Every parent witnesses firsthand, the other side of the holiday season -- when today’s object of desire is placed on the shelf next to last year’s marquee gift, to be played with less and less frequently until it is eventually discarded. The same happens with investments, as we have seen time and again; stocks that seem like they can’t miss often go down in flames because growing and sustaining a business is a difficult and delicate matter.
Technology stocks are the fruit flies of the business world as most die quickly. Currently, everyone is rushing to become a technology “platform,” but some are overly focused on attracting a short-term audience rather than learning from the fruit flies that went before and building a durable business with an enduring competitive advantage. Twitter has built the audience, but will we continue to come back?
I really enjoy Twitter. The key to its appeal is forced brevity, the ability to be anonymous or build a personal “brand,” the wit and wisdom of its users, and the ability to interact with people who would never give me the time of day in a normal setting. Twitter is a wonderful way to share ideas, and has done a tremendous job of developing both broad communities and networks focused on niche interests, which many have been anticipating since Chris Anderson wrote The Long Tail.
Twitter has carved out its place in the evolution of social media, but what makes it sticky? The landscape is littered with failed social Internet/messaging sites like AOL (AOL), Friendster, MySpace, and so forth. Facebook sees this, and, as I pointed out in Facebook Credits to Launch Friday: What It Means for Tech, it has introduced Facebook Credits as a means of allowing its users to monetize their social network, encouraging continued use of the site. Twitter is about to be tested as the desire of backers to monetize their investment may have compromised the integrity of the community. This is where the Prince enters our story.
While the media has focused on the investment case presented by Saudi’s Crown Prince Alwaleed Bin Talal’s $300 million investment in Twitter, we should also be sensitive to the fact that a man of considerable means just took an ownership stake in a key organizational and media tool of his opposition. It is almost like the Emperor from the Star Wars movies buying a stake in the newspaper of the Rebel Alliance. Other investors should understand the Prince’s price point includes a considerable ownership premium as access to user information and networks is considerably more valuable to a Prince attempting to preserve his sovereignty than it is to a retail investor trying to get in on the next hot IPO.
Saudi Prince Alwaleed is a crowned prince of Saudi Arabia, the largest oil-exporting country in the world. The shrewd leader no doubt recognized the important role Twitter played in organizing protests in other Middle Eastern nations, reporting acts of violence committed against protesters and crafting the message of the protests before the traditional media outlets could mold that impression. Unrest continues in the Middle East, and following the death of Saudi’s long time Defense Minister, Crown Prince Sultan, the monarchy is preparing for a transition of power.
It is remarkable how little attention is being paid to this, but the world’s largest oil exporter, which purchased $60 billion in military technology from the U.S. in 2011, has an unemployment rate of 25% among the male population; one-third of the population is under the age of 15 is about to undergo a leadership transition! The Kingdom is a tense mixture of Sunni and Shia, which could explode at any point if one faction is not given adequate input or consideration as the leadership chairs are shuffled. It is not a stretch to say that the stakes are considerably greater than $300 million.
Investors should understand that the price that Prince Alwaleed paid is not an economic price, and should not be extrapolated to any other investment or even apply to another investor in the same company. He presumably extracts a benefit from his investment that another investor may not. In addition, whether it is used in such a manner or not, the Prince’s investment presents a conflict of interest and raises suspicions that information is being shared or manipulated to serve the purposes of The Kingdom. This could undermine the integrity and validity which are so important to the Twitter platform. I am not saying Twitter will be compromised, but a social network that depends on its users should foster community, not exploit it. As Google’s (GOOG) Google+ builds an audience, I wonder if the Twitter community will migrate to Google+, Facebook, or other niche platforms like StockTwits. Since the media makes up such a critical link in the Twitter network, it will be interesting to see how it responds to these developments.
This is a unique situation in which one person’s investment could actually undermine the value of every other stakeholder’s position. Further, it should cause any investor to question Twitter’s leadership. Why would you risk the integrity of the platform at such a critical juncture? The great thing about being a private company is that you can determine who you work with, and while the Prince has deep pockets, didn’t anyone question the impact that such an alliance could have on the business? It was the use of Twitter to protest the 2009 elections in Iran that put the company on the map. I wonder if a $300 million investment from the Saudi royal family validates the platform, or undermines it. Maybe it does both.
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