Over a month ago, a seemingly harmless blog post began circulating around the internet that was entitled “What Twitter Could Have Been.” It was written by Dalton Caldwell, the CEO and founder of App.net, an alternative mobile app distribution and monetization platform.  Caldwell, like many technologists (myself included) view Twitter as one of the greatest contributions to the internet for many reasons: it is one of the first companies to demonstrate that network effects can help change the world, it showed us that exemplar product design was a result of simplicity and focused functionality, and most importantly, it showed us that opening its powerful API to third-party developers  could transform a startup web company into an ubiquitous technology powerhouse.

According to Caldwell, the company reached a pivotal crossroads as they tried to determine what their strategic business model should be.  Some argued that their open API was their most valuable asset, and that they should focus their energy around building a platform. Instead, the company decided to follow other companies’ approach (such as Google and Facebook) and generate revenue through advertising.  But was this the best approach?

Caldwell argues that it’s not. It’s been no secret that while the advertising model worked very well for Google, it hasn’t been the same for Facebook or for Twitter.  More importantly, Caldwell argues, it’s not a good experience for the user, and there needs to be a “financially stable realtime feed API and service” for the development community. If only Twitter had focused its efforts on being a development platform instead of a media channel, it could have become a community for niche, paying users to develop great software and share great ideas in an ad-free environment (not dissimilar to the values of GitHub.)  He then announced an audacious proposal which said that he would launch a Kickstarter-like campaign to turn App.net into this ideal social network, but only if he was able to attract a critical mass of 10,000 backers.  As of this week, Dalton’s proposal garnered enough support and App.net launched its alpha product to a small group of early adopters.

Not surprisingly, Caldwell’s proposal spurred a variety of reactions – some people were very supportive, while others were skeptical and critical of this proposal, saying that this would never rival Twitter or Facebook. Yet, the point of App.net isn’t to rival Twitter or Facebook - there’s room for everyone.  What Caldwell is saying is that he’s building the product that Twitter chose not to be.  Regardless of your opinion of whether App.net will succeed or not, Dalton Caldwell is worth listening to, because if anything he’s spawned one of the most important and fascinating debates about the future of the internet for several reasons:

Social Network Critical Mass: Quality versus Quantity

In the last decade, most web2.0 companies set out to generate a social networking platform, offer it for free, and hope to acquire a million users (or ten million users?) to prove that it’s a success.  Then the model was to sell user data to advertisers.  Lately, however, that notion is starting to become challenged, and the idea of quality over quantity is starting to gain some traction.  While it’s obvious that a social network with too few users isn’t valuable, can it be argued that a social network with too many users also starts losing value? Caldwell describes this as the “anti-network effect”, which argues that when a web product relies on user generated content (such as Twitter, YouTube, Facebook, etc), the good content gets washed out by the bad content and it makes the community over-saturated.  A perfect example he makes is comparing Quora to Yahoo Answers – since Quora is less main-stream than Yahoo Answers, the content on Quora is much better.  According to Paul Graham, (whose work Caldwell also refers to), instead of trying to get millions of users, focus on getting just 10,000 of the best power users.  Graham and Caldwell argue that 10,000 is the new critical mass, and by keeping a network smaller you’re preventing the quality of that network from becoming diluted.

Business Model Design and Financial Sustainability

Once we’ve realized that quality is better than quantity, the best way to do that is to create pricing structures that segment the customer base.  When a product is free, it eliminates a barrier to entry, so adding an appropriate price will separate the passionate users from the ambivalent ones and keep the network at its smaller, critical mass.  This brings out a really important issue in the debate, and that is the philosophical issue around the “free web”. Some thought leaders, such as Fred Wilson, believe that social networks that rely on user generated content should not charge users for basic use, since they are the ones providing the value to the product.  He also argues that very few people are opting to pay in “freemium” models, (which are used by Spotify and Dropbox, for example).  There is definitely truth to this, and there are absolutely instances where free business models make sense and work.  In fact, we need to pay tribute to the free products (like Twitter and Facebook) that paved the road for social networking and are allowing us to even have this debate – a decade ago, consumers and pundits weren’t certain that social networks provided an important utility to our society, and the only way to prove the value was to offer it for free and demonstrate its potential.  But now, it’s exciting that we can think about the next phase of the web and start showing that these services are worth paying for, and also start thinking about how we need to create clear standards for decentralized social networks, similar to how we have used SMTP and IMAP for email. I think by paying attention to App.net, we will see if Dalton’s hypothesis will work and those lessons will be incredibly valuable to all technologists and business leaders.

The Future of Advertising and Why This Affects Our Business

Perhaps you’re asking yourself why any of this matters to Johnson & Johnson. Perhaps you’re skeptical that we need to care about a non-mainstream social network when Facebook and Twitter work just fine.  It matters because we care about advertising.  Unlike Dalton Caldwell, I don’t think that advertising is a trivial problem to be working on, and given that we’re in the business of selling healthcare products to doctors, nurses, and patients, I’m very interested in ways to address the attention scarcity of the customer and make the advertising process meaningful and non-invasive.  However, I do believe that what Dalton Caldwell is saying proves that even the “most innovative” attempts at targeted and native advertisements aren’t great.  I read a great post by Albert Wenger that also sees Dalton’s ideas driving innovation in the world of advertising, and I agree with much of what he writes.  Imagine if instead of trying to aggregate social networking data and then creating targeted advertisements we were working to actually drive meaningful transactions?  I think certain companies are poised to address this issue.  Foursquare has the potential to truly disrupt Facebook and Twitter because it can actually capture the customer’s attention while they’re in the store. Chirpify is another example of a company that could change the way we advertise because they are turning social interactions into frictionless financial transactions. These are just a few examples of technologies that are going beyond targeted ads and can actually make a difference in commerce. 

I’m reminded of a talk I heard by Sean Parker a few months ago at SXSW where he postulated his views on the future of social networks.  He admitted that in the past decade, the big problem that he was trying to solve was how to achieve quick, massive, viral user acquisition.  The next problem that needs to be solved, he said, was trying to go beyond that and bring quality users up the engagement ladder in a meaningful way.  I believe that Dalton Caldwell is trying to do exactly that.  Whether he’s intended to or not, he’s made incredibly important waves in the technology industry and is allowing some of the smartest people to rethink the future of the social internet – this will also change the way we think about our own business here at J&J and how we plan on improving healthcare in the future.