Wednesday, August 22, 2012

Who's Number One: Revenue or Customers?

There's a new kid on the block, that, from what I understand, is a Twitter-esque service that is supported by user and developer membership fees, not paid advertisements. The company puts it this way, "We're building a real-time social service where users and developers come first, not advertisers." Call me a cynic but I don't think puts users and developers first any more than Twitter and Facebook put advertisers first. And thanks, to my cynicism, this sparked a great Twitter Debate or "twibate" mainly with my boss, @jeffturner (from the bottom up):

As you can see from the conversation, I think that revenue comes before anything else - users, developers, or even advertisers. For a company to say that they put users and developers first is the very definition of being altruistic, that is to be selfless. If the company is sincere about users first, then I ask, why not be structured as a non-profit organization? There will be a part two of this coming soon to discuss the merits of both for-profit and non-profit business organizational structures. For the duration of this post, I simply want to assert my case for why I think revenue comes first because Twitter simply doesn't lend itself to the lengthy explanation this requires.

I can't think of a single business that doesn't say something along the lines of "the customer comes first" or "the customer is always right". But that's a lie. We all know it's a lie but it's not offensive because we are endeared by the implication that customers are at least very important. Customers aren't always right. If a person attempts to return a Dell laptop to an Apple store, the geniuses are going to laugh him out of the building. If someone fat-fingers a contract so it says a website will be built with HTML 6, the customer is still going to get an HTML 5 product.

The customer isn't always wrong though either. In fact, customers are extremely important - so important that I think it's fair to say that customers and revenue go hand-in-hand. If a business doesn't have a customer base to fill the bank account, it will cease to exist faster than Solyndra. Because of that, it's imperative that the company cater to the customers but the business itself still comes first. A company can't operate in a deficit to please customers. A company can't operate illegally to please customers. A company can't operate unethically to please customers.

In the end, whichever group is paying is going to get the most attention but don't mistake attention for importance. When ordering by importance revenue is what keeps the business operating and therefore revenue must be the greater of two equals. One may start a business with the earnest intent of providing a great service and not with the intent of becoming a bazillionaire. was started to provide some user-oriented features that Twitter simply can't offer and they're able to do that because they're using a different model for generating revenue. They still wouldn't even be in business if they didn't have some sort of funding. 

Acknowledging that revenue is first isn't a bad thing. Money isn't a bad thing. However, when revenue becomes disproportionately large over the customers then the business/customer relationship begins to break down. There's an implicit trust that customers understand the business needs to make money but that the business will not gouge the customers. If the business can't make money, it ceases to exist. If the business takes advantage of the customers, they'll eventually catch on and patronize someone else who will treat them fairly. Balance is key but revenue is #1.

On a side note, I'd like to mention I haven't actually tried's service but I believe that is irrelevant to the opinions mentioned above. This isn't a review of the service. Rather, serves as an excellent case study of my broader world view on business economics and should not be construed as being either for or against either Twitter or 

Side note #2: Thanks to fellow blogger Stephanie Quilao (@skinnyjeans) and her post, App.Net: Why This Consumer Would Pay A Subscription for a Twitter-like Social Network, which helped set all the gears in my head turning. I always love to read something that makes me think!

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