I felt kind of bad for poor Jean-Luc Picard. It’s a big step down from the kingly captain’s chair of the Enterprise to ringing the NYSE opening bell. Not because everyone from Martha Stewart to the cast of Jersey Shore to the Aflac Duck beat him to it. Or because a ritual that once employed a gavel and a gong is now not even a bell. It’s a button you push to make a sound you’d hear at a cattle auction.
No, the reason I felt bad for Patrick Stewart and his fellow participants was that they were there to represent Twitter users. Dick Costolo and the founders of Twitter had more sense to stay on the exchange floor with the other suits and smile at their good fortune today. The push-button bell was the consolation prize, a gift to the users and outside developers who helped make Twitter Twitter. A perk the giver was only too happy to give away, having never wanted in the first place.
Today belonged to Twitter Incorporated. Not its users who helped figure out how turn a microblogging site limited to 140 characters into an endless stream of compulsive discoveries. And certainly not many of the developers who created most of Twitter’s signature features: the hashtags, the at signs, the independent apps that Twitter alternately crippled and co-opted.
Twitter has always been one lucky company, with a preternatural gift of falling ass-first into success. That’s not to say the founders and current management aren’t skilled. They helped build Twitter into the $24.5 billion company it is today by following two cardinal rules of web startups: design the site according to how users are actually using it, and invite third-party developers to share any innovations that could further improve the user experience.
It’s hard to imagine what Twitter would be without the hard work and creativity of people who never worked for the company but helped shape it. And now that Twitter Inc. is harvesting the riches from the most successful tech IPO in nearly a decade, there is little of that financial reward coming back to the developers and early users of the service.
I know, this argument is often lodged whenever there’s a big tech IPO. When Facebook went public, the same points were made. But it’s different with Twitter. Facebook relied less on outside developers and user input. Once its user base grew large enough, it began turning the service into a honeypot that lured in users and then corralled them into a design of Facebook’s choosing. Facebook was looser about letting people buy its pre-IPO shares on secondary markets. And Facebook’s first year in the public market offered its users ample opportunities to buy the shares at a steep discount to the offering price.
Twitter’s IPO has become something different. The offering itself was orchestrated with the obsessive precision of Beyonce’s Superbowl halftime show. The company had very good reasons for handling the IPO this way, but it effectively shut out a lot of people who deserve a share in Twitter’s success. Google tried to get around this with a Dutch auction open to all bidders, with mixed but largely positive results.
Twitter allocated about 10 percent of its offering to retail investors, the low end of the typical 10-to-15-percent range for IPOs. That ratio doesn’t come close to the amount of innovation it relied on from outsiders to make the site what it is today. Factor out the daytraders and most users and developers who wanted to invest in Twitter had to wait until the stock began trading this morning at $45 a share. If retail investors had the mental discipline to sell the stock right as it peaked at $50, they made a tidy profit. If they held on to the end of the day they ended up with a slight paper loss. The stock closed at $44.90.
Institutional investors who bought the company in the stock offering, however, fared much better as the stock closed 73 percent higher. And big investors who got in even earlier – like Digital Sky Technologies, which bought a stake valued at $16 a share in 2011 – can look forward to stronger returns.
In a way, this is just the tough-luck aspect that has always been a part startup culture. Most early employees are awarded stock options or shares, but there are many notable examples of people who have gotten screwed from sharing in a success they helped create. And those who do receive options usually get a tiny fragment of their bosses’ take. It’s just how it goes: the creative talent get table crumbs, the top-level managers clean up.
Even so, I can’t think of another case where a company depended so much on outside talent to do real creative work – the kind of work that is normally part of a full-time employee’s job description – and yet share so little of the financial rewards. Short of a Dutch auction, there’s not a lot that Twitter could do to share that fortune with developers and users. And given the menacing specter of the Facebook IPO, that option was probably nixed early on, if it was ever considered at all.
Twitter may be the last big consumer-Web IPO for some time, but other companies that rely on user input and creativity for its success are likely to be going public soon. The practice of largely cutting users and third-party developers out of IPOs may become a persistent pattern. That’s great for founders, early investors and managers, but it raises the question of when users are being used too much.
Of course, Twitter may follow the trajectory of many tech IPOs and enjoy a happy month or two at current levels before entering a prolonged period of downward drift. There are already people warning that the company is too richly valued or “a poor long-term investment.” The day may well come when Twitter has healthy, steadily growing profits but a lot of volatility can happen before then to test investor faith.
Maybe that’s why Patrick Stewart was invited to ring the bell. His memorable role as the captain of the Enterprise evokes the out-of-this-world valuation of Twitter (at 22 times its estimated 2014 sales). But Star Trek may not be the right science-fiction work to describe the Twitter IPO.
Watching Twitter users ring the NYSE bell, I thought of Ray Bradbury’s short story, “All Summer in a Day,” in which a classroom of students awaiting an event that happens once every several years – when the rain stops on Venus and the sun shines – cruelly traps one of the students in a closet, shutting her out of the glorious day.
Today, the sun is shining on Twitter. And most of us are sitting here in the dark closet.