Viewpoint

Twitter's Innovation Drought


I love Twitter. I'm in the minority of users who check it and comment at least a couple of times each day. I even have two accounts—one personal (@ericjackson), and one for my company, activist investment firm Ironfire Capital (@ironfirecapital). I set up my personal account over two years ago and have watched in surprise and admiration at how widely the service has been adopted. Forget Oprah. When I finally saw some of my formerly not-very-tech-savvy friends signing up a few months ago, I knew Twitter had gone mainstream.

Twitter's three thirtysomething co-founders—Evan Williams, Biz Stone, and Jack Dorsey—have been on a media blitz of late. And how can you not be happy for these guys? They're all down-to-earth. No hint of arrogance or entitlement. It's a feel-good success story.

People who cover Twitter in the media often criticize it for its lack of revenue, even with its impressive growth. However, I have grown baffled and annoyed at one of Twitter's greater nonaccomplishments: Since I've been using the service, its functionality and offerings have barely improved.

It's virtually the same Twitter experience today as it was two years ago. The only difference is that there are more users. You update, follow, unfollow, reply, or send direct messages. That's it. I understand that part of Twitter's power is its simplicity. But there are still no ads, search isn't easily customizable or useful, and there's been no evident push into location-based services despite the talk.

outside innovations

To view the most creative innovations in Twitter from the last couple of years, you have to look outside the company, to related third-party applications or services that have cropped up using the Twitter platform. I use TweetDeck as my desktop client for checking on my Twitter stream during the day; it's infinitely more efficient than the company's own clunky site. I often check on stock news through StockTwits. I shorten links using bit.ly or another shortening service. Yet all these helpful innovations have emanated from outside Twitter's confines.

I'm all for opening up your service and getting other people to create apps and services that ride on top of your platform. Everyone wants to be open these days. Facebook's doing it. Yahoo!'s (YHOO) doing it. It makes sense to get others to work for free on tools that make more users dependent on your platform.

Yet I still have had this nagging question: What are employees inside Twitter working on to make the service better? At the recent D7 conference in Carlsbad, Calif., Williams and Stone confirmed that Twitter has 43 employees. This is a big increase over years past, when there were only about 20 people working at the company.

Venture capital friends have told me they usually estimate a company's cash-burn rate at the number of employees multiplied by $100,000 a year. This implies it would cost Twitter $4.3 million a year to keep going at its current size. Bump that up a little because of extra server needs compared with most tech startups. At that pace, with more than $55 million raised to date, the company likely has another 6 to 10 years with the current cash in the bank. And the truth is, Twitter could raise much more if it needed to—likely at pre-bubble valuations, judging from the $200 million Facebook recently raised from DST Ventures.

So my question remains: Why is this company being slow to seize the opportunity in front of it? Why are there not more features, services, or ads being tested? To be fair, Twitter has search, which it didn't two years ago. It's useful if I quickly want to check who won the most recent NBA Final or see what other people thought of last night's Lost episode. But Twitter didn't even create its search—it bought Summize and integrated it. I'm not complaining. Summize has been great. But why hasn't Twitter extended it to be more interesting and useful?

thinking small

With good reason, the company has focused a lot of attention on simply keeping the service running. From its early days, Twitter's popularity has led to periodical crashes, epitomized by the now infamous "Fail Whale" graphic. The problem subsided but has returned in the last few months amid a traffic spike. CEO Williams recently acknowledged the internal focus on scalability: "For the entire history of the company, most of the resources have gone to managing growth, and that is still the case. … If it weren't growing nearly as fast, we would be building a lot more things."

I disagree with the assumption that growth precludes innovation. My hunch is that the real cause lies with the co-founders and their board: These guys are in uncharted territory managing a business of this size, and their directors haven't provided enough guidance. In the same story, Williams said: "I've started a bunch of companies but never run one of this size." When you run small companies, you think small. Managers of larger businesses are more accustomed to scope, complexity, and additional ambiguity. As Twitter has blossomed, the co-founders appear to have focused too much on only their biggest problem, the Fail Whale.

Imagine if Yahoo's then-CEO Tim Koogle had told his troops in 1997 that they shouldn't do new-product work until they ensured that the business would be able to keep up with the explosive growth it was then experiencing. It's ludicrous.

twitter's board needs to step up

I don't fault the co-founders entirely. None of us can know what we don't know. But that's what advisers and boards are for. This board knows that companies can walk and chew gum at the same time. It is possible to scale the business on an incredible upward trajectory while still building out new features. It's not either/or. They've also known the company has plenty of cash to try a lot of things.

I can't help but wonder if the Twitter directors have come down with a case of Silicon Valley rock star-itis. Etched in the brain of every tech VC are the baby faces of Yahoo co-founders Jerry Yang and David Filo, Google's (GOOG) Sergey Brin and Larry Page, and YouTube's Chad Hurley and Steve Chen. Twitter's funders have made it into the "club" of investing in the Next Big Thing, where it can be difficult to balance back pats with serious advice, debate, or disagreement. The cardinal rule of this club is: Don't upset the founders. (For another example, see Mark Zuckerberg and the Facebook board.)

There's an appropriate amount of media and press to do to promote a company, but Twitter's co-founders and its board need to start building a better company with better products instead of going around talking about how it all started and how they're discussing lots of ideas for making money.

At the time of publication, Jackson did not hold shares in the companies mentioned.

Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund and Ironfire Capital International Fund.

Eric_jackson
Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund and Ironfire Capital International Fund.

Steve Ballmer, Power Forward
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