Inside the Twitter-LinkedIn divorce

July 6, 2012: 11:37 AM ET

Last week, Twitter ended its syndication agreement with LinkedIn. What happened?

By Ryan Holmes, contributor

FORTUNE -- Like children of a troubled marriage, fans of Twitter and LinkedIn woke up this week wondering what went wrong. As announced last Friday, Twitter ended its tweet syndication agreement with LinkedIn. While LinkedIn users can still post status updates from the site on Twitter, their tweets will no longer show up within LinkedIn activity streams.

The digerati have been busy dissecting the unexpected breakup. Mike Isaac of All Things D points out that many of Twitter's new features -- expandable tweets (that can show summaries and photos from sites like The New York Times) and threaded conversations -- weren't displaying on LinkedIn (LNKD). Twitter's own consumer product lead Michael Sippey echoes this explanation in a company blog post, cautioning developers that "[you] need to be able to see expanded Tweets and other features that make Twitter more engaging and easier to use."

But money -- as in most domestic squabbles -- also appears to be a big part of the picture. Twitter makes much of its revenue (a reported $260 million last year) by selling the gaze of consumers' eyeballs to advertisers. In this respect, it's hardly different from a newspaper or any other media entity, as GigaOM's Mathew Ingram convincingly argues. In Twitter's case, companies like Virgin America or Red Bull or Coca-Cola (CCE) pay handsomely for promoted tweets, which show up in Twitter searches for relevant keywords or are injected directly into targeted users' timelines. Other ad options include the pricier promoted trends, as well as promoted accounts, which appear in users' "Who to follow" sidebars.

But when third-party developers like LinkedIn tap into Twitter's API -- channeling tweets onto their services -- they siphon off a good chunk of those consumer eyeballs to their own sites. (Think of an API as a sort of master-key allowing outsiders to access Twitter's data and build apps on top of its platform.) Now, for years this has been done by an entire ecosystem of outside developers with Twitter's full blessing. In fact, the network's founder Biz Stone himself credited this approach as "arguably the most important, or maybe even unarguably, the most important thing we've done with Twitter." Fueled by a parallel universe of more than a million third-party apps and counting, Twitter has grown to a half-billion users in six short years.

And there's the rub: Having a wide-open API is great for growth - users flood in as your network becomes a backbone for all kinds of innovative, useful apps. Monetizing a wide-open API can prove a bit tricky, however, since you're essentially funneling consumers away from your site. Twitter has struggled with this conundrum over the last two years, quietly tightening the reins on outside developers, restricting its API and wresting control of apps back from third parties. In this light, Twitter's decision to stop sending its tweets to LinkedIn begins to make sense, part of a larger push to channel consumers back to its own site and branded apps, where they can be monetized indirectly through ad sales.

That seems logical enough. But is it the best solution? As serial tech entrepreneur Nova Spivack argues, Twitter as a single destination site will never capture as many eyeballs as the collective universe of third-party apps in its orbit. Instead of tightening its API and cutting off apps liked LinkedIn, wouldn't it be smarter for Twitter to find a way to monetize all of those existing third-party users? Not only does this seem to make sense, it would also be really easy to do.

How? Twitter could inject its own promoted tweets and other ads right into the API stream used by third-party apps. So, for instance, LinkedIn users -- instead of facing a Twitter blackout -- would see all the tweets from their professional network, plus the occasional promoted tweet that they'd find on their Twitter homepage anyway. That hardly seems like a hardship.

But suppose you do find those promoted tweets objectionable. That's where Plan B comes in. Developers would also have the option of paying Twitter for premium API access, enabling them to nix promoted tweets and other ads. Either way, Twitter gets its hard-won revenue, outside developers retain API access and consumers get the functionality they want. The entire ecosystem continues to grow and flourish. Plus, Twitter instantly becomes one of the web's ad powerhouses, with a network rivaling Google (GOOG) AdSense or Facebook (FB) Ads.

On the surface, this sounds like "a brilliant, lucrative, slam dunk of a move," to quote Spivack. But it also seems fairly obvious, which makes me think that Twitter's brain trust must have thought of it before. Why this kind of ad-based API compromise wasn't viable in LinkedIn's case isn't exactly clear, though there are clues.

Twitter has stated that stricter guidelines for API use will be rolled out in the weeks ahead to create a more uniform consumer experience across all apps and eliminate redundancy. The operative term here is consumer. Consumer-focused apps liked LinkedIn, especially those that "reproduce the mainstream Twitter consumer client experience" while bringing little new to the table, seem to be on the chopping block.

But business-focused apps are another story altogether. Twitter's own director of platform Ryan Sarver points out several areas where "ecosystem developers are thriving" in a blog post from last year. Tools that optimize publishing time (SocialFlow) and curate relevant tweets for large brands (Mass Relevance) are singled out for praise. The same goes for apps that harness Twitter's real-time data about web trends in novel ways (Klout), as well as enterprise-focused utilities that help companies find out about their brands and manage customer relationships (Disclosure: Sarver lists HootSuite, my company, as an example.)

In other words, even after its LinkedIn breakup, Twitter is still in the market for hot new developers. Business utilities, which help companies better engage with customers and cement Twitter's role in the workplace, appear to factor large in future plans. Do I hear wedding bells?

Ryan Holmes is the CEO of HootSuite, a social media management system with four million users, including 79 of the Fortune 100 companies. In the trenches everyday with Facebook, Twitter and the world's largest social networks, Holmes has a unique view on the intersection of social media and big business.

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