Arbitraging Twitter vs Facebook

   The Faceoff between the Interest Graph and the Social Graph

In February of 2009 I mentioned to Fred Wilson (www.avc.com) that I wished it were possible to arbitrage the stock of private companies, specifically Twitter and Facebook. At the time Twitter was valued at $250 million and Facebook at $10 billion. The trade would have been; long 40 units of Twitter and short 1 unit of Facebook (40/1) to make it $10 billion against $10 billion (or fractions thereof). The most current valuations are $80 Billion for Facebook and $10 Billion for Twitter, or 8/1. So far the hypothetical trade has been hugely profitable. But the trade isn't completely played out yet, not by a long shot. Here's why:

IMO Twitter will eventually eclipse Facebook in terms of market capitalization. It's not a matter of if, but when - and the reasons are pretty straightforward. The Social Graph is far less monetizable than the Interest Graph, and symmetrical relationships don't represent the complexity or richness of real life like asymmetrical relationships do. This isn't good news for Facebook, because Facebook = Social / Symmetrical, and Twitter = Interest / Asymmetrical.

Don't get me wrong; I think Facebook will continue to be a very large and important player. But its revenue generating potential will ultimately be constrained by the nature of the relationships it was built to facilitate. As Judy Shapiro wrote in December of 2010; "Commerce happens in communities of interest - not social networks." Because of this and other factors, I fully expect that Facebook's "One Identity", increasingly AOL circa 1998 platform will eventually cede its leadership position to Twitter, both in users and revenues.

Update December 13th 2012: Facebook has a current market cap of ~ $68 billion, Twitter $12 billion. Expect the valuations to continue to converge in earnest throughh 2013.

Update November 4th 2013: Twitter is about to go pubic on November 7 and its valuation is expected to be in the $15 - $20 billion range while Facebook's current valuation is approximately $118 billion. That means the ratio between the two has narrowed only marginally in 2+ years, which I attribute to the fact that Twitter is still struggling to create more utility for its users, especially new users. Onboarding for new users is still a complete mess and deep media integration created to increase advertising revenue will take the platform only so far. Twitter still has a chance to become the most used and most valuable social network ever created, but unless and until they start concentrating on becoming a true information utility (rather than a media/advertising company) they will drastically limit their potential and unnecessarily leave themselves open to competitors and disruption.

How Americans Use Social Media - The Social Habit 2011

The Social Habit is a new study conducted by Edison Research and Arbitron, and is derived from the 19th Edison/Arbitron Internet and Multimedia Research Series, one of the longest-running studies of consumer adoption of the Internet and new media in existence.

This study was originally presented by Edison Vice President of Strategy Tom Webster at Blogworld in New York on May 25, 2011, and presented new, unreleased data for 2011 on America's adoption of social networking sites and services, with a detailed look at Facebook and Twitter usage, mobile social behavior, and location-based apps and services.


http://www.slideshare.net/webby2001/the-social-habit-2011-by-edison-research

http://www.edisonresearch.com/home/archives/2011/05/the_social_habit_2011.php

The Misguided Focus On Social Media ROI

Last night I was at PeopleBrowsr's new San Francisco headquarters for a panel discussion on Collective Influence. At the end of the panel's comments the audience was asked for their definition of Collective Influence, and I offered my 2 cents. After the panel I was approached by several people with some compliments, and two people (thanks to Seema Kumar and Becky Wang for the prompt) suggested I create a post to pass along my thoughts. Here it is:

Collective Influence in a Social Media context is actually a derivative asset that is earned as a result of delivering consistent value over time. It accumulates just like an organization's goodwill accumulates on the balance sheet. As a result, the Collective Influence that you've earned (much like goodwill) becomes the asset that you leverage when you have something new to deliver to your intended audience.

Those organizations that excel at delivering exceptional product/experience ironically don't have to work very hard at Social Media to either build audiences or amplify their messages. They already excel at delivering superior customer experiences, and because of it their customers are enthusiastic unpaid brand ambassadors.  That's one reason that Comcast has to pay for several dozen employees to attend to Social Media monitoring and problem resolution while Virgin America employs 2, and Apple 0. Comcast has terrible service - and no amount of Social Media messaging/massaging is going to improve the public's disdain for their product/service until they fix that.

No executive ever asks for an assessment of how much a given social media (or traditional) campaign contributed to goodwill, but that's at least one of the ways people need to start thinking about Social Media. It's not about getting more "likes", or followers, or fans, or clickthroughs - it's about your ability to activate and energize an audience that you've earned over time, an audience that wants to spread the word on your behalf because you're doing something exceptional. That's the essence of collective influence. 

So let's stop this short-sighted insistence on measurable Social Media ROI for the time being. We might be able to quantify some of these aspects in time, but for now let's concentrate on the things that have always mattered: Building relationships over time by delivering consistent value. That's where you start building the foundation for ROI. Because if you do that, the collective influence of the entire Social Web is at your beck and call.