Investors On The Evolving Twitter Ecosystem: There Are Still Opportunities

Today at Chirp, four VCs took the stage to answer questions about investing in the Twitter ecosystem (some of them have invested in Twitter itself). The topic on everyone’s mind: given the increasing tension between Twitter and third party developers, are these third party services and apps still viable investment opportunities?

Yes, according to the VC’s, though it’s clear that the atmosphere has changed. The VCs (particularly those that have stakes in Twitter) said they have to exercise more caution. There was quite a bit of talk on how tension between developers and platforms was natural and that it was overall a good thing for developers because the platform is growing more mature. Mike Hirshland was the lone dissenter, stating “I’m not buying all the feel-good make-love-not-war talk.” But he isn’t opposed to investing in the Twitter ecosystem either, though he did say he would like more clarity on Twitter’s roadmap.

So what should developers be building? David Pakman probably gave the most concrete request: he wants companies that give you information not in real-time but at the right time. He’s also keen on companies that are taking huge datasets and deriving value from them.

Here are my notes from the panel (note that quotes are paraphrased):
Moderator: Kara Swisher
Panelists: Mike Hirshland, David Pakman, Bijan Sabet and Peter Fenton

Q: Talk about the changes in the Twitter dev ecosystem.

Peter: There’s this negative framing about “no longer filling holes”. I think that this misses the opportunity. I think there’s an instinct here most developers can get right: are you making something distinct that adds value to the platform, or something that should apply to everyone (e.g. a image sharing service that Twitter should integrate itself)?

Bijan: The responsible thing for Twitter to do is to make sure it’s as good as it can be. Getting to half a billion users is the healthiest thing it can do. I don’t think if you’re building Twitter clients today that you’re not going to have your own audience. There’s diversity. There’s going to be more innovation with annotations, @anywhere.

David: We’ve seen platforms evolve for several decades— it wouldn’t be uncommon for PC/Mac to similar issues. Should we bundle Disk Defragmentation or virus software? We knew we’d put a bunch of devs out of businesses. But we’ve seen this evolution before. We want to get the platform to the way that lots and lots of people can get on it.

Mike: I’m not buying all the feel good make love not war talk. But tension is inherently the idea of a tech platform when it comes of age. If you want to be a player in the platform ecosystem you have to go in with your eyes open. I’d like more clarity on the roadmap. We’re at the dawn for the evolution of Twitter as a business.

Peter: Facebook has historically owned the customer. Twitter started out open, day one started with API. I think the Twitter DNA allows for a degree of open innovation.

Q: What kind of business would you make? Would you worry that if you had something successful Twitter would try replicating it?

Bijan: Going forward our feeling about investing in the Twitter ecosystem…We have to be very careful, making sure we’re not putting ourselves in a position that’s going to be awkward. I’m looking forward to doing more in 2010 because the platform is more capable.

David: There’s no service today that’s taking information we’re putting out there, and giving it  to me when I need it. We need things that aren’t  in real time, but at the right time. Twitter has created a new medium. Customers are having conversations around brands, brands have to engage there. We’re thinking of who will best optimize targeting, finding followers, advertising, that’s an opportunity.

Mike: I think there will be venture backable opportunities. We’re all sensing some short term pain. But Twitter getting more serious about the platform and having a platform biz is better for the ecosystem in the long run. To me what’s most important about Twitter — it’s the reason the web has started to shift from static sites to streams.

Q: Where are the valuations? Sometimes I think you just make them up. How do you look at valuations?

Peter: I think we’re principally investing in the chance for breakout success. The idea that dominates our thinking is “Can this break out?” When we looked at the Twitter deal, we didn’t do spreadsheets, we asked, “will Ev and the team lead to get half a billion users?” And the answer was yes. The potential to break out is what we care about.

Mike: Clearly we’re all seeing the highly saught after deals. Deals get bid up. On the other end of the spectrum, a lot of the exciting stuff I’m seeing is at earlier stages. Young 3-5 person teams. Right now is a particularly exciting time to be at that level.

David: I think Peter is right on. There’s 15-20 companies a year started in the tech sector that will achieve $100 million in rev. Those are the companies that can drive fantastic returns to venture.

Q: Has anything you’ve seen recently horrified you?

David: There’s pressure on venture. There’s pressure on firms to make investments that show potential of some breakout success. A lot of people look at Greylock investment in FB that could be 100x…

Bijan: I paid a good price for Twitter. Our feeling is that we don’t care about VC rules that you have to have 20% of the company.

Q: Of all the investments that you’ve seen that wasn’t yours what is most exciting to you? And perhaps one that isn’t interesting that is getting lots of attention.

Peter: I think the analytic market doesn’t feel like a breakout, but it’s getting a lot of traction and attention. There’s obsession where people want to understand what’s being said about them. I think that will be an area that’s quite vibrant in M&A activity. The other thing we’re all obsessed with is collision of local/mobile/advertising Foursquare/Twitter/Yelp.

Q: Are you worried about Foursquare with Yelp?

Peter: I’m biased… but Yelp also solves a different problem (great reviews)

Q: Any companies you think are overhyped? Any you think will take off?

Bijan: Overhyped… I don’t know. I think a lot of them deserve the attention (foursquare, quora, etc )

David: If you’re a sick team of data scientists, look at huge data sets and derive value. Look at companies like Blippy, Swipely, encourage users to share information and aggregate it in some interesting way. That is a mine of data lots of interesting companies could be built on.

Mike: I think social commerce is going to be big. Blippy looks great. Groupon my concern is all the clones, but that rumored 1.2-1.3 billion doesn’t seem frothy to me.

Q: Who is Twitter’s biggest competitor?

Peter: It remains itself. They’ve been building a great management team. Dick Costolo, that’s just the start. If we can continue a great team this is an amazing company forever… I think the discussion of Facebook being in competition is the debate between an application and platform.

Bijan: What he said. At some level you have to think about Facebook from an attention standpoint, but they’re different.

David :If Twitter’s model is about delivering targeting tweets through search, then Yahoo/MS/Goog is a fierce competitor. If primary place ads are being delivered is through the Tweet stream, I think less of competitive threat.

Mike: Facebook. They’re fighting it out for attention.