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Facebook Versus Twitter Is Really Business Model Versus Technology

To understand the Goldman Sachs (GS) $500 million investment in Facebook, a completely different discussion can offer some unintentional illumination.

The blogosphere just saw one of its periodic sword crossings over the comparison of Twitter to a Web information distribution technology called RSS. In this is the basis of why Facebook will likely thrive while many other tech companies will not, no matter how much investment they receive. Those who accidentally succeed or fail look at technology. But the massive winners never forget that they are in business.

In TechCrunch, MG Siegler analyzed how people come across the site's stories. Siegler compared data from WordPress to numbers from Google (GOOG) Analytics. The former failed to show Facebook as a major referring site, though did list Google Reader, which uses RSS (really simple syndication), a set of mechanisms that notify people of updated Web content. The Google Analytics data suggested to Siegler that Twitter and Facebook were replacing RSS for TechCrunch readers.

Not so fast, wrote Dave Weiner, a technologist and industry figure who helped create RSS. Siegler made a mistake common to all tech writers, according to Weiner:

They don't understand how the industry loops, so they misread the signs. It's happening as they try to understand the connection between RSS and Twitter.
He says that Twitter's real strength is the ease of moving from interest in an information feed to subscription in one click. But over time, he says that eventually Twitter will make a false step and people will demand that the service's capabilities become unbundled and available in some more open form. He thinks that when it happens, RSS or "something indistinguishable from RSS" will be the core.

I won't get into an argument over which is likely to be longer lasting. There is plenty of room for Siegler's view, which is an analysis of recent data to extrapolate a trend, and Weiner's, which is an attempt to predict the future based on perceived underlying principles and patterns.

What is more interesting is how often discussion in high tech focuses overtly on technology itself. It's easy to see why this would happen, just as a group of shoemakers would be endlessly fascinated by the details of arch construction and the newest adjustable lasts.

However, technology rarely, if ever, makes or breaks a company. If sheer inventiveness were the single measure of success, Xerox would have become the combination of Apple (AAPL) and Microsoft (MSFT) in its day. Instead, the company had many interesting inventions that went nowhere commercially.

Companies rise and fall on business models and management. There is a reason so few of the late 90s dot-com startups survived in any meaningful way. The emphasis then was on technology and how one could quickly acquire customers, using the momentum as a way to push stock price and then cash out. In other words, entirely too much of business then was a scam with a technical hook.

Who survived? The Amazons, Googles, and others where business models were either their genesis or quickly became a critical concern. Not only does that mean how to make money, but the quality of customer service, competitive advantages over other companies in your space, and similar considerations. The difference between a Facebook and a Twitter is that one was quickly turned into a business machine, while the other has remained a group of technical services still trying to see how it could make significant money.


Image: user woodsy, site standard license.