After Facebook, Twitter is arguably the highest-profile social network out there, and could conceivably follow in the footsteps of the world's largest social network with a public offering of its own in 2013.
Facebook and Twitter both face challenges. Facebook's most pressing challenge: how to monetize its billion-plus users. Twitter's most pressing challenge: how to transition from a communications platform provider to a media company.
That transition is proving quite difficult. Not because the change is costing Twitter money in the short term. To the contrary: the popular social network is going the media company route because it looks to be far more lucrative. Instead, the transition is challenging because of all the people Twitter is leaving in the dust.
Many of those left hanging are developers. Some built entire businesses on the Twitter API with the assumption that Twitter itself had no intention of building the functionality they offered, only to be cut off when Twitter changed its mind.
But it's not just developers who feel betrayed. In July 2010, social analytics firm PeopleBrowsr struck a deal with Twitter to license its firehose, through which hundreds of millions of tweets flow each day. PeopleBrowsr relies on that firehose to provide data to its clients, but when Twitter decided to delegate firehose licensing to three other firms, it notified PeopleBrowsr that it would be terminating their licensing agreement and pointed PeopleBrowsr to its new partners.
Instead of opting to license the Twitter firehose through one of those partners, however, PeopleBrowsr sued Twitter, alleging that it had built its business on the assumption that Twitter was open. "We relied on Twitter’s promise of openness when we invested millions of dollars and thousands of hours of development time," PeopleBrowsr's CEO, Jodee Rich, stated.
Earlier this week, a Superior Court judge in San Francisco issued a restraining order preventing Twitter from cutting off firehose access to PeopleBrowsr until a hearing in early January.
Twitter has responded to PeopleBrowsr in court with a simple message: "This is Contracts 101." According to Twitter, its agreement with PeopleBrowsr was on a month-to-month basis at the time of termination, and the terms of the agreement gave either party the right to terminate for any reason with 30 days notice.
Instead of licensing Twitter's firehose data through one of Twitter's remaining partners, Twitter says PeopleBrowsr has chosen to file a nonsensical lawsuit that is without merit. To boot, it claims that PeopleBrowsr owes it hundreds of thousands of dollars in unpaid licensing fees.
On the surface, it seems likely that PeopleBrowsr's victory against Twitter will be short-lived, but even so, the legal spat is perhaps the most powerful example of how the business model changes Twitter has made in the past year are alienating third parties that it works with or used to work with.
In this case, even if Twitter's argument -- that it simply decided to terminate a contract upon terms in that contract -- is entirely legitimate, as most reasonable people would believe, the way in which numerous Twitter's relationships, formal and informal, seem to be falling apart suggests that the company's transition from communications platform to media company will continue to be rocky.
Poisoning the ecosystem
In the end, Twitter's new approach may very well prove to be the right one financially, but it raises questions that extend far beyond Twitter. One of the biggest: how will the change of strategy at a company that once touted how 'open' it was affect the ecosystem as a whole? Will developers and entrepreneurs become more cautious building on third party platforms? Or will they assume that the Twitter case study is the exception, not the rule?
Time will tell. In the meantime, Twitter will have to battle its former allies, both in the court of public opinion, and in court.