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App.net doesn’t need Twitter scale to succeed

Now that I’m on alpha.app.net, I’ve re-read MG Siegler’s piece on why App.net won’t succeed.

I think he’s wrong.

His reasoning assumes that a user supported service would need to reach twitter scale in order to rival twitter. Twitter has a different business model than app.net is promising. Twitter is an advertising supported service and the economics are very different. Twitter can only derive pennies per year in value from its users – app.net can derive tens of dollars per year.

To keep the numbers simple, let’s pretend that Twitter already has $1b in revenue and 500 million users (they are projecting that they’ll hit $1b by 2014 and probably have around 600m users or so already). That implies that each twitter user is worth about $2/year to the company.

On the other hand, App.net is charging $50/year for regular accounts and more for developers, etc. This implies that App.net only needs to scale to 20m users to reach the same business scale as twitter.

This is fundamentally a better business model. Costs will be lower and margins will be higher and more importantly, Twitter can’t follow app.net into this territory – they’ve chosen their fate and its virtually impossible to make the transition without destroying the core value that Twitter has created.

If anything, this has the potential to put Twitter in a really bad place – stuck between Facebook and Google, each trying to corner the advertising game and outflanked by app.net on the other. 

I’ve always found Twitter awkward and hostile. I think its created exactly the type of weaknesses for itself that a strong competitor with a good model can exploit and win against.

Is app.net that competitor? Only time will tell. In the meantime, I’m rooting for app.net.

  • Twitter can move to a paid model. I could easily see “Twitter Pro” and “Twitter for Teams” options along with the ad-supported free model. In fact I’d already pay for those if they just offered them!

    • Possibly. I agree that there’s definitely demand for it. I also think that offering users a way to pay to opt-out of advertising isn’t all that cool when their primary business model is offering advertisers a way to opt-in to receive user data (and attention).

  • It’s not powered with Apple koolaid. That makes it a flop in eyes of mgs. /s