Twitter Founders Thrive on Micro-Blogging Constraints

Twitter CEO Jack Dorsey and co-founder Biz Stone have taken executive transparency to new heights, not only using their own Twitter micro-blogging service frequently to share details of their personal lives, but also publishing their own phone numbers and business address on Twitter’s Contact page. So it was easy for me to get in touch with them to set up a visit to their office in San Francisco. It turns out, though, that there are a couple things they aren’t transparent about: how many people use Twitter, and how they will make money on an operation that pays for almost every SMS message sent out and received through the service.

With Twitter, you can send 140-character micro-blog posts to people who sign up to see your Twitter feeds. Readers can access your feeds via text messaging, the web, instant messaging or email. The service is free and the cost depends on how you pay for text messages through your cell phone carrier; you can also opt to only read messages on the web, which could lower your cell phone bill. Twitter is a spin-off company from Obvious Corp., founded by Evan Williams. Williams co-founded Pyra Labs, which developed Blogger software for blogging, eventually sold to Google.

As I started using Twitter, I wondered how they might make money with this service. Would they serve ads relevant to a feed’s content? Would they partner with a cell phone carrier to offer the service as a monthly add-on fee?

Stuart Dredge, editor of the Twitterati blog, laid out various ways Twitter might make money in an email to MediaShift:

Advertising is certainly one possible route for Twitter. If I think of how I use it, I post about the music I’m listening to, the TV shows I watch, my 3-week-old baby, and so on. There’s clearly scope for targeted advertising along the Google Ads lines, with the obvious privacy caveats.

People will pay for some of the neater SMS alert features. The key thing, in my opinion, is that they’ll want this to be a fixed sum, rather than something that could balloon out of control if they suddenly get hundreds of alerts one month. I can imagine paying $6 per month for unlimited Twitter SMS alerts — presumably this is something that Twitter could team up with mobile carriers to offer to their subscribers.

But ultimately, it’s quite possible that the most logical business model for Twitter will be to build a large user base, and then sell up to a social network or other web property (Google, Yahoo, Microsoft, take your pick…) which can then incorporate Twitter into its existing offering.

All very enticing possibilities, but Dorsey and Stone were tight-lipped about how they would make money when I visited their modern office space in South Park, the area in San Francisco that was the old dot-com nerve center. They seem to thrive on constraints, starting with the 140-character constraint of each micro-blog Twitter post, and then adding features only when necessary, and adding a business model when the time is right. The following is an edited transcript of our conversation about all things Twitter.

How did Twitter first start?

Biz Stone: Twitter was a side project from [podcasting service] Odeo. It was basically Jack Dorsey had this idea. Jack Dorsey grew up in St. Louis, and at the age of 14 he became obsessed with dispatch routing. That was something he wanted to write software for, so he got to work on that. He was in St. Louis and there was no bike messengers there, but he was obsessed with this, so he wrote open source software for dispatching, which to this day is used by many different taxi cab companies. He had this routing history, and he had this idea from when he first started seeing the status messages in instant messaging, and wondered ‘what if we could build a status service out of that?’

So later, he came to us with this idea, ‘What if you could share your status with all your friends really easily, so they know what you’re doing? But you don’t want to have to write a whole blog entry or LiveJournal entry.’ At the time we had been thinking about what interesting things we could do with SMS [text messages], because we were interested in it. And so we made the connection between status and SMS last March 2006.

So we went off and built a prototype in two weeks, and showed it to everyone in Odeo. They really dug it. We knew when Jack told us the idea it was a cool idea, but we built it and showed it to the team and everyone started using it. I think the first weekend we were using it, I was ripping up all the carpet in my house, having a terrible weekend, and my phone buzzed and I look down and see that Jack was sipping wine in Napa. The idea that I was doing what I was doing, and I could look down and see what he was doing just struck me, ‘I can’t believe I know that’ and it made me giggle that I knew that.

It then took awhile to deal with the short code and the cell phone operators, because we were coming from the web. Jack had to dig really in deep, so it took a bit longer. It was never like we were going to make a big splash with it, or make a big deal out of it. It was just like Jack’s personality, he’s very soft-spoken, so it took on his persona.

About four or five months into it, Om Malik [from GigaOm] got a whiff of it, and linked to it, and said, ‘Here’s a new thing from the people at Odeo, and several people are using it.’ We said, ‘I guess we just launched it.’ At the time we called it Twitter internally but hadn’t bought Twitter.com, we used Twttr.com and Twitter.com was owned by somebody. So we half-launched at Twttr.com, and later we made the joke that we had to buy two vowels, ‘Wheel of Fortune’ style, to get the full Twitter.com domain. That was August 2006, and we started to see some comfortable growth and thought, ‘people are starting to like it.’

But then in March 2007, and maybe even before South by Southwest, it really started to pick up steam. There were a lot of early adopters at South by Southwest, and that show is great, you need Twitter when you’re at that event. So everyone’s talking about it, it’s going crazy, and we won the web award there.

Can you talk about the usage you’ve been seeing with Twitter?

Stone: In the past three or so months, the user base and the number of updates has been doubling every three to four weeks. It just keeps growing faster and faster.

Why don’t you talk about the number of users you have or the messages sent?

Stone: We’ve decided not reveal actual numbers of users, messages created, messages distributed, or other data that reveals the size of our service for a couple reasons. First, we believe the health of a product and community is best measured by activity levels both on our site and off. For example, popular unofficial forums created for the purposes of discussing Twitter speak to our success far more than a straight count of rows in the user table of our database.

Furthermore, while this information may be of interest to analysts, reporters, and business competitors, there is little strategic motivation for Twitter Inc. to release our total user count — nor do we believe it is of value to our users. For the time being, our policy is that the number of people with registered Twitter accounts is a secret. (Also, it’s fun to have a secret number — I highly recommend it.)

What did you think about Jason Kottke’s analysis of Twitter traffic vs. Blogger traffic in the early days?

Stone: It was interesting, but he had bad data, and he corrected it. But the comparison is interesting, but it’s fair to note that was 1999, and when Blogger started you had to have an FTP account and had to know a lot of tricky stuff. This is much later and everything is much easier so of course the growth is going to be greater [with Twitter]. And the way we measure an active user on Twitter is how many times you post per day. And the way we measured an active user at Blogger was ‘did you do anything this month?’ So by its nature, Twitter has a much more active user base. Comparing them, you might have a slower looking Blogger.

How is it dealing with that growth? Can you scale that fast?

Jack Dorsey: After South by Southwest we had some issues scaling it. It blew up quickly. We knew it would be a huge thing, we had huge hopes for it, but the rapid growth was surprising. We’ve been spending the last two months just scaling the thing, and we’re finally on top of it. We have a pretty substantial plan to make that happen.

Stone: The puzzle itself is not a secret, it’s allocating resources. It’s not just coding. We’re working with Ruby on Rails and it’s still new so we can solve these puzzles as we grow and share them with others. Right now we are the largest example of this new technology. It’s like we’re inventing the game as we’re playing it.

How does the cost of Twitter work? I know that I pay for my SMS messages through my service provider. Do you pay for text messages sent and received as well?

Dorsey: So we pay for every SMS message sent. We’re looking to get into relationships where we can minimize those costs or potentially make that a revenue stream. So that’s another thing we need to scale, and it’s a matter of figuring out the industry more than anything else.

Out of all the messages you serve, what percentage of those are SMS messages?

Dorsey: It’s actually pretty low because this country is just being introduced to text messaging. I’d say it accounts for 20% or 30% of our traffic. The cost for both our users and for us will get lower and lower as the industry becomes more and more comfortable with text messaging. The carriers are moving toward unlimited messaging plans because of T-Mobile, which is owned by the German company Deutsche Telekom. They’re inspiring the entire industry with unlimited text plans.

There’s going to be some reawakenings on both sides, both on how carriers treat their customers and their larger customers too. It’s just a matter of getting everyone used to text messaging here. In Europe, it’s a different story, and it’s free to receive text messages there. Twitter works very well in Europe and the rest of the world because you only pay to send one text message and everyone receives it for free.

Does that affect your business in Europe if it’s free to receive messages?

Dorsey: It does because it’s free for us to receive messages in Europe. We’re still paying for the service but it gets lower and lower when we send more and more messages.

Stone: It’s funny, because texting is still taking off in the U.S., we’re finding more and more people being introduced to texting via Twitter, so they think that’s what texting is. ‘Wow, this is cool, I didn’t know all my friends were on it!’

How are you funded?

Dorsey: We’re self-funded by Evan Williams so we have a lot of carry-over from Obvious. He’s our main investor right now and we’re starting to have conversations with different investment firms now. We’re opening a bunch of conversations to see who we want to work with.

So you’d prefer just one investor over a number of investors?

Dorsey: Yes. We’re looking for a very simple investment and a very clear financial basis, and hopefully enough to get us a way out so we can focus on building a great product.

Stone: We started from the very beginning with a simple aesthetic for the UI [user interface], for the service, and it’s turned into a basic philosophy for everything we do. So we ask, ‘Are we getting too complicated?’ The worst case scenario for us, we have our phone numbers up on the site, and someone would call me up and ask for something and I’d say, ‘You know what, I don’t know what you’re talking about.’ We want to know about everything that’s going on with it.

But that’s hard because people are using it for a lot of different things.

Stone: That’s true, especially with all the people doing mash-ups with the API [application programming interface]. You’ve probably seen Twittervision where you can see everyone Twittering on different parts of the world, with Twitter overlaid on a map. There’s one guy who keeps telling me to please fix the map, which is a Google Map. He keeps saying, ‘Taiwan is its own country, fix it!’ And I can’t do anything because that’s not our map.

I’ve noticed that some media companies have put up Twitter feeds for their headlines. Is that something you’ve sought out or have they done it on their own?

Dorsey: We’ve had no marketing efforts whatsoever besides South by Southwest. We’ve had a number of users including Barack Obama and John Edwards who came to us, and we discovered them after the fact. We did no outreach.

Stone: We said, ‘Does anyone know whether this is really Barack Obama?’ Then we got a call from some of the campaigns. The way we knew if it was really him was that they called from the campaign with a question about Twitter. And there are other ways you can tell such as the email address in their account.

If people want to have news updates and personal updates mixed in, we’re OK with that. We’re more interested in the emotional exchanges, but it’s neat having those other things mixed in.

How do you see Twitter making money or becoming profitable? Will you charge people to use it?

Dorsey: There’s so many models we’ve looked at, and the most compelling one will expose itself when the time is right. Our main focus right now is growing the service and having as many entry points as we can. There are some very obvious ones around the network, but I think we can come up with more creative ones and do something native to this application and usage pattern.

Stone: We’ve been following user behavior and we’ve been watching what they do and adding features. That philosophy will work well with the revenue model. Just like there are so many cool features we could do there will also be cool ways of making revenues. But we want to follow behavior and add something that users are excited about.

I noticed from trying it out that I was quickly overwhelmed by the SMS messages that I got. Are you hearing that from people, or does it depend on the type of person or whether they are in Europe or Japan?

Stone: It’s amplified when people say they are overwhelmed with SMS messages. The bulk of our users are not because they have six to eight friends on there who update one to three times per day. Most of them don’t receive all of their updates on their phone, they’re very discerning, because you can get some feeds on the phone, some on the web. With the people who are overwhelmed, it’s a pretty quick adjustment.

Dorsey: You determine what level of interaction you want to have with Twitter. Some technologies really make you feel something and it’s really about your level of engagement and it’s how close you want to be connected with your friends on a regular basis. We just built a WAP site, m.twitter.com so you can still use Twitter on your phone but you can view it in more of a digest mode on your own time on your own schedule. So you view it through your mobile phone’s browser.

Are you thinking about building a digest function as well via SMS?

Dorsey: We’re thinking about sending one text message per day or one message after a friend sends five updates, with a link to the WAP page. You click on it and it logs you into the website and you see all your friends’ updates. We’re working on it right now. Right now 95% of phones out there have web browsers and can read that WAP site. We’re trying to be creative about mixing the various mediums, SMS and IM.

Have privacy issues come up yet, or people who are worried about being stalked?

Dorsey: You play with that line every time you update. It’s really a question of what you put out there. It’s something that you have to maintain the filter for. I’m going to say, ‘I’m at Cafe Centro having a coffee.’ If I say that in public, then I’m OK with being contacted and having people drop by and talk to me. But I can be more circumspect and say, ‘I’m having coffee.’ It’s something that people do and maybe they see someone they didn’t want to see because of it and learn not to do it in the future.

Stone: That being said we do have ‘Protect My Ipdates’ which means that you have to approve everyone who gets your update. And we also have ‘Block’ which means you don’t want to be associated with that person on Twitter. Like everything else, you have to find your own comfort level with what you receive and send out with Twitter.

I noticed you don’t have a search function right now.

Stone: We definitely should have it.

Dorsey: It’s been interesting. We had it in there and had to take it out because of scaling issues. The technology was overwhelmed. In some ways it’s helped us a lot because there’s a greater sense of ownership when you find what you’re looking for, and there’s a little bit of exploring uncharted territories. When you find Biz, you go down this long torturous road to find him and add him in Twitter…

It wasn’t too tough, I just typed in “twitter.com/biz”… But I know what you mean. It almost seems intentional that you don’t have search so it’s more personal, more a closed network like Facebook used to be.

Stone: It fits in with our model, we have 140 characters, and you can be very creative within that 140 characters. The same thing if you want to find somebody.

Dorsey: It has a bit of a game element. People like adventures. When you make it too easy it becomes boring and it’s not as engaging. That said, we do want to make it easy to find your friends.

Stone: This is why I like working with Jack. It’s like he says it’s fun to have the information hiding from someone, which would get you laughed out of the room in a more traditional managerial company setting. ‘What are you saying hide it from people? We want to explain every little thing to everyone!’ So many companies don’t allow themselves to be that playful.

Would you consider changing the space limit of 140 characters?

Stone: We really like that 140 character limit because the text message limit is 160 and we need to save some space for the user name and because we want to be device agnostic. We want to be able to route these messages if they’re from an instant messaging application, and we want it to work on the phones too.

Dorsey: We’re fond of constraints that inspire creativity. Constraints inspire us in how we approach the press, how we approach business relationships, how we do everything.

*****

What do you think about Twitter and its options for making money? Do you think it will make money through advertising, partnering with a cell phone carrier or selling out? Or does it have no chance of becoming profitable? Share your thoughts in the comments below.

For more on micro-blogging, check out our special Guide to Micro-Blogging and Twitter, as well as Jennifer Woodard Maderazo’s personal take on Twittering.

Photos of Jack Dorsey, Biz Stone and Twitter offices by Jennifer Woodard Maderazo, who also contributed additional reporting for this article.