Twitter, Groupon, and how to manage an army of clonesMarch 21, 2011: 12:50 PM ET
The two companies have inspired two huge networks of imitators. So why is the one you'd least expect now intent on rubbing out the competition?
By Chadwick Matlin, contributor
FORTUNE -- Another week, another Groupon clone. And this time, it's Facebook. Last week, the company confirmed to Bloomberg that it was going to start competing for coupon revenue in earnest. Mark Zuckerberg and company began putting ads for a "Facebook Deals" feature in news feeds, asking users if they wanted to sign up for exactly the kind of local offers that Groupon -- and dozens of other imitators -- email around every morning. And there's nothing that Groupon can do about it. In a way, it's a vote of confidence. These days, the most sought-after blessing in tech is from Facebook. Once it starts emulating your business, you know you've done something right. Just ask Foursquare.
Meanwhile, in an entirely different corner of tech, there was news from a different clone war: Twitter's. A week and a half ago, Twitter gave a bit of unsolicited business advice to some of the companies that use its service to create their own products. "Developers ask us if they should build client apps that mimic or reproduce the mainstream Twitter consumer client experience," Twitter's platform product manager wrote in an online discussion forum. "The answer is no." The gesture would have been sort of sweet if it weren't so aggressive. It's a warning that Twitter, the company, is determined to control the experience of twitter, the medium. Everyone else should get out of the way.
Both moves were covered ravenously in the press, with a lot of talk about how it would affect the companies' ecosystems. But "ecosystem" is a pernicious bit of techspeak, a euphemism that makes it sound like Groupon and Twitter aren't tech companies but vendors at a Brooklyn flea market, selling artisan terrariums. What we really mean to say when we talk about the companies' ecosystems is that they've spawned an entire network of other startups that rely on them.
And in the cases of Groupon and Twitter, their clones rely on them in strikingly different ways -- ways that suggest two different techniques for tech companies to create and then dominate their niches on the web.
To help explain the two systems, we're obviously going to need to trot out some questionable metaphors. So, without further ado, we present two highly scientific models of how startups create businesses today: The Drum Circle and The Tambourine.
Groupon's Drum Circle
Facebook isn't the first Groupon competitor to copy its central idea. Even a year ago, there were stories written about whether Groupon would get crowded out by its own imitators. LivingSocial, BuyWithMe, CrowdSavings, Twongo, GroopSwoop, PriceBunch, TownHog—the list is as long as the line outside the 90% off spa du jour. (Meet Groupon's Groupies elsewhere on Fortune.) And yet Groupon is still Groupon, the company that's rumored to be going public at $25 billion, $2 billion more than Google's IPO in 2004.
So what we have is a bunch of companies who all have copycatted each other's concepts, and yet have nothing to do with one another operationally. They co-exist, sharing slices of a market whose total potential size remains tantalizingly unknown. Yet, it may be that none of the followers would have thought to show up if it weren't for Groupon. Though now it's been long enough that if Groupon itself ceased to exist, the beat would still go on.
If Groupon's network is defined by independence, Twitter's is notable for centralization. When "Twttr" first started, it practically begged developers to build programs that circumvented Twitter's actual website. The company figured the more programs, apps, and sites that were hooked into Twitter's network, the more people would use the service. And Twitter was very, very right. Dozens of clients—Tweetdeck, Echofon, UberTwitter, etc.—were created, and even more incredibly, the startups behind them found some venture capital of their own. Many of them do exactly what the Twitter website does—write a tweet, read a tweet, rinse, repeat—but usually a bit more handsomely, or with some extra, secondary functionality. According to market research firm Sysomos, plenty of people use them: 42% of tweets are sent from these third-party Twitter clients. (Twitter, in its memo to these same clients before the Sysomos report was released, implied the percentage wasn't that high.)
But now Twitter has sounded the death knell, sending the third-party developers scrambling for a lifeline. Unlike in Groupon's network, these companies can't function without Twitter's blessing—they're too reliant on the Twitter service itself. If you drew a Venn Diagram of the network, all these smaller companies would dot the perimeter of Twitter's (very large) circle, as much inside of Twitter's borders as outside it. If Twitter vanished, it would take crucial parts of the smaller companies with it. That's where we get the tambourine—only when Twitter shakes can the imitators make their own music.
The network effect
So, why the difference between the two networks? Part of it, as always, is the network effect. Once Twitter assumed a market lead, there was no use trying to create an independent rival. LivingSocial is to Groupon as…nothing is to Twitter.
And Groupon's network is so independent because of how gobsmackingly obvious the social coupon business model is. The other companies recognized that in Groupon's business, the money is delivered up front. There's no need to go through the hassle of fitting an advertising model into a preexisting business (like Twitter does). For Groupon and its ilk, the business is the advertising model. True, technology enables the model to work, but the business is pretty old-fashioned -- a lot more cold calls than hackathons. That kind of potential attracts plenty of takers.
In the end, what's most interesting -- and heartening -- is that both models, the Drum Circle and the Tambourine, have given rise to remarkably durable companies that have changed the way we live. And that's what they are now—companies. When you're at the center of a network, you're no longer a startup. No matter what shape the network may take.
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