Sour side of a tweet deal

Twitter has admitted that its success depends on the content posted by its users, who enjoy none of its profits. (Kacper Pempel/Reuters)

Twitter has admitted that its success depends on the content posted by its users, who enjoy none of its profits. (Kacper Pempel/Reuters)

Every time a Silicon Valley name goes to Wall Street and raises billions, you hear a creation myth. You heard it again recently, as Twitter floated on the stock exchange.

It comes in many flavours, but the creation myth runs thus: a young man with more ideas than dollars hides in his parents' garage, has a eureka moment and devises some new gadget or computer program that changes the world — or at least distracts swaths of its population.

Then comes the glorious denouement, where our start-up hero goes to the stock market and cashes in big.

And that, dear reader, is why we have Bill Microsoft, Mark Facebook, and Larry and Sergey Google. The end.
This is capitalism's version of The X Factor.

In the X-Factor economies of Britain and America, you may no longer be able to count on a decent job, affordable home or moderate pension, but still you are offered visions of outlandish success —whether in singing (for the glamorous) or business (for the rest of us).

Doctoral theses will some day be written on how, as the arteries of social mobility hardened, the BBC served up ever more versions of the minted entrepreneur: Dragons' Den, Gerry Robinson, The Apprentice.

Assumptions easy to tease out
The assumptions are easy to tease out: collective bargaining may be dead, but heroic labour can still earn the individual a string of zeroes.

The story of Twitter, as told over the past few days, snaps perfectly into this bigger jigsaw. A band of T-shirted young men (tick), coding in a flat (tick), come up with a crazy new software application (tick), which soon becomes a global phenomenon.

Within seven years it is floated on the stock market at a value of $34.7-billion — more than most of the companies in the S&P 500.

Cue details about how the founders are now paper billionaires, the employees are sitting on options that will make some of them millionaires, and the entire San Francisco HQ celebrated with an "overflowing tower of doughnuts" (tick, tick, tick).

Except the more you look at what has actually happened with Twitter, the more it comes to look like the opposite of the heroic earnings of a few hard workers.

Many of the billions will go to a select group, many of whom have put hardly any work into the company or have taken comparatively little risk.

Twitter's first day of trading
That is true of the stock market flotation, of Twitter itself and of its entire business model.

Let's start with what happened on November 7, when Twitter went to the stock market. On the first day of trading, the company's shares soared 73% — implying that they had been sold for over a billion dollars below what they could have got.

Yawning gaps between offer price and true value are hardly unusual in flotations: they're often referred to as "leaving cash on the table" —the cash being for the investment banks managing the sale and their mates at other banks and funds who buy some of the shares.

If an estate agent asked you to sell your house for £100 000 less than it was worth, so that they could offer it around their mates in the building trade, you would probably be straight on the phone to Watchdog (a BBC programme).

Yet when it comes to flotations, I am still waiting for the BBC report that notes how much the bankers scooped alongside the founders.

Let's also look at the company's story. I spent my weekend reading Hatching Twitter, by Nick Bilton, a biography of the business based on hundreds of hours of interviews with key participants. One of Bilton's achievements is to show how the credit for the idea can be split.

Updating on one's whereabouts
First, Jack Dorsey floated the notion of updating friends on one's whereabouts, while Noah Glass championed it and gave the application its name, then Biz Stone was asked to help with building the program by a still-reluctant Evan Williams.

Yahoo! tells the minnow team that it's "simply just a messaging service" and a "few engineers could do the same thing in a week".

Look at which of the Twitter team did best from the flotation and the answer is: Williams, who, in Bilton's telling, initially had least to do with the program, and Dorsey.

Those two are now worth over $1-billion apiece. But the other members of the fab four are not even listed as major recipients of company stock.

Who is? Typically, finance guys who took big stakes in the business when they could see how it might pay off.

And none of the founders is now anywhere near managing the company: within a few years of it getting off the ground, they had all been cleared out for managers from big business.

Twitter's business
I'm not playing a violin for the four founders; but Twitter is hardly an advertisement for the rewards of starting up your own company.

Finally, look at Twitter's business. Or rather, look at its own assessment of its business, as stated in its S-1 stockmarket filing.

Early on comes the delicious admission: "Our success depends on our ability to provide users of our products and services with valuable content, which in turn depends on the content contributed by our users."

Read that again: Twitter is in the business of selling us to us —our news and views and idle banter.

Without those, without us, it is nothing. As with Facebook and Tumblr and all the other social media, we're also part of Twitter's workforce. But I bet you haven't seen any stock options, either. — © Guardian News and Media 2013

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