Blogging, microblogging and social networking services are rapidly growing in use by business. Can they be beneficial to businesses or are they a pointless waste of time? I take a detailed, frank (I may rename this post “How to lose friends and alienate people on Twitter by being too open about my calculating approach” ) and balanced look at one of the biggest, Twitter, with some tips on how you can make strategic use of it and blogging.

According to a recent 02 survey, an estimated 700,000 small businesses are using Twitter with 6,000 joining everyday. The numbers certainly suggest that it is more than a craze, but there are plenty of examples of companies just jumping on the latest band-wagon, so is there real value in such tools?

Being human

I’ve found that having a ‘face’ on your business is really important. As the old sales adage goes, “people buy from people”. It might sound a little odd coming from a technologist who is a firm believer in the future of the cloud IaaS market as an automated, interoperable commodity market place much like the electrical power grid is today, but we are not there yet and even then there will always be people and values behind the companies.

Therefore, about four years ago I decided to borrow a leaf from the US IT entrepreneurs and put myself firmly and visibly out there as the face of my company, Memset. That started out with putting a bit of information about me and the management team on our Web site, with pictures, and me starting this blog.

Another part of that strategy was also to ramp up our press relationship effort. I think of my professional blog and PR in a similar vein, and with a similar purpose. Making myself available to journalists was particularly key, since often the easiest way to get some coverage is to get a sound-bite in someone else’s article, and the blog posts often helped with that too. It was a place I could voice an opinion and, slowly at first, I started to get picked up on that.

So, now our new customers were not just buying from a faceless corporation, but from an organisation run by a real, accessible (I also put a direct email address on our Web site) human being, with views and opinions that were starting to gain traction in the technical press as well. While it is not quantifiable, I am confident that contributed significantly to our early success and helped us, as a small company at the time, punch above our weight.

Shorter, faster, more interactive

Today I use Twitter a great deal as well, and in many ways it is achieving the same things as my blog but in a more real-time, bite-sized manner: micro-blogging. I see two purposes to my work Twitter account, @Memset_Kate:

1. A promotional tool
2. A place to ask questions (and get answers)

Here I am mainly looking at the first element, using it to raise your or your company’s profile, but the second element is also very important to me. Twitter is a fast, convenient way to plug into the collective wisdom of people with similar interests, in my case mainly around technology. For example, if I were looking for a new software package for a task, Twitter would be my first port of call. In fact, I value that distilled wisdom so highly that I recently launched Tweet Download™ since I wanted an easier way to preserve my tweets and others’ replies.

Many people also advocate Twitter as a way to plug into news, but personally I find subscribing to a sensible magazine (The Economist and New Scientist being my personal choices) or Web site much more effective and less time consuming.

Twitter is quite different to a traditional blog in a number of ways beyond the obvious brevity and frequency. With a traditional blog it is helpful to engage with commenters, and to get something of a dialogue going, but that is by no means the core of what it is about. Twitter is all about the dialogue though, and if you just post tipbits of information but never engage with your followers you’ll fail to reap the benefits.

As with more static Web content’s ability to humanise an organisation if used correctly, Twitter enables us to again plug into something that people enjoy and which makes them feel more comfortable about other people (and thus organisations): conversation. Also akin to our natural interactions, Twitter is a collective of inter-connected communities, but with the added feature of popularity being quantifiable (ie. follower count), and that is important if you want to use it to leverage your brand.

As with any social circle, in order to be liked and make friends you need to do certain things: say interesting stuff, help others out, and engage in the conversation. Most Twitter users want to be popular, and you can therefore gain favour by mentioning them, replying to them or retweeting them in your stream. In return they are more likely to engage with you and return those favours, helping you raise your own profile. In doing so you become more popular, and what happens with to the popular kids? More people want to be their friend.

Keeping it real

Before continuing with the mechanics of online social interactions it is worth mentioning topics. With my blog I found it best to be mainly focussed on a narrow range of topics (green technology, hosting, business, cloud etc), but I still try to write openly and frankly, and I do write the articles myself. I firmly believe that it is important to be yourself – a real person – when using such tools. Too often you see blog posts that are clearly generated by a PR department, or done generically from a company, and I think they are missing that important objective of presenting a personable face.

With my tweets I take it a step further and do sometimes touch on personal stuff. Now I’m not advocating a blow-by-blow account of what you have for lunch, but as part of presenting oneself as a real person (not a corporate suit) I believe it is helpful to let one’s followers in a little bit. Have a look at my twitter feed for examples of what I mean.

Being a bit of a bitch

Unfortunately, however, we can’t be friends with the whole world. I have a couple of thousand followers and little time to spend chatting to them. The key to making successful use of Twitter is to be selective, though ideally without showing yourself to be thus. I have a number of steps in the process, and they revolve around an approximate ranking system for how valuable I think someone is, a lot (but not all) of which comes down to how well-connected they are:

1. Followers:followee ratio – if someone is followed by more people than they follow it is a good sign of a high degree of quality and/or influence.
2. Are they a journalist?
3. Are they someone senior in my field of interest?
4. Do they interact bi-directionally with a journalist or someone senior?
5. Do they talk about relevant topics (vs. “I like cheese!” / political rants / etc.)?
6. Do they know their stuff (vs. “Blah blah cloud, blah blah cloud, blah blah platform”)?
7. Have they helped me out already, eg. by re-tweeting me?
8. Do I feel I could have a rapport with them?

I cannot remember exactly who I should be making the effort with at any one point though, so I have some techniques and tools. First, I only follow back about 50% of people who follow me, and I’ve delegated that task to my PA since I get an awful lot of new follower requests. That gives people a warm-fuzzy feeling of mutual interest, but I must admit that is a bit of a deception.

In reality I rarely look at my “all friends” column, instead I have a private group, “faves”, as a column in Tweetdeck (a great application for those serious about Twitter – the Web site alone is insufficient) to which I add people with which I think it is worthwhile interacting. I then focus my attentions on tweets appearing in that column, as well as my mentions column of course. If someone is talking to you then it is important to reply, and usually not time-consumptive unless you allow yourself to be drawn into pointless debate (“Someone is wrong on the Internet!”).

In terms of choosing who I follow, other than people who follow me first, I use the same targeting rules as above. If there is someone who often gets re-tweeted or mentioned by other people that I deem of high value, then I’ll tend to follow them and make the effort to get into their online social circle.

This may sound all rather conniving, but is it any different to how we act when in business networking situations? We seek out those who are on our social level which can help us be noticed by the people with more influence in hopes of elevating our social position. Also, one has to be a bit hard-headed about this sort of activity, otherwise you risk allowing a highly addictive and fundamentally unproductive diversion to end up costing you a lot of valuable time.

Staying in touch

Unlike blogging, Twitter and such does have another very important ability: to help the dialogue with your customers. If a customer has a problem with our services they are much more likely to moan about it on Twitter or a forum than they are to send in a complaints email, and that is fantastic since it gives us an opportunity to publicly stand up for ourselves or, where necessary, apologise. Equally, when someone praises your business you can leverage that, and often people ask others’ opinions on brands via tools like Twitter, and without a presence you will be unable to react to such queries.

We encourage our systems administrators to assist on some forums partly for that reason. Forums are just another online social network, but with a very specific topic, and they are a great way to gain exposure and demonstrate your expertise if you are willing to put the effort into the interactions.

The future

So, do I believe in the future of social networking as a business tool? In short, yes, but I am unsure as to what extent. I think that it can be very helpful right now, but I think the social networking landscape may be changing. I also use Twitter heavily in a personal capacity, to organise nights out with friends and keep up with them, but that is a very private account. My friends, most of whom are in their twenties, and I are increasingly locking down our Twitter and Facebook accounts, dropping “unknowns”, making them private/”friends only”; keeping ourselves to ourselves.

Therefore, I do wonder whether the novelty will wear off in time; whether we will return to principally interacting privately with people we know in the flesh, using online social networking as an augmentation to those meat-space interactions and largely ignoring strangers. There is a danger that the current Twitter-boom is partly driven by people like the work-me, or those of you reading this article, trying to get a leg up for themselves or their business.

The role of cloud computing in government IT – an introduction to the large G-Cloud and App Store project under way in the UK; what the UK public sector hopes to gain from a cloud approach, an overview of the proposed technical architecture, and how to deliver the benefits of cloud while still meeting government’s stringent security requirements.

To watch the video of my presentation, click here:
[See post to watch Flash video]
© http://oscon.com Kate Craig-Wood (Memset), “The Government and Cloud” under a Creative Commons license

Following my presentation I joined the panel to debate ‘A Cloudy Feature Or Can We See Trends?’

The panel of experts, including  Dion Hinchcliffe (Dachis Group), Tim O’Reilly (O’Reilly Media, Inc.) and JP Rangaswami (BT Design) discussed what’s next for cloud computing, what implications cloud creates, the role of government and what changes are we likely to see?

Questions

• Is cloud inevitable?
• Will anyone win the cloud?
• What national impacts will cloud have, will there be government regulation?
• Are we heading towards a permission based web?
• Are there any dangers you forsee?
• What’s next?

To see the video, click here:
[See post to watch Flash video]
© http://oscon.com Kate Craig-Wood (Memset), Dion Hinchcliffe (Dachis Group), Tim O’Reilly (O’Reilly Media, Inc.), JP Rangaswami (BT Design), “A Cloudy Future or Can We See Trends?” under a Creative Commons license

An impressive amount for a technology startup with no clear means of generating revenue, so I thought I would do some calculations of my own:

Twitter has about 18-20 million users in the US, according to Mashable

Earnings, earnings, earnings

There are 300m people in the US and 750m in Europe. Let’s assume that the ratios are the same for Twitter users. Therefore, the total number of Western Twitter users (ie. people who would potentially pay for anything) in 2010 is:

(20m / 300 ) * (750 + 300) = 70m users

To justify a $1bn (£625m) valuation they need to be able to realistically generate at least 5% of that as profit (20x earnings multiple, which is basically unheard of outside blue chip corporates) ie. at least $50m/year.

Therefore, in round numbers, they need to be able to realistically expect (in future) to generate earnings (profits) of $0.70/year from each user.

So far, perhaps not unreasonable; once micro-payment systems start working properly one could imagine users paying a notional $0.10/month to use Twitter, or advertisers paying that per user, at least so long as Twitter is the only one of its kind.

Twitter ain’t so special

That is where we realise the valuation’s big flaw: Twitter is not doing anything special. To build another system that replicates their functionality would, in my opinion, take 2 good coders, 2 good system administrators and one good web designer 6 months, tops. Add in some management and marketing capability for operational running and if you are a generous employer your wage bill might be £500k/year ($800k).

What about hosting costs? Well what it boils down to is a large and very active database:

Assuming 100m users
100 reads & 10 writes per user per day
= 10 billion reads & 1 billion writes per day

Squeeze into 16 active hours (just looking at the West)
= 120,000 read & 12,000 write transactions per second

To host a system which is capable of those transaction levels you would need at most 100 1U quad-core machines loaded with RAM (eg 24GB), costing £200/month each, or £240k/year ($385k).

So, I reckon that Twitter’s operational costs should be under $1m/year. But what do I know, right? I’ve only been designing, building and hosting massively automated online business systems for a decade, not to mention being one of the UK’s leading tech entrepreneurs.

A more rational valuation

So why are Twitter’s investors valuing such an easily-and-cheaply replicable business so highly? I suppose that they are banking on a land-grab effect and user stickiness, but we have seen what is happening to MySpace’s diluted popularity faced by new competitors.

When faced with such valuations I fall back on common sense and base the valuation on a cost-plus revenue model, ie. “what would it cost to provide the service, plus a modest profit margin”? All businesses and markets eventually commoditise down to that price point after all, and such commoditisation can happen very rapidly in the online world.

Viewed from that perspective I estimate that Twitter’s services are probably worth about 1.4 cents per user per year at present (estimated $1m/y running costs divided by 70m users). Lets be really generous and assume that they are able to generate 50% profits on that (first-mover advantage etc), so we get $500k/year profit, which at our mentalistic 20x valuation ration would give a valuation of a whopping $10m (£6.25). Hmm.

But that can’t be right?

I admit, I am taking an extremist point of view, and commoditisation of this very new and innovative sort of service is almost certainly several years away. However, defaulting to a cost-plus business model does demonstrate the likely value of such services when the competition have all caught up, and in Twitter’s case it is not a terribly exciting outlook.

Further, the valuation is being extrapolated from a $50 million purchase for a minority share holding. That investment was possibly more about getting a seat on the board than about a real valuation of the company.

Finally, and call me a cynic, but most investors are in the business of making a large return on a high-risk investment with a short time-horizon. One of the ways that happens all-too-often in the technology sector is less about yields and more about a business’s price getting hyped as high as possible before the savvy investors get out. Some some poor sap is then left holding the baby when commoditisation or better-competition comes to bite, exposing the lack of substance behind the valuation and causing the valuation to tumble.

Eye of Google

That is Twitter’s fundamental problem, to repeat myself: It is nothing special. Google (for example) deserves its outrageous share capitalisations because they have a unique technology which gives them an indomitable lead in the market place. Twitter is little more than a non-realtime Web-based chat room, and its technology would be trivial to replicate. Expectedly, the behemoth that is Google has indeed turned its lidless eye on chat-like status-updates in the form of Buzz.

To my eyes, their strangle-hold on the consumer Web-services market remains unchallenged by the likes of Twitter. The only interesting thing I’ve seen, however, is that their master-plan to crush Microsoft by making the browser the new platform was perhaps hiccoughed by Twitter in the form of software like TweetDeck – an example of Web services reverting to local software clients. Perhaps the browser is not quite ready for everything we want to do just yet after all, but I doubt that will save Twitter from eventual relegation to the Web-stars twilight world along with the likes of friends reunited.

They announced it as a “Small Settings Update” – pasted below:

Small Settings Update

We’ve updated the Notices section of Settings to better reflect how folks are using Twitter regarding replies. Based on usage patterns and feedback, we’ve learned most people want to see when someone they follow replies to another person they follow—it’s a good way to stay in the loop. However, receiving one-sided fragments via replies sent to folks you don’t follow in your timeline is undesirable. Today’s update removes this undesirable and confusing option.

The Importance of Discovery

Spotting new folks in tweets is an interesting way to check out new profiles and find new people to follow. Despite this update, you’ll still see mentions or references linking to people you don’t follow. For example, you’ll continue to see, “Ev meeting with @biz about work stuff” even if you don’t follow @biz. We’ll be introducing better ways to discover and follow interesting accounts as we release more features in this space.

The beauty of Twitter has always been that it is like a chat room where you are not necessarily listening to the same people who you are talking to. That may seem a bit odd at first, but when you think about it it can be rather cool. Take me for instance; without sounding too egotistical, I have time to follow about 100 people, but more than that are interested in what I have to say. Some of those people might mainly use Twitter to talk about personal issues that are not relevant to me, so I don’t follow them.

Equally, I like hearing replies from people I do follow to people that I do not. That way I can “listen in” to conversations of the people I follow and if it sounds interesting I can link through and look at the other side of the convo, but I don;t have to have the other person in my feed / timeline.

@monkchips is a good example; he is a great Twitterer and a strong voice in the IT community. He follows about 800 people, and is followed by >5,000. I like hearing his side of conversations directed at people I do not follow, since then I can cherry-pick interesting sounding ones. I follow him because he is interesting, not because he is a personal friend or we share friends.

In effect, this change is turning Twitter into a ‘normal’ chat room just like the ones I was using 13 years ago at University. We used a system called Internet Relay Chat.. or IRC as it is commonly known. Such a shame to see a great innovation in online comms take a massive leap backwards.