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Twitter: just an idea or a feasible venture?

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Content page

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1. Executive Summary 3

2. Introduction 4

3. Twitter: a bright idea or a real business opportunity? 6

3.1 Technical feasibility analysis 6
3.2 Financial feasibility analysis 7
3.3 Analysis of organisational capabilities 7
3.4 Market and competitive analysis 8
3.4.1 Low threat of new entrants 8
3.4.2 High threat of substitutes 9
3.4.3 High bargaining power of supplies 9
3.4.4 Low bargaining power of buyers 9
3.4.5 High intensity of rivalry among competitors 9
3.5 General assessment 10

4. Recommendations to capitalise Twitter’s popularity 11

5. Conclusion 13

6. References 14

7. Appendix 16
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1. Executive Summary

The purpose of the current report is to evaluate if Twitter is just a bright idea or a real

business opportunity. This is achieved through a proper evaluation of the variables that are

included in the comprehensive feasibility framework. It can be observed that technical,

financial and organisational have been adjusted after several ventures (Blogger.com and

Odeo) were not successful. Further analysis includes the assessment of the market and

competitors applying Porter’s five forces model; the latter is combined with the first

framework; overall, the micro-blogging industry is attractive, which provides more evidence

claiming that Twitter is in fact, a potential venture. The report goes on to make

recommendations which Twitter could follow in order to capitalize on its popularity. Overall,

it reaches the conclusion that proper implementation of these recommendations will result in

attaining a greater competitive advantage and ultimately, increased revenue.

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2. Introduction

At present, due to the constant turbulence of the business world, most new ventures

are unsuccessful as they strive to attain competitive advantage and gain revenue (Frederick &

Kuratko, 2010; Samson & Daft, 2012). Therefore, a critical task for successful entrepreneurs

includes understanding how to assess new ideas and viable market opportunities for starting

businesses (Baron, 2006; Frederick & Kuratko, 2010; Nicolaou, Shane, Cherka, & Spector,

2009). The former is defined as the recognition of good thoughts that arise from extended

research and work, not mere speculation, while the latter refers to the identification of

something that solves a real problem or adds value to individuals (Frederick & Kuratko,

2010). The result of a competent evaluation should convert feasible opportunities (and ideas)

into marketable solutions, known as innovations; these are positively associated with

increased returns, as well as achieving a competitive edge in the industry (Howell & Higgins,

1990; Lengick-Hall, 1992; London Business School, 1995). Alternatively, past research

indicates a number of disadvantages, related to insufficient evaluation, when selecting real

business opportunities: lack of objective evaluation, no real insight to the market, poor

financial understanding, inadequate understanding of technical requirements, and lack of

venture uniqueness (Baron, 2006; Frederick & Kuratko, 2010). These usually differentiate a

simple idea with a potential opportunity (Frederick & Kuratko, 2010). This report will

critically analyse if Twitter is just a bright idea or a viable market opportunity and discuss its

situation, for 2010, based on past records of its founders. Additionally, it will present

recommendations to capitalise Twitter’s popularity.

Twitter is a micro blogging and social networking service that has experienced high

growth in recent years; by February 2010, there were approximately 50 million tweets per

day, which increased to 65 million by June 2010 (Euromonitor, 2012b). Currently, as figure
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2.1 depicts, social media is becoming the latest wave of technologically-based innovation;

more individuals desire to use the Internet to network (Euromonitor, 2012b). Since its

foundation, in 2006, Twitter has created worldwide presence, being ranked number eleven as

the world’s most popular websites (Euromonitor, 2012b).

Figure 2.1: Estimated Global Internet Users from 2010 to 2020 (Source: Euromonitor,

2012a).
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3. Twitter: a bright idea or a real business opportunity?

A brilliant idea can arise almost anywhere. Nonetheless, as outlined, it is the extended

research and being aware of the pitfalls of insufficient assessment, which defines the

transition of a concept to a real business opportunity (Frederick & Kuratko, 2010). By the

same token, although history claims that Twitter was born in 2006, its roots can date back to

1999 when Blogger.com was created. The latter was the original ‘bright idea’, which

subsequently developed into Odeo and then into the feasible opportunity now called Twitter.

Regardless of the limited success of prior organisations, they served as a foundation to the

latter. Consequently, to accurately assess if Twitter is still just an ‘ingenious idea’ or a

genuine potential venture, the comprehensive feasibility framework (figure 3.1) and its

specific activities will be utilised (see figure 3.2 in Appendix).

Figure 3.1: Key areas for assessing the feasibility of a new venture (Source: Schollhammer &

Kuriloff, 1979, p.56)

3.1. Technical feasibility analysis (venture uniqueness)

The core idea, regarding technical specifications, for Blogger.com was to allow users

to disseminate information to others in real-time through the Internet. This design progressed

with Odeo as it enabled clients carrying standard mobiles to update small groups of people on

their current situation by tapping out a simple message. Using this concept, Odeo translated
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the idea to a real enterprise by developing a new product, ‘Twttr Beta’, which was launched

as a prototype. In comparison to previous versions, the design became sophisticated;

Twitter’s blueprint is described as a broadcasting system that allows users to transmit shorts

bursts of information to others. In 2010, it encompassed other crucial technical specifications

such as product safety (authors can restrict their subscription lists to selected subscribers),

and durability (unlimited ‘Tweets’).These are unique features that distinguish and make

Twitter distinctive from other services, making it a feasible venture opportunity.

3.2. Financial feasibility analysis (rich financial understanding)

In line with Mark (2010), Blogger.com originally had a handful of employees who

raised a small amount of capital. In following years, it did not generate any major revenue,

nor was it close to gaining any profits. In other words, the product, being just a bright idea,

had only limited financial resources, but did not have the necessary working capital needed to

develop; it was sold to Google. In stark contrast, Twitter becomes a real viable opportunity

when investors inject a total of $155 million as they believed it was going to be the next

Facebook. As investors had a clear financial understanding, Twitter was supplied with the

necessary working capital to ‘continue building the company and supporting the millions of

users who used the service’ (Mark, 2010, p.452). Empirical evidence for this can be seen in

its high fixed and operation costs (see figure 3.2.1 in Appendix).

3.3 Analysis of organisational capabilities (understanding of technical requirements)

Generally, a brilliant idea, at its first stages, can be developed using few skilled

personnel (Paulus & Huei-Chuan, 2000). This was the case for Blogger.com and Odeo; the

former was constituted by Williams and his friends (a handful of personnel) and, the latter

was comprised of just five people working at an apartment. As the concept becomes an
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authentic business opportunity, the numbers, skill levels and other personnel requirements

tend to increase. Years after Twitter’s establishment, the founders were excited by the

growing complexity of the organisation. They stated they were surprised to see the company

grew past 15 to 20 people. Furthermore, extra proficiency and effectives was depicted by all

the further services offered, such as the fact they were trying to emulate Skype.

3.4. Market and competitive analysis (real insight into the market)

For the purpose of the report, market and competitive analysis will be evaluated using

Porter’s five industry forces model as it entails most of the elements stated in the

comprehensive feasibility approach (see figure 3.2 and figure 3.4.1 in Appendix). Not only

the degree of industry attractiveness for the micro-blogging industry will be evaluated, but

each factor will provide an overview of the feasibility of the company to judge if it is a viable

potential venture.

3.4.1 Low threat of new entrants. There are considerable barriers of entry to new

competitors due to two main factors: capital requirements and product differentiation.

Empirical evidence by Case and King (2010) assert that annual spending (capital

needed) to maintain a social software (like micro-blogging) is around $280 million. As

mentioned previously, Twitter was injected around $155 million and several companies have

billion dollar valuations on the company.

Moreover, the product can be distinguish its services from competitors as it provided

an specific system in which authors type 140-chracter messages (‘Tweets’) using mobiles,

instant messaging (IM), real simple syndication feed, or third-party web tools. Consequently,

there is increased customer loyalty, which can be observed in the millions of users it had in

2010 (100 million).As result of these barriers, new competitors will face difficulty in trying to

enter the market.

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3.4.2 High threat of substitutes. Alternative methods to connect with individuals

through the net are the closest substitutes to the industry. According to the Mark (2010), a

replacement could be chat rooms; however, there are some disadvantages that include the fact

that the individual has to log on, while strangers can be their profile. Skype, an internet

telephone service, can also be in this category as it offers users free and great value calls to

communicate with others. Both substitutes are strong in nature, which means that overall

threat of substitutes is high.

3.4.3 High bargaining power of suppliers. There is one simple factor here: the

importance of the components being employed. As Twitter is a technological innovation,

personal skills levels are required. Since these are private for ‘Twitter’s eyes only’, they have

a high bargaining power over their knowledge. As stated by co-founder Stone, ‘we can give

people stuff for free, but not forever’ (TechCrunch, 2009).

3.4.4 Low bargaining power of buyers. Bargaining power of buyers in the micro-

blogging industry is low. This is because the free nature of the offered product allows for a

large number of users to sign-up (in the case of Twitter). These include anyone using the

Internet such as bloggers, technology savvy’s and larger organisations.

3.4.5 High intensity of rivalry among competitors. The number of competitors tends

to determine the intensity of rivalry.

Competition in the industry is predominantly based on the technology that each

company provides to consumers. Therefore, firms are constantly competing, trying to offer

the best services. These include Facebook (largest social networking site), Google Buzz

(allows users to post updates in real-time using their mobile phones), Friendfeed (allows to

send text messages as important information from blogs), and even Identica (a blogging

service that allows users to create their own micro-blogging service). Hence, it can be

assumed that there is competition is high.

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As shown throughout the external analysis (applying Porter’s five forces), the micro-

blogging industry will be an attractive industry; in other words, a real business opportunity,

rather than a bright idea. This is corroborated by figure 3.4.2, which shows all the factors

summed up.

Figure 3.4.2: Social networking industry attractiveness (Source: Adapted from Porter, 2008)

3.5 General assessment

In conclusion, the comprehensive feasibility framework demonstrates that

Blogger.com and Odeo were possibly ‘bright ideas’. Although these were not successful, they

were linked to and used as a foundation for Twitter’s creation. In comparison, the latter can

actually be described as a real business opportunity or real potential venture that will generate

profits in the long-run. In addition, pitfalls critical that differentiate new ideas form viable

opportunities have been discussed.

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4. Recommendations to capitalise Twitter’s popularity

For an organisation that did not have a money-making business model three years

ago, and also had problems with the number of users signing-up (decreased in mid-2009),

Twitter, has been in fact, earning profits. In 2010, Twitter generated revenue of $45 million,

and in 2011, it augmented to $139.5 million (Advertising Age, 2011; Venture Beat, 2012). It

has been forecasted that it will double to $259.9 million in 2012. As can be seen, Twitter is

making profits, but it could go one step further by increasing its competitive edge, which

would provide increased revenue, by capitalizing on its popularity (Samson & Daft, 2012).

Therefore, they need an efficient commercialisation process and marketing strategy. Past

research indicates that there is a linkage between competitive advantage and the firm’s ability

to commercialise technology (Swink & Song, 2007).

In recent years Twitter has become popular amongst consumers, especially due to

word-of-mouth promotion, as it constantly innovates by adding new services; even celebrities

such as Lady Gaga, Asthon Kutcher and Britney Spears use it (Euromonitor, 2009). This is

because their up-to-the-minute reporting of events technology seems more compatible with

cell phones than other technologies (Euromonitor, 2009). Likewise, future plans target at the

emulation of Skype’s systems of free valued calls. Therefore, the company will be able to

capitalise its current popularity by adding more innovative services to their product. To

achieve the latter, Twitter would need to build cross-functional skills among personnel

(Nevens, Summe, & Uttal, 1990). This means, bringing together functional expertise towards

one goal through training or job rotation (Samson & Daft, 2012). Both methods would

capacitate a, let us say, software engineer, in any department (Nevens et al., 1990). As a

result, the speed at processing and developing new products will increase (Nevens et al.,
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1990). Assuming the novel feature is popular, usage level will augment, resulting in a higher

competitive advantage and profit gain.

A second scheme that Twitter can employ to earn abnormal profits is leveraging its

popularity on deals with large corporations (Advertising Age, 2011). For instance, in 2009,

they signed a non-exclusive deal with Google and Microsoft to provide these companies’

search engines with access to real-time Twitter feeds (The Guardian, 2011). The amount of

leverage they will have will be related to the marketing strategy, specifically the advertising

plan (Kotler, Brown, Adam, Burton, Deans & Armstrong, 2010). Therefore, they must invest

in promotional campaigns, magazine advertisements, and advertising agencies (Frederick &

Kuratko, 2010). As popularity increases, the number of deals and the amount of money

earned from them will also raise.

The correct application of the outlined methods will allow Twitter to capitalise on its

popularity (already included in their competitive advantage), resulting in an increased

revenue.
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5. Conclusion

As demonstrated throughout the report, Twitter is more than a ‘bright idea’, but a real

viable opportunity. This is corroborated by the application of the comprehensive feasibility

framework, in addition to Porter’s five forces model; disadvantages related to insufficient

evaluation have been addressed as well. Furthermore, it has been shown that the company

have been earning increased revenue over the years. It can capitalise on its popularity to

increase its competitive advantage and raise its revenue. This can be achieved through the

suggested methods; note that it is difficult to select one as the main focus as they are inter-

related. The examples used have reinforced the mentioned arguments, whilst giving a

practical overview and application of the named features.

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6. References

Advertising Age. (September, 2011). Twitter Ad Revenue to reach $139.5 million in 2011.

Retrieved May 09, 2012, from: http://adage.com/article/digital/twitter-ad-revenue-reach-

139-5m-2011-report/230096/

Baron, R. A. (2006). Opportunity recognition as pattern recognition. Academy of

Management, 20 (1), 104 – 120.

Case, C., & King, D. L. (2010). Cutting edge communication: micro-blogging at the fortune

200, Twitter implementation and usage. Issues in Information System, 11 (1), 216 – 223.

Euromonitor. (July, 2009). Is Twitter too loud in consumer markets? Retrieved May 09,

2012, from: http://www.euromonitor.com/

Euromonitor. (March, 2012a). Web 2.0 and consumers. Retrieved May 09, 2012, from:

http://www.euromonitor.com/

Euromonitor. (November, 2012b). The global rise of social networks: brave new world or the

same old thing? Retrieved May 09, 2012, from: http://www.euromonitor.com/

Frederick, H. H., & Kuratko, D. F. (2010). Entrepreneurship: Theory, Process, Practice, 2nd

ed., Melbourne, Australia: Cengage Learning, Australia.

Howell, J. M., & Higgins, C. A. (1990). Champions of change: identifying, understanding,

and supporting champions of technological innovations. Organizational dynamics, 19

(1), 40 – 55.

Kotler, P., Brown, L., Adam, S., Burton, S., Deans, K., & Armstrong, G. (2010). Marketing,

8th ed., Australia: Pearson Education Australia.

Lengick-Hall, C. A. (1992). Innovation and competitive advantage: what we know and what

we need to learn. Journal of Management, 18 (2), 399 – 429.

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London Business School. (1995). Innovation and competitive advantage. Retrieved May 09,

2012, from: http://www.agri-outlook.org/dataoecd/10/29/35131287.pdf.

Mark, K. (2010). The entrepreneurs at Twitter: Building a brand, a Social Tool, or a Tech

Powerhouse. In K. E. Clow & D. Baack (Eds.), Cases in Marketing Management (pp.

438 – 445), 1st ed., Australia: Sage.

Nevens, M., Summe, G. L., & Uttal, B. (1990). Commercializing Technology: What the best

companies do. Harvard Business Review, 68 (3), 154 – 163.

Nicolaou, N., Shane, S., Cherkas, L., & Spector, T. D. (2009). Opportunity recognition and

the tendency to be an entrepreneur: A bivariate genetics perspective. Organisational

behaviour and human decision process, 110 (1), 108 – 117.

Paulus, P. B., & Huei-Chan, Y. (2000). Idea Generation in Groups: A basis for creativity in

organisations. Organisational behaviour and human decision process, 82 (1), 76 – 87.

Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business

Review, 88 (7/8), 39 – 59.

Samson, D., & Daft, R. (2012). Management, 4th ed., Melbourne, Australia: Cengage

Learning Australia.

Schollhammer, H., & Kuriloff, A. H. (1979, p.56). Entrepreneurship and Small Business

Management, 1st ed., New York, U.S.A.: John Wiley & Sons, Inc.

Swink, M., & Song, M. (2007). Effects of marketing-manufacturing integration on new

product development time and competitive advantage. Journal of Operations

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TechCrunch. (July, 2009). Twitter’s Internal Strategy Laid Bare: To be ‘the pulse of the

planet.’ Retrieved May 09, 2012, from: http://techcrunch.com/2009/07/16/twitters-

internal-strategy-laid-bare-to-be-the-pulse-of-the-planet-2/
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The Guardian. (October, 2011). Twitter announces deals with Microsoft and Google on the

same day. Retrieved May 09, 2012, from:

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Venture Beat. (January, 2012). Twitter’s revenue expected to nearly double in 2012.

Retrieved May 09, 2012, from: http://venturebeat.com/2012/01/31/twitters-revenue-

expected-to-nearly-double-in-2012/
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7. Appendix

Figure 3.2: Specific activities of feasibility analysis (Source: Schollhammer & Kuriloff,

1979, p.56)

Figure 3.2.1: Twitter’s forecast financial as posted on TechCrunch (Source: Mark, 2010,

p.443)
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Figure 3.4.1: Porter’s five industry forces model (Source: Porter, 2008)