Elon Musk joined the board of Twitter after acquiring a 9% stake (and re-filing his passive 13G as an active 13D), voicing concern over free speech, and polling users about an edit button (prompting Twitter’s CEO to comment that “the consequences of this poll will be important. Please vote carefully.”) Is, as Matt Levine called Musk, “Twitter’s very most addicted user” in charge? Will he turn Twitter into an “unusable nightmare of harassment and weirdness”?
We’ll see. But this is not the watershed moment I want to explore.
Instead, I was thinking about why Twitter, after rallying with other COVID lockdown beneficiaries (take ARKK and QQQ as proxies), had given back all of its gains. This despite the fact that daily active users increased from 152 million at the end of 2019 to 217 million at the end of 2021.
Evan Armstrong recently wrote about the issues with Twitter’s ad revenue model:
“Twitter is a place of active discussion and consumption, an intellectual battleground where text and memes fly back and forth. Its primary use case is to hear directly from experts, see breaking news, or debate ideas. In comparison to the drooling, slack-jawed … dopamine feedback loop of Instagram. … by being great at intellectual engagement, it fails at passive consumption.”
Perhaps Twitter will never turn into a great business and figure out how to turn attention into highly profitable commerce like other social platforms. Or perhaps it will find a way to better monetize the flow of ideas and data on its platform. Either way, it strikes me that Twitter should have become a lot more valuable for its users.
My corner is financial Twitter, Fintwit, and its growth has been restrained for years because firms abhorred the idea of their employees mucking around on Twitter. There seemed to be little upside and potential risk to the brand from controversial opinions (as happens from time to time). As a result, I tweeted anonymously for many years.
But COVID made it necessary and permissible to experiment with new platforms. I did a little poll and nearly 42% of respondents in my corner of Fintwit either joined or became active participants since early 2020. That was a lot more than I expected.
Viewed through the prism of Metcalfe’s Law, the number of network nodes grew in a linear fashion but the network’s value should have grown exponentially (as the square of the number of its nodes).
Hold on, you might say. Metcalfe’s Law really isn’t a law but an idea conceived to sell networking equipment. Metcalfe, co-founder of 3Com, wanted to highlight that a network’s value grows much faster than the cost of adding nodes. But as Andrew Chen wrote in The Cold Start Problem: “with the benefit of hindsight, it’s not clear why Metcalfe’s Law ought to apply to building internet websites.”
“In the excitement of the dot-com boom, it didn’t matter—this “law” was repackaged as the value of a website growing non-linearly as it added users, and became a foundational part of the discussion.
Anyone who’s ever actually built a networked product from scratch will tell you that unfortunately, Metcalfe’s Law is painfully irrelevant.” The Cold Start Problem
Chen argues that the issue is much more nuanced, that one has to consider “the quality of user engagement, and the multi-sidedness of many networks” and “the difference between ‘active users’ versus just people who have signed up, or the degraded experience of a product as too many users start to overcrowd a network.”
Instead, Chen prefers a different model: the Allee Effect named after biologist Warder Clyde Allee who studied the growth and survival of populations. Below a threshold number, the population is vulnerable to extinction. It is equivalent to a network with an insufficient number of users in which network effects fail to materialize.
Chen picks meerkats as an example. They form clans (called mobs or gangs!) and inform each other of predators. Greater numbers increase their chance of survival - up to a point. Eventually, their population growth runs into environmental constraints.
“If you come in above the Allee Threshold, then the population will grow, because they can keep their mob healthy and protected. More meerkats then beget more, and even if predators occasionally pick one or two individuals off, as long as the overall population stays high, it will keep growing.” The Cold Start Problem
The Allee effect → The Network Effect
Allee Threshold → Tipping Point
Carrying capacity → Saturation
The Cold Start Problem
Above the local environment’s carrying capacity the population can’t be sustained. Similarly in a network, the incremental value starts to decline. Once you have more Uber drivers than demand for rides, adding another driver doesn’t increase the network’s value. Too many accounts in your Twitter feed and you won’t see everyone’s contributions. Too many noise accounts and the experience starts to degrade.
I think of these meerkat mobs as Fintwit subtribes: SaaS, energy, macro, short selling, allocators, real estate (so much real estate..) and so on. If there are enough to cross the threshold, they create a valuable sub-network that will keep growing.
Once you’re on Twitter and have found your tribes, the platform’s value proposition and network effect is undeniable:
Global intelligence network. Get a real-time raw feed of news and analysis/opinions. It’s just so much faster (and funnier) than traditional media. Sometimes you can even read the tea leaves (such as when Shrubbery called Elon’s Twitter move months ago)
Your network is your filter. A term coined by Don Tapscott in the age of tagging, social bookmarking, and Amazon’s suggestion algorithm. We’re facing an information deluge with endless distraction and too many compelling rabbit holes. Your job is increasingly not to curate information but to curate the curators and synthesizers.
Surface the new thing. Figuring out whether a new idea is important and gaining traction gets increasingly difficult as you age. You have to find ways to connect with people who are still at the bleeding edge. Think of Barry Diller’s road trip to the future. Some lucky few will sit at the right table at the Sun Valley conference in 2013 and get Bitcoin explained to them at $34. The rest of us still need a way to figure out “what the smartest people do on the weekend,” as Chris Dixon put it. Twitter is not perfect but at least it’s a start. Plenty of smart and weird people on there, even on weekends.😉
Community and connection. Twitter’s real power is the ability to connect based on shared ideas and learning. Move the conversation to the DMs, to zoom, and perhaps real life. People use it to find jobs, raise funds, launch startups. It’s really an unprecedented tool for networking.
A tipping point?
I wonder at what point the institutional attitude towards Twitter will flip on its head. When do portfolio managers and allocators want - no, need - their analysts be plugged into the hive mind?
Sure, it remains a thorny platform with a steep learning curve. It requires a thick skin at times. But the cost of being completely disconnected from it seems to be rising exponentially.
Of course, I could be wrong. Elon’s edit button could ruin the experience. Or a prolonged bear market could be the ecological disaster wiping out many of Fintwit’s meerkat mobs and push the population below its tipping point. Chen pointed out the sardine canneries in Monterey, CA (as portrayed in Steinbeck’s Cannery Row). After years of overfishing, the sardine population dropped below its threshold and quickly collapsed. Today, the canneries are museum.
I hope Fintwit will be spared that fate. But who knows, perhaps my Tweets will one day resemble an exhibition without visitors.
In the meantime, while the network effects are strong, we should make the best of our global intelligence platform. Put yourself out there, share, and learn in public. And remember that the really good stuff happens when you connect directly and meet new friends.