be for the media agencies who buy against these very new models. Facebook’s potential as a marketing data juggernaut is very real, and can potentially take advertising to new levels, if the company succeeds in making that data useful.

#5. Mobile

 Most of the coverage around mobile has been focused on Facebook’s “lousy” mobile applications. But we believe this is a red herring – the core issue revolves around the slow development of mobile advertising and marketing. The S-1 says it best in the section on risks related to advertising:

§  “…increased user access to and engagement with Facebook through our mobile products, where we do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers where we monetize usage by displaying ads and other commercial content…”

But with 85% of revenue coming from advertising as of the end of 2011, the more effective Facebook is at appealing to its mobile users, the more it risks shifting revenues from the Web platform where it can monetize users, to the mobile one where it can’t — at least not immediately.  So the real question becomes how Facebook will balance creating mobile user value against driving shareholder value.

Facebook can’t risk waiting too long before moving aggressively into the mobile space, but also needs to buy time to help mobile advertising develop. Given this significant risk, the purchase of Instagram represents $1B of earnest money that Facebook is focused on the long term.  With the war chest Facebook will have accumulated post-IPO, building a great iPad app and upgrading the smartphone experience is a foregone conclusion. The bigger issue to watch is how well Facebook can develop the mobile advertising market with that experience, in a similar way that it created social media marketing.

#6. Investors

 The first earning call is always rough for a first time CEO, and Facebook will likely not be any exception. But what we are watching closely is if Facebook will develop a different kind of relationship with its shareholders. The company is, at its essence, about sharing: will a newly public Facebook use its own platform to share more information with investors?  Facebook has an unprecedented opportunity to change the way that it handles investor relations. Will it take this opportunity, or will it stick with the tried and true?  We’d love to see Facebook use its own platform as a way to engage with and provide greater transparency to its newest stakeholders: the public markets.

#7. Mergers & Acquisitions

 Thanks to Instagram, every venture-backed start-up has dreams of meeting with Facebook’s M&A team. Will Facebook focus on smaller acquisitions to acquire talent or smart ideas, or will it make major deals to really move the ball forward?

One of the more interesting areas of speculation lately is what would happen if Facebook were to buy Bing from Microsoft. With Google arguably its most formidable competitor, the addition of search would give Facebook advertisers a direct response medium they could not get before on Facebook. Google is, at its essence, a search company that has struggled with social. Facebook is a social company that needs search. A Bing acquisition would up the ante in a significant way between Facebook and Google.

Looks good on paper, but acquiring Bing would also be a huge distraction and a departure from Facebook and Zuckerberg’s legendary ability to focus on social sharing. A more likely scenario is that Facebook and Microsoft continue their long-term strategic partnership, integrating Bing deeply into the Facebook search experience.

Regardless of whether it buys Bing or another organization, few companies do the “merger” part of M&A well. We expect that Facebook will focus on smaller acquisitions that it can absorb and leverage quickly, while any large acquisitions like Instagram will be kept running separately, in much the way that Google ran YouTube as a separate entity for years. Again, a focus on the long term gives Facebook the ability to look at M&A in a very different way than traditional companies who much justify every single penny spent on a company.

#8. Culture

 Facebook is a private company in many respects (one of which is about to change dramatically), but the internal culture has always been very open. It has invested heavily to create this open culture, and it has slowly but surely been reducing the amount of information shared internally in the run-up to the IPO.

This will only increase, as the company will now be beholden to even more securities industry regulations intended to protect investors from selective disclosure. So again the balancing act, this time between employees (and openness) and shareholders (and fiduciary responsibility). Which leads us to…

#9. Talent

 Once it goes public, how will Facebook retain talent, especially top talent?  Expect to see the usual exodus as people wait to vest, then cash out (the Bay Area housing market is already bracing for impact).  But, again like Google, Facebook will retain its cachet for some time to come, and some will be motivated by the opportunity to change the world from within Facebook rather than from without. Where else can you find a platform of 900M people to try out your next great idea?

#10. Privacy

 Zuckerberg has said that increased sharing is core to Facebook’s growth. But with greater sharing also come increased pressures on and threats to user privacy.

Over the past eight years, Facebook has mastered the art of trial and error when it comes to privacy. There have been huge missteps (Beacon), significant improvements (to privacy settings) and escalating tensions as the company has continually pushed its users to share more, and more often, frequently beyond their comfort zones. The company has accumulated a great deal of resilience along the way, and has tried to balance giving people a granular degree of control (at the risk of confusing them) with offering a simplified experience (at the risk of alienating them).

The addition of Timeline, and the emergence of “passive sharing,” raise the bar yet again. A few months ago I installed the Washington Post Social Reader on my Timeline. Now I know that it involves social sharing, but one day when I was in need of a little “mental floss,” I clicked on a story about Snooki’s recent weight loss. I didn’t think anything of it until a bunch of friends and work colleagues started teasing me. There it was, along with comments: “Susan Etlinger read an article: “Snooki Finally Reaches Goal Weight of 98 Pounds – But Has She Gone Too Far?” I was, frankly, mortified. I’d forgotten I was “in public,” and I am someone who is supposed to know better.

Wherever your stance on Facebook’s privacy record, privacy will continue to be a litmus test issue for Facebook. User outrage is one thing; shareholder outrage is quite another. We will watch to see how Facebook balances continued innovation against privacy. Where will Facebook stand when and if privacy issues affect the stock price — will they pull back or forge ahead?

As always, we’d love your thoughts on these issues. What are you watching as Facebook heads into its IPO?