Another Twitter Misstep
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In another desperate flail, Elon’s Twitter started blocking links to Substack yesterday. This was in response to Substack announcing a social media-type product in the form of “Notes.”
While I have a personal interest in Twitter reversing this policy so I can share links, I also believe it makes sense on the economics and business strategy.1
(Update: A few hours after this post went up, Twitter reversed course. I will let you decided if that’s causal.)
Yes, businesses must constantly adapt and make strategic decisions to maintain their competitive edge in the rapidly evolving world of online platforms. Twitter needs to try new things. But the move to block Substack links (along with earlier similar actions against Mastodon) is counterproductive for Twitter in the long run, especially if its goal is to remain the dominant platform for online discussions. It cuts directly against the platform's value as a central hub of third-party content.
Instead of stopping the growth of a competitor in Substack's Notes, blocking links increases the benefit of Substack in developing its own social network through notes.
I don't know much economics, but I believe when you increase the benefit of something, you see more of it. By turning into an unreliable funnel for content, Twitter is actively fostering the growth of competitors and jeopardizing its role as the central platform.
Twitter as One-Stop Shop
Twitter's dominance over the past decade relies on it being a central platform for discussions. A dominant incumbent creates value in displaying or embedding competitors' offerings to centralize as much activity as possible on its platform. By doing this, the platform reinforces its dominance by becoming the go-to place for all online activities. For Twitter, applying this principle would mean embracing content from third-party platforms like Substack and making it easily accessible to users, as it has done forever. Scott Kominers called Twitter a "one-stop shop," and I like framing. Oh, but I can’t embed Scott’s tweet because Twitter blocked that, too, now.
Yes, stand-alone tweets are good, but access to third-party content gives Twitter an advantage. That is the network effect that Twitter generates. Twitter without links does not work. Sorry. The tweets aren’t that good. But by being drawn onto the timeline for the mix of tweets and links, Twitter draws in more eyeballs.
Moreover, the external content is a symbiotic relationship. Readers find it easier to discover interesting NYT articles through Twitter. Writers find it easier to reach audiences by posting to Twitter. For our newsletter, the biggest jumps in Subscribers come when a tweet of ours goes viral. We don't see jumps when we publish actual newsletters. And so I spam Twitter with my Substacks, so people who see my viral tweets also see my newsletters. That brings me to Twitter as a writer.
More importantly, since most people are readers, it brings me to Twitter as a reader. My interaction with Twitter, while heavy, is biased toward academic and policy circles. But its use as a hub extends beyond that niche. To follow the latest sports news, you can go to Twitter and then, from there, end up at ESPN for an article. Does anyone go straight to ESPN or NYT anymore? Some do, but many access articles through Twitter (or Facebook). That is a competitive advantage that Twitter has been able to cultivate and why it has proven so helpful for many users.
Substack will never compete at the scale of users that Twitter has. That’s not the business model for writers or Substack. Most people simply do not want to read or write essays. Most people want short, snarky comments and memes. I wish more people loved long, rambling economics newsletters, but that's not the world. De gustibus non est disputandum. There is no world where the thread to Twitter is that Substack directly supplants Twitter as the one-stop shop. But the move does encourage Substack to peel off whatever reader base it can.
By blocking Substack links or otherwise making Twitter unreliable as a source for Substack traffic, Twitter inadvertently pushes the platform to invest in building an alternative channel for content distribution. Beyond Substack’s direct investments in Notes, this move could encourage existing users to explore alternative platforms for accessing Substack content, ultimately reducing the time spent on Twitter. I have no inside information about Substack, but it seems entirely plausible that Substack sped up “Notes” due to the lack of reliability from Twitter over the past year.
The role of a central platform is like a retail store; the value lies in its ability to be the primary access point for users. Think of any place that sells electronics, like Target or Best Buy.
Why do they carry Apple products? After all, Apple has competing stores. And any major retailer has its own, exclusive brands, so they compete on products too. By selling Apple products and getting people into the Apple ecosystem, they support a competitor!
When a retail store carries Apple products, it attracts customers who might not have visited it otherwise. Once these customers are in the store, they may discover and purchase other products with higher profit margins. The same is true for online retail. You want everyone searching your website, even if that means they sometimes do not buy your product. It’s a cross-subsidy.
Similarly, Twitter attracts and retains users by integrating outside content into its platform. People go to the central hub and then engage with other content and features on the site, ultimately benefiting Twitter.
Google's search engine is another example of how funneling users through a centralized platform can ensure a company's continued success. By being the primary gateway for accessing information on the internet, Google has managed to maintain its position as a market leader.
Google has successfully integrated third-party content like videos, images, and news articles into its search results, making it a one-stop shop for users seeking information. By doing so, Google has managed to keep users within its ecosystem, driving more traffic to its own services and generating revenue through advertisements. This approach has solidified Google's position as the dominant search engine and an essential part of the internet experience for millions of users.
That doesn't mean the old system was perfect for Twitter. Facebook is similarly struggling. But instead of driving users to other platforms, Twitter could work on integrating third-party content into its platform and charge a small affiliate fee for paid subscriptions at Substack. We know a Pigovian tax is more efficient better than a ban. This would provide Twitter with an additional revenue stream while discouraging the development of robust competitors. You could also imagine a setup where Twitter would allow users to read entire Substack posts within its platform, making Twitter the primary destination for accessing content. That already happens with videos, which can play on Twitter without actually going to YouTube. By embracing and monetizing third-party content, Twitter could maintain its dominance in the platform ecosystem. Blocking links is a step in the opposite direction.
Or Twitter can throw fits like my toddler and continue to bleed money and users.
While I generally strive to describe business behavior using economics, I also do some research in strategic management, which, as a by-product, generates suggestions about how businesses should operate to make a profit.