Warning: Dependence on Facebook, Twitter Could Be Hazardous to Your Business

You’ve probably heard how much the micro-blogging service Twitter can help your business, or that being on social networking site Facebook can boost your company’s profile. But what you might not have considered is the potential danger in over-relying on these startups that could go out of business, get bought out, or close your account if you aren’t familiar with their Terms of Service.

In terms of growth, both Twitter and Facebook are booming, with Twitter growing by 600% and Facebook nearly tripling in users in the past year. Both companies rely on venture funding to survive. Facebook has been bringing in revenues from advertising; Twitter hasn’t yet clarified how it will bring in money.

The brand value of both companies is rising, as you could see on TV during the inauguration when stations such as CNN were touting Twitter feeds and Facebook pages. But as more newbies pour their time and attention into these online services, can they be certain that the services will survive in the long haul?

Larry Yu, a spokesman for Facebook, told me he was confident of the staying power of his company.

“We’re private so don’t share those details [on profitability], but our performance, we’re pretty comfortable about our position right now,” he said. “If the question is about our long-term viability of the company, based on our performance, that’s not something we’re concerned about.”

Facebook has received more than $500 million in funding in its lifetime, with Microsoft alone putting in $240 million in 2007. Jeremy Liew, managing director at Lightspeed Venture Partners (a venture capital firm with no stake in Facebook or Twitter), told me there was zero chance that either company would go out of business. More likely, if they ran out of cash they would be sold at lower valuations.

“[Facebook and Twitter] are both verbs now, and that is a very strong indicator of how deeply they have penetrated consumer behavior,” Liew said via email. “If their current capital is not sufficient to last them, they will be able to raise money (at some valuation — perhaps not an ‘up’ round) because they are clearly generating value.”

Yu noted that Facebook was still hiring engineers and sales staff, and that they weren’t seeking any more funding at the moment. Meanwhile, Twitter might be in a more vulnerable position, with no revenues yet nor even a public plan to make money. Twitter co-founder Biz Stone reassured me that the company’s health is robust and that a revenue plan would begin to bear fruit in the next few months.

“Twitter has enough funding to continue working on the most important priorities without being distracted for a good while,” he said via email. “The exact time is longer or shorter depending on how aggressively we choose to move in various directions.”

A Facebook-Twitter Combo?

Facebook actually made an offer to buy out Twitter last fall for $500 million in stock and cash, but Twitter turned it down. According to AllThingsD’s Kara Swisher, Facebook execs that looked at Twitter’s internal finances were worried about possible SMS charges for running Twitter that could run up to $75 million annually. That kind of cost is something that should worry people who rely on Twitter to send out news or promote their site.

Twitter’s Stone told me why the deal didn’t happen from the Twitter point of view.

“We’re big fans of Facebook and we believe in what they’re doing,” he said. “We also like Mark [Zuckerberg, Facebook CEO] and could see where a partnership made sense. However, Twitter is really just getting started and we’re strongly compelled to follow through with our plans. Ultimately, the timing was just not right. I can’t speak to Facebook’s finances.”

So what kind of plan does Twitter have in place to bring in revenues? Stone told me that the main service would remain free, but they are considering a “commercial service.”

“The broad view is to embrace the commercial activity that is building strong momentum already on Twitter,” Stone said. “We have companies, brands, and organizations using Twitter in a variety of ways and people are subscribing to these accounts — how can we deliver more value in this scenario? What can we provide to make this experience better? Those are the questions that will shape our first revenue products. We’re currently searching for a business product manager to add to our team of 27 employees and hope to begin iterating in the next few months.”

I asked my Twitter followers whether they would pay for Twitter, and what kind of services they would like to see for a “pro version.” I was surprised to receive numerous responses by people who were willing to pay $5 per month or $50 per year for even the service they are already using for free. Others said that they would pay extra for various features such as:

> A way to separate friends they follow into groups
> Better analytics on who is reading their tweets
> Built-in TinyURL support to shorten links to fit the 140-character limit
> Video and image support
> A way to add Google AdSense ads

Surprisingly, Stone didn’t mention advertising as an option, though that would seem to be the simplest way to monetize the traffic that already is going to Twitter feeds and profile pages.

Don’t Give It Away

While many people spend days and weeks building their profiles and their network of friends and follower lists on Facebook and Twitter, power users recommend that you don’t put all your eggs in one basket. It’s better, instead, to make sure you have a presence on various popular networks and make sure most of your effort still goes into your own site.

Cali Lewis, who runs the video blog GeekBrief.tv, says that she would rather put energy into her own site rather than the various social networks.

“While I have a Facebook account, I’m not active there,” Lewis said via email. “Facebook and MySpace are great, easy ways to blog and build, or participate in, a community, but by participating, people are giving their content away. I believe in building your own community and keeping control of the content you work hard to create.”

As for Twitter, Lewis was reluctant to use the micro-blogging service because she didn’t want to constantly answer the question, “What are you doing?” Eventually, she found the value in using it to communicate to her fans in a more efficient way than email. Plus, she can mine her audience for information via Twitter.

“If we don’t know how to do something, we no longer have to vaguely wonder about it,” she said. “Ask a question, and you can get answers from a crowd full of people, very quickly…If Twitter closed down tomorrow, it would be a sad, sad day, but Twitter isn’t in danger of disappearing overnight. I would, however, pay to use Twitter.”

Tech blogger and entrepreneur Chris Pirillo, who runs the Gnomedex conference, is adamant about keeping his focus on his own page and not the various social networks.

“Twitter and Facebook may enable me to connect with friends (and meet new ones), but I refuse to establish ‘permanent’ residence on any site other than my own or one that I control,” he told me via email. “Depending on a third-party service for your livelihood is folly. If they change one component or policy, you could be out of business (or forced to change your business model, which may prove expensive). You can and should use the services for what they provide, but never invest too much time and attention into one platform or another. You never know what’s going to happen tomorrow.”

Pirillo uses the social networks to promote and point people to his main site, and says that not promoting your site through social networks is a “colossal mistake.” He says the biggest test of your success is if your own site comes up first on a Google search for your name — rather than a Facebook or LinkedIn page. “Which would you rather see on top: their site or yours?” he asked.

People aren’t the only ones who should be careful of dependence on one social network; developers who create applications based on other platforms need to make sure those platforms don’t pull out the rug and hurt their business.

Lance Tokuda, CEO of app maker RockYou (which makes the SuperWall and HugMe apps on Facebook), says that his company has apps on MySpace, Facebook, Hi5, Bebo, Orkut and even on Chinese social networks. But the Facebook platform drives more than half of RockYou’s total traffic. Tokuda says there’s always been a risk for his company in relying on these platforms that could go out of business or change their terms for app developers.

“There’s always been that risk, even from when we first founded RockYou [on MySpace],” Tokuda said. “It’s part of our day-to-day risk. The Facebook platform is really the best one, so I would definitely put a disproportionate amount of energy there.”

The recent redesign of Facebook profile pages definitely affected the success of various applications, which are now hidden behind tabs such as “Boxes” rather than highlighted on each profile’s main page. Tokuda said that Facebook’s various design changes have hurt some RockYou apps and actually helped others.

“The platform is still changing, in some cases for the better and in some cases for the worse,” he said. “You have to be aware that the platform is evolving and keep some level of maintenance to maintain good integration with the platform. In the end, it’s worth it.”

Venture capitalist Jeremy Liew says that reliance on specific social networks by developers can be detrimental to them.

“If the mothership [platform] loses popularity that would impact app developers who are on that platform,” Liew said. “RockYou, Slide and many of the other app developers are across multiple platforms….so they would have a temporary setback but would follow the users to whatever platform they moved to. [Twitter app] Tweetdeck I believe is single platform and may be more impacted.”

Getting Shut Out

Another possible downside to relying on one particular network is that the service might shut down your profile without warning. On Facebook, there’s a rule that you have to use your real name, so people using nicknames, pseudonyms or handles have had their profiles shuttered. In one case, Facebook relented and allowed the pseudonymous blogger Jon Swift back on the network after many bloggers complained about his ban.

There’s also the problem of too much “friending.” Blogger Andrea Rodgers, who writes the relationship-advice blog Ask Miss A, had her profile shut down earlier this month. She complained about it, and started a new account, only to have that one shut as well. In a post titled Facebook: The New Guantanamo, Rodgers wrote:

They can take you away from your virtual life online, impede your ability to communicate with friends and family, throw away the key, never explain what you did, and give you no chance to appeal…I feel sure that at some point in the future this will be addressed by the legal system, the government, or this will open up a niche for another company to create a better method for us all to stay in touch and communicate.

Rodgers told me that Facebook did listen to her appeal and eventually allowed her back into her original profile. She was upset not only with the chain of events and being cut off from her network, but also because they were vague about why they took the action in the first place.

“I think that they need to implement less harsh ways of ‘punishing’ people…If someone ‘friends’ too much, perhaps they could find a way to prevent the person from friending,” she said via email. “Cutting someone completely off is basically like killing a person’s virtual self…They said that they have certain metrics in place and that my friending triggered a red flag. Not sure if it’s that I friended too many in one day, or too many within a month. They aren’t that clear about their limits.”

Facebook spokesman Barry Schnitt told me that Facebook’s automated system gives out “points” based on suspicious behavior, from too much friending to promoting a business on a personal profile rather than on a Page (a Facebook site set up for businesses). When a user accumulates too many points, the system generates a pop-up warning before it disables accounts. Rodgers confirmed that she did receive the pop-up (as seen in the image at top right). But she told me she wished that Facebook was more specific about its limits, rather than simply warning and then allowing her to go over the limit until the account was disabled.

Schnitt admitted that Facebook could do a better job of educating users about limits in friending and commercial activity on personal profiles. He said that people who have accounts disabled can send their complaints to appeals@facebook.com, and that everyone should read the Warnings page in Facebook’s Help Center to understand various rule violations.

While Facebook hasn’t been very clear about its rules, Twitter has done a better job with its straightforward Twitter Rules, and Stone told me that most people are booted from Twitter for spamming or over-following people in order to spam (a.k.a. follower spam).

If you are planning on using either Twitter or Facebook as a marketing platform for yourself or your business, be sure to read the Terms of Service carefully. That’s what Facebook’s Larry Yu advised when I talked to him.

“The important thing for people to do is to review the Terms of Service,” he said. “A lot of people don’t do that. They don’t have experience with it, and we encourage people to do it…There are also terms for application developers. As people decide to develop on the platform, they have to be comfortable with those terms.”

Whether you’re a developer, marketer or power user of Facebook or Twitter — or any other social network — be sure to follow the rules and consider the temporary nature of each service. They might not go out of business in the near term, but chances are that everyone will move along to the next big social gathering online, leaving your well honed profile in the dust.

What do you think? How would it affect your business or your life if Facebook or Twitter shut down your account? Share your thoughts in the comments below.