Twitter & The Facebook Tax

For some time now, the tech and Wall Street punditry have pounded on Twitter to be more innovative in its product development. “You need to make it less geeky!” “Nobody outside of tech and Hollywood knows what a RT is!”

Yes, certainly the company needs to grow its user base. And certainly one way to do that is through engaging with an audience in more intuitive ways. But innovation in product development is table stakes for any company in Twitter’s sector and for any company that hopes to justify the multiple of revenue the company enjoys even today. “Great, you’re upgrading your product, well, of course you are..what else?”

We’ve come to expect Facebook to frequently amaze us with a new development. Instant articles is an incredible engineering feat. When they grew tired of publishers building crappy experiences they built a better one in what is really not their core business. Twitter’s progress has been more incremental and less noticeable to the non-TechCrunch-reading user. Perhaps Moments will be the change in that and set the company on a faster cycle of innovation. Maybe Vine or Periscope products build in more toll booths that add value to Twitter as they grow but they have not appeared yet.

But Twitter’s far larger deficit to Facebook can be seen in the ecosystem that has been built around them. This is where Wall St should be focused in their critique of the company.

One could argue, as Twitter CFO Anthony Noto recently did, that Twitter’s total audience is larger than Facebook’s. On most news programs in sports, entertainment and politics you will find multiple posts pulled directly from high-profile accounts. These mentions reach hundreds of millions of people with the Twitter name. But, that’s it. The only value Twitter receives from the vast majority of its ecosystem is free press. In some cases, brands and other publishers use the platform for their own revenue completely free of charge. The new polling tool is at least a step in that direction because it requires users to be logged in to vote.

In contrast, look at the network Facebook has built. There is nowhere that Facebook touches a person, company or content that value does not come back in a very tangible way. Building a brand page, your users need to come to Facebook. Publish an article, your readers need a Facebook account to share with their friends and probably got to the article through Facebook anyway. There is a tax to pay at every step along the way that always lets the company build value in a concrete way.

Until Twitter can build a similar toll into their network they will remain far behind their larger competitor financially regardless of their ability to build new products.