Meta's Threads x Twitter: Lessons on Competitive Strategy and the Commoditization of "Competitors"

Kevin Systrom + Matt Cohler's texts show how worried about Twitter Mark Zuckerberg has historically been. Cohler, a former Facebook executive, says "he already told me that he thinks it's bad for anybody else to control posting of photos onto fb at large scale… but i think there's more to it i suspect that what he's really worried about is twitter. if twitter and instagram became one company it would make life more difficult for facebook". It's safe to assume Zuck wanted to buy Instagram because, among other things, he feared it could be bought by Twitter. Cohler was an insider.

Anyway, Zuck ended up buying Instagram, and that put him at ease re: The Twitter Threat, which was probably non-zero going forward, but still there running in his mind's background. To make his psychological life easier, Twitter was moribund for a long time, shipping features at a turtleish pace and showing no competitive aggressiveness. "Let it be," thought the cyborg.

With Elon Musk now at the driver's seat, Twitter is making aggressive moves (for example, it now allows for the posting of long-form video, which is an attack into YouTube's garden), Mark is most definitely more afraid of The Twitter Threat, a potential entering proper into photos and short-form video.

Enter the move he made with Threads. Starting up a Twitter "clone" is actually just a boring part of the picture. The most interesting part is the fact that Threads is going to be "open". As per the company's post introducing the product:

"We’re working on Threads soon being compatible with the open, interoperable social networks that we believe can shape the future of the internet"

and

"Soon, we are planning to make Threads compatible with ActivityPub, the open social networking protocol established by the World Wide Web Consortium (W3C), the body responsible for the open standards that power the modern web. This would make Threads interoperable with other apps that also support the ActivityPub protocol, such as Mastodon and WordPress – allowing new types of connections that are simply not possible on most social apps today. Other platforms including Tumblr have shared plans to support the ActivityPub protocol in the future."

This is really interesting. There is a long history of technology companies using open-sourcing-as-a-tool-to-commoditization as a competitive tool, both to kill potential competitive threats or to boost product complements.

An early mention of the theme happens in Hal Varian's amazing Information Rules:

Traditional rules of competitive strategy focus on competitors, suppliers, and customers. In the information economy, companies selling complementary components, or complementors, are equally important. When you are selling one component of a system, you can’t compete if you’re not compatible with the rest of the system. Many of our strategic principles are specifically designed to help companies selling one component of an information system.

The dependence of information technology on systems means that firms must focus not only on their competitors but also on their collaborators. Forming alliances, cultivating partners, and ensuring compatibility (or lack of compatibility!) are critical business decisions…The history of the Microsoft-Intel partnership is a classic example. Microsoft focused almost exclusively on software, while Intel focused almost exclusively on hardware. They each made numerous strategic alliances and acquisitions that built on their strengths. The key for each company has been to commoditize complementary products without eroding the value of its own core strengths. For example, Intel has entered new product spaces such as chipsets and motherboards to improve the performance of these components and thereby stimulate demand for its core product: microprocessors. Intel has helped to create a highly competitive industry in component parts such as video cards, sound cards, and hard drives as well as in the assembly and distribution of personal computers.

Microsoft has its following of independent software vendors (ISVs), and both companies have extensive licensing programs with original equipment manufacturers (OEMs). And they each have each other, an extraordinarily productive, if necessarily tense, marriage. It’s in the interest of each company to create multiple sources for its partner’s piece of the system but to prevent the emergence of a strong rival for its own piece. This tension arises over and over again in the information technology sector; Microsoft and Intel are merely the most visible, and profitable, example of the complex dynamics that arise in assembling information systems.

Joel Spolsky was another one to tackle the subject:

"A complement is a product that you usually buy together with another product. Gas and cars are complements. Computer hardware is a classic complement of computer operating systems. And babysitters are a complement of dinner at fine restaurants... All else being equal, demand for a product increases when the prices of its complements decrease... When computers become cheaper, more people buy them, and they all need operating systems, so demand for operating systems goes up, which means the price of operating systems can go up... In general, a company’s strategic interest is going to be to get the price of their complements as low as possible. The lowest theoretically sustainable price would be the “commodity price” — the price that arises when you have a bunch of competitors offering indistinguishable goods."

A key quote in this paragraph I glued together is "The lowest theoretically sustainable price would be the ‘commodity price’ — the price that arises when you have a bunch of competitors offering indistinguishable goods." That's why companies tend to try to commoditize their complements (in Spolsky's case by making the complement open-source) in order to make sell more of its core product.

Another potential move that's very related is to commoditize a piece of your value system upstream or downstream (for simplicity purposes, customers or suppliers) so as to make them less individually bargaining-powerful, thus being able to capture more of the value system's [1] profit pool.

I took this little detour to give some color on how I think Meta's launching of Threads with an "open" flavor is related to this whole idea maze of open/commoditization/competition.

By boosting ActivityPub adoption (making Threads compatible) Meta seems to be trying to weaken Twitter and its closed protocol, so as to reduce the chances that Twitter might become a potential future competitor at Meta's most profitable turf, which is Instagram (feed, reels and stories, which faces an already steep bunch of competitors, esp. TikTok). By making Threads open to Mastodon and BlueSky content (and vice versa), Threads is boosting the strength and attractiveness of the trifecta's joint network as an alternative to Twitter's very strong one. If it succeeds, it might even push Twitter to also adopt the open standard. And the more the content is interoperable between networks, the less relevant the "client" becomes. [2]

Notes:

[1] I use Michael Porter's "value system" x "value chain" terminology instead of the more usual use of the terms, which ignores the term "value system" and just uses "value chain" when describing the processes/players/steps upstream and downstream of a company. For Porter, "value chain" is, for simplicity's sake, the inner workings of how a company creates value, from the walls in, not out.

[2] Reminds me of the Tesla x Edison fight for standardizing AC x DC.