How Twitter And Facebook Survive

Sep. 4.14 | About: Twitter, Inc. (TWTR)

Summary

Twitter and Facebook remain compelling growth investments.

Other properties like MSN Messenger have declined into irrelevance, which was driven by negligence.

Twitter and Facebook constantly experiment, add new members to a strong team, and are always open to new ideas.

By constantly innovating/tweaking, launching new services, they continue to survive in a constantly changing environment, and for investors that's a real durable advantage.

So I guess the mantra don't fix it if it isn't broken is still popular. But if you look at case history, time and time again, it proves that the nimble in the world of technology are the ones to survive. And I'm not trying to say this to pump my chest, and say change for the sake of change is good. But deep down I truly believe that a company that fails to adjust a service or strategy to meet the needs of its customers soon loses relevance to customers.

I think Twitter (NYSE:TWTR) and Facebook (NASDAQ:FB) are unique in this regard, because they don't wait sagaciously to see the next thing pass them by. They're always iterating and adding new services before it becomes obvious that they need to.

Remember MSN messenger? Yeah believe it or not, it was one of the most popular services in the world. I remember logging into the messenger and chatting away with virtual friends that I had met from MSN game zone.

That's about as far back as I go, I guess you can say I'm the first generation that grew up with computers sitting on every desk, and yeah, I'm even old enough to remind you of the pages that had the square boxes rather than the rounded edges. The web looked pretty ugly back then. This was the world before web designers actually existed - it was a world in which random youngsters would stay up late into the night trying to figure out a way to plaster together a semi-decent looking user interface for people to use.

The web was full of spam, and malware would run amuck, scareware flooded your inbox, and everyone wanted to advertise. The first generation of the web was like the Wild West from the 1800s, a bunch of outlaws doing really stupid stuff in a virtual environment. Which eventually resulted in massive job creation, professions and you know…. the internet got its own classification (what we call the tech sector), but because the internet is so pervasive, we're calling internet companies service, commerce, software or communication companies.

So let's go back to MSN Messenger - it's old, really old. But just last week, Microsoft (NASDAQ:MSFT) had announced that it put the baby called MSN Messenger to sleep. Five years ago, Windows messenger had 330 million monthly active users, and in a sense, that's a large number of people using one service. But today, no one uses it, and it's being consolidated into Skype messenger. Well, to be more specific, Microsoft is offering incentives to people to switch over to Skype by giving Skype credit.

But Skype wasn't an in-house product from Microsoft. Go back a couple years, and you'll recall that Microsoft bought out Skype from eBay. Which, eBay should be kicking itself for. MSN messenger never really pivoted into new areas. Microsoft allowed one of the most successful services that it had ever created to eventually wilt, and die. But Microsoft saved itself from being completely absent by continually improving upon a service it bought out from a different company (hence big tech companies constantly buy little tech companies, because they have no freaking clue as to what will stick and what won't).

However, there's the distinct possibility that Skype and Messenger could have co-existed together. Given the buyout value of WhatsApp at $19 billion the lost opportunity cost from not prioritizing messenger is pretty big. MSN Messenger went into decline right before smartphone over the top (OTT) services took off. I guess Microsoft never really thought that a messenger app would become "that" valuable, so they kept it away from competing OS platforms, whereas Skype went through continued development and considering the $8.5 billion that Microsoft paid, Skype had to become a success story. Based on 2013 figures, Skype has 280 million monthly active users, a far cry from where Messenger was years ago.

So, from 2009 onwards, the social networks took off, and all of a sudden everyone could do everything on the web without installing stuff. It became easy, and pretty soon, the social networks attached so many users, you began to wonder why you even bothered with chatting on messengers, when you can consume news about your friends from a newsfeed. This was when Skype wasn't that big yet, and before everyone wanted to do everything on every device they had. But wait, not everyone had 3 or 4 devices yet.

Now mind you, the newsfeed came way later after Facebook launched. You see, Facebook changes, and it constantly adapts to its environment. Without the Facebook newsfeed, Facebook wouldn't have adapted to mobile devices with much success, as it wouldn't have an environment for advertisers to advertise. Hence, the need to continually improve upon the core product and to test to see whether or not the new change will bring about the intended consequence.

So instead of saying, "I think change will work." Tech companies should always experiment, and through experimentation, they should arrive at the conclusion of, "I know it will work." And if they don't know how to make things work, they should buy something that already works. I know, I'm starting to rhyme, but seriously, things move really quickly in the land of technology, and a company needs to always be at the cutting edge. We refer to this as "disrupting" your own business.

In the past year alone, Facebook has unbundled the application (messenger is now separate from Facebook), launched back-end analytics onto Instagram, changed the way the newsfeed serves content (only relevant information to users), made a $19 billion acquisition for WhatsApp, a $2 billion acquisition of Oculus, and partnered with ad-agencies (to sell ads at higher rates). Today Facebook is worth more than Amazon, even though Facebook doesn't sell any physical products, which may change soon if it offers a buy button in the newsfeed.

In the past couple years Twitter has launched Vine, sponsored tweets and pages, is currently experimenting with video ads, also is experimenting with a buy button. In the past year it has acquired Namo Media, Snappy TV, Card Spring and Mitro. The company is constantly adjusting its strategy to keep users engaged on its platform.

Therefore, when investing into a technology company, don't buy a stagnant tech company. Instead, you want companies that are open to change, and are constantly bringing in new ideas, are constantly changing features and products, and are always at the cutting edge of innovation.

Because that's the only way true tech companies ever survive.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.