What is Twitter’s New Business Model?

October 19, 2015

Major changes are announced by Twitter. The company is cutting back on staff and reorganizing its leadership. But will it find a new Business Model?

One of persistent questions in the business press has been ‘what is Twitter’s business model?’ The company has grown sensationally but always on its potential to make money rather than short-term profit. In that respect it is similar to Amazon. LWD subscribers will find several posts on this topic.

Turnover of senior executives

Over the last few months there has been a rapid turnover of senior executives at Twitter. Its head Dick Costelo departed in July when a Board reshuffle saw its brilliant entrepreneurial co-founder Jack Dorsey return in a transition role as CEO.

This resulted in a sideways move for a Twitter insider Adam Bain, who was considered a candidate to take over from Mr Dorsey who was seen as more of an ideas man with great inspirational and motivational skills.

Then earlier this month, [5 October 2015] Dorsey’s interim position was reclassified as a permanent one as CEO. This left unresolved a possible clash of interests with his involvement with Square, a fast growing mobile payments company in which he still retains executive responsibilities. As the new CEO, Mr Dorsey acted swiftly and announced major staff reductions at Twitter in a major restructuring plan.

Here comes Omid

One week after his appointment, Mr Dorsey also announced the arrival of Mr Omid Kordestani, an influential figure at Google whose reinvention of its corporate self as Alphabet may have contributed to Kordestani’s move to new challenges at Twitter.

Outsiders considered that further moves are required to give the company stability and coherent leadership. The official role of Mr Kordestani is as executive chairman. It remains to be seen how the leadership roles at Twitter will play out, and how the Company will redefine its business model.


Hollywood blockbusters and the message for Big Pharma

January 6, 2014

AvatarThe business model for blockbusting films is coming under increasing scrutiny. There may be a message for the major drug companies

Last year, [2013] 26 films costing more than $100m each were released by the major Hollywood studios – more than ever before. They are likely to have raked in tens of billions of dollars in worldwide box office revenues as a result. But despite the runaway successes, there are concerns that blockbuster budgets are getting dangerously high.

The business model

The business model works because the large blockbuster is more the visible part of a process than a stand-alone product. The basic plan is to develop a series of movies after an initial demonstrated [financial] success. Each successor is part of marketing campaign now well-routinized of spin-off products and deals.

Only a fraction of revenues come from ticket sales with the bulk coming from television licensing, DVD sales, and assorted merchandising deals. Arguably it is the model for sporting franchises as well.

“There’s eventually going to be an implosion, or a big meltdown,” said Hollywood elder statesman Steven Spielberg in a speech earlier this year. “Three or four or maybe even a half dozen mega-budget movies are going to go crashing into the ground, and that’s going to change the paradigm.”

Spielberg had warned of an “implosion” in Hollywood as In 1980, Heaven’s Gate effectively bankrupted United Artists.

Half full or half empty?

British film academics John Sedgwick and Mike Pokorny have found that blockbuster films become have become more reliably profitable: in the late 80s just 50% of major studio films turned a profit. In 2009 it was 90%. Flops have become rare. Spielberg worries with others who note the changes in the market place. DVD sales are threatened by online streaming services such as Netflix. Studios are seeing profits growing more from their TV interests.

Aesthetic bankruptcy

Others refer to dumbing-down and “aesthetic bankruptcy”. Screenwriting talent is increasingly moving over to television.

Entertainment has flourished on change since silent moves found its voice, and later its glorious in sound and visual transformations. The blockbuster model may well be bust. The challenge to Hollywood is one that also applies to the giants in Big Pharma

A message for Big Pharma?

It is the challenge facing other industries where the early winners face being overtaken by outsiders as the name of the business game changes. Maybe Big Pharma will learn from Hollywood that the days of searching for big blockbusting drugs are over.

What else?

The question may be addressed by the stirrings of interest in new leadership approaches in recent years. The last movement to claim New Leadership was in the 1980s. That involving visions and transformations. Newer ideas are trying to recentre business leadership as utterly concerned with ethics and also with distribution of power and authority. [see here for a more critical view of distributed leadership]. It calls for further rethinking of the ultimate rationale for organizational structures and patterns of behaviour.

We not be able to wait another forty years for such ideas to be applied effectively and globally.


How will Google deal with the threat of the smart phone?

October 21, 2012

Google’s biggest threat may be from changes to personal search habits triggered by mobile phone users

Weaknesses revealed in the Facebook financial model at its Initial Public Offering [IPO] recently, are now suggesting related problems at Google.

Google’s business model under scrutiny

For Facebook, the weakness in the valuation of its shares was considered by commentators as difficulties in converting its billion or so friends into means of selling advertising opportunities to commercial clients. Google’s business model has also come under scrutiny, after last week’s embarrassing leak of its financial figures [18th October, 2012].

A tipping point?

A minor operational error at Google last week involving a premature release of poor financial figures resulted in a stock-market blip. But the blip is now being taken more seriously. and has been tagged on to wider criticisms of the Company’s business model. If you believe in tipping points (and I’m not sure I do), it’s a tipping point.

The doom scenario

Such times call forth the doom scenario. On 20th October 2012, The popularist Daily Mail newspaper in the UK asked whether Google could disappear completely

As Google suffers a catastrophic nose-dive in its market value, analysts are already predicting its demise as the world’s lead Internet search engine.
Advertising revenues are falling — and will continue to fall — for Internet companies because consumers are increasingly migrating to mobile applications and advertisers aren’t willing to pay as much for [advertising through mobile phone platforms]

Realisation is dawning

Realisation is dawning that what is happening to Facebook is part of a wider economic shift.

“I keep saying Facebook isn’t the only one that has a mobile issue — Google does, too,” Colin Gillis, an analyst for Boston Consulting Group, told CNBC.com. “I keep saying Facebook isn’t the only one that has a mobile issue — Google does, too. If you are an investor in Facebook, ‘mobile’ is priced into earnings. I don’t think mobile in Google is priced in.”

The deepening story

The deepening story this week brought news that a dispute in Brazil has resulted in Brazil’s National Association of Newspapers [ANJ] saying that all its 154 members are following its advice to ban Google News from accessing content free.

Since 2010, the ANJ had experimented with giving Google News free access to its first few lines of stories. Google had sold them the idea that the arrangement would grow traffic for the Brazilian sites. But it turned out that it has, if anything, reduced traffic.

If the ban continues, Brazilian Internet users will still be able to find content if they use Google rather than Google News in searches. But Google says newspapers and news aggregators should be able to reach a negotiated solution to the problem.

Charging the taxi driver

Google’s Public Policy Director, Marcel Leonardi, suggested that the ANJ’s demands are like charging a taxi-driver for taking tourists to eat at a particular restaurant. But Google says newspapers and news aggregators should be able to reach a negotiated solution to the problem.

Page remains upbeat

Unsurprisingly, Google co-founder Larry Page was more upbeat, telling investors [19th October, 2012] that the company was uniquely well-placed to exploit mobile phone technologies, which he saw as in a transitional stage leading to multiple screen usage.

Page was making his first public speaking appearance since June 2012, a silence which had begun to produce health rumours.

Google executive arrested in Brazil

In another story, a senior Google executive in Brazil was arrested [Sept 26th 2012] for failing to comply with a judicial order to take down You Tube materials ruled to be in violation of the country’s electoral law.

Update

August 17 2018

The turbulent events covered in this post may (or may not) have contributed to the restructuring of Google into Alphabet


Facebook IPO helps define the American dream

May 19, 2012

The initial public offering for Facebook shares reveals much about the American dream

The valuation

When the dust settled after the first day of trading [18th May 2012], Facebook’s valuation, of just over $100 billion placed it roughly on a par with Amazon.

The dream of wealth creation

The wealth accruing to Mark Zuckerman and the other young co-founders has been widely noted. In America, much has also been made about what is seem as tax-dodging by Eduardo Saverin, who has taken up residency in Singapore and renounced his American citizenship, although his actions are seen differently in Singapore

Expectations

On the date of the public offering [18th May 2012], The Verge attempted to answer the question of why the stock appeared to be trading at a figure based so much on expectations.

Why would so many smart, rich people put such a premium on the stock? IPOs are an insider’s game. Buying the stock today at $38 means paying a premium to the founders, early investors, bankers, and even the bankers’ best clients, all of who have passed the stock down the food chain and taken their bite along the way.

Can Google and Facebook be compared easily?

The success of Google and its continued growth after its own share launch is now being used to justify the excitement. Google’s revenues are roughly three times those of Facebook ($9 billion to $3.5). But the prospects for the two companies seem difficult to assess (although the graph offered in The Verge article is worth studying).

The Initial Public Offering [IPO] was considered less than a success. The Los Angeles Times put it this way

“There was all this pressure and hype and attention with all eyes on Facebook — and the starlet tripped on the red carpet,” said Max Wolff, an analyst at GreenCrest Capital Management in New York. What went wrong? Analysts point to a variety of factors that might have given investors pause. Its valuation at about 100 times earnings likely struck some as too high. Its growth in new users is slowing. And Facebook has not yet found a way to cash in on mobile devices, where social media is gravitating.

This week’s decision by General Motors Co. to stop advertising on Facebook because it wasn’t getting results heightened concerns about how Facebook can profit from its 900 million users.

But perhaps the biggest blunders came in recent days as the company and its largest shareholders moved to maximize their profits at the expense of new investors.

Friendship and economics: The dilemma for Facebook

Other commentators have gone beyond the financials, suggesting a flaw in the proposed growth model of Facebook. The massive popular reach of the corporation comes with a belief that ultimately it was a social phenomenon primarily about achieving social goals. In particular it has redefined personal identity and the concept of friendship. There was always something apart from economics in that set of beliefs.

The dilemma for Facebook becomes more visible now that the corporation is legally obligated to conform to economic principles and governance. Considerations of ethics, stock price and social vision increasingly will interplay. Even its efforts to promote the American Dream may be scrutinized more coolly and globally.