Twitter’s patent shortfall a potentially significant post-IPO hurdle
By Chantal Tode
November 6, 2013
While Twitter is expected to reach new heights following its stock debuts tomorrow, the company is also likely to be a bigger target of patent infringement claims once its coffers are full. This could be a potentially troublesome development as Twitter does not hold many patents.
With few patents or intellectual property of its own, one of the bigger challenges that Twitter could face as a public company is the strongly litigious nature of competition in the mobile space. The legal threat to Twitter is extremely real, with the company revealing in a recent IPO filing that IBM has accused of infringing at least three United States patents.
I think Twitter has a more significant patent problem then they think they do, said Dan Roche, New York-based vice president of marketing at TalkPoint.The reality is that, as an investor, it is off-putting that they dont have a lot of IP and their employees have ownership of many of the properties they invented.
While this might not be an insurmountable short-term problem, it will hurt the bottom line on the IPO and could prove a huge issue in the future, he said.
They may be using some of this initial money to buy off IBM and possibly purchase the rights to patents from their employees that they should have owned in the first place.
All the major mobile companies have been embroiled in multiple intellectual property related suits at one time or another, pointing to the significant bets these companies are making on having an important role in the quickly growing mobile space and the growing practice of using intellectual property as a weapon.
The recent claims made against Google by a consortium of companies including Apple and Microsoft underscores this trend. The Rockstar Consortium was formed with the purpose of acquiring patents to prevent Google from acquiring them and protect these companies mobile interests.
The IBM claims against Twitter could be a significant hurdle if the company decides to fight back, given IBMs significant resources.
However, Twitter’s history of avoiding the pitfalls of legal embroilments could serve it well.
This will in no way impact Twitter’s ability to make money, said Craig Elimeliah, vice president and director of creative technology at Rapp, New York. “Twitter has been nimble enough to navigate the muddy waters of patent trolls.
From its inception other services have tried to lay claim on specific features and functionality that seems to be somewhat similar in nature, he said.
Highly anticipated debut
Shares of Twitters stock are expected to debut on the New York Stock Exchange tomorrow.
The level of excitement in the investment community for the Twitter IPO is similar to that for Facebooks IPO last year.
While Facebooks experience as a public company got off to a rocky start because of questions about how it would generate revenue from mobile, Twitter is hoping to avoid a similar fate by taking a more open approach to reveal its inner workings.
Twitter recently raised the top price for its IPO, indicating it is expecting strong demand.
The company is hoping to sell up to 70 million shares at between $23 to $25 per share. If the IPO is successful, Twitter could raise $1.75 billion with the newly public company valued at up to $17.4 billion.
However, interest is strong enough that the final price could go even higher.
Users are so vested in the platform as a lifestyle and that is what is adding to all the excitement, Mr. Elimeliah said. Similar to Facebook, users and the general public probably feels that they have a greater connection to the stock because the company essentially relies so heavily on its users as a metric of success.
One way Twitter might put the money it raises in its IPO to use is to acquire patents to protect itself from potential litigation or to settle with IBM.
The company may also have acquisitions in mind that will help it boost its platform.
Twitter is considered to have one of the more powerful platforms for monetizing the growth in mobile because the short, real-time communications that are its mainstay inherently meet the needs of on-the-go users. As a result, the platform has been able to attract brands such as Oreo, Dunkin Donuts and Ford as advertisers.
This real-time relevance makes Twitter attractive to marketers looking to driven social interactions with customers.
Twitter is also well positioned to attract big brand advertisers looking to extend their reach from traditional TV into social media via second screen experiences. Twitters Amplify program was designed with this mind, enabling brands to target consumers who have viewed their ads on TV with an extension of that message on their mobile device.
Another potential area of strength for Twitter in mobile is commerce. Starbucks recently partnered with Twitter for a tweet-to-buy program that integrates with the coffee house chains mobile loyalty program.
However, Twitter does face some challenges beyond the patent issue.
Some of the challenges that Twitter faces as a public company is concern that it is overly dependent on advertising sales as its primary revenue source.
Other issues include that Twitter has not been able to turn a profit in the seven years of existence despite the fact that it has 230 million users.
Twitters role in mobile could be even more substantial going forward.
At the moment, Facebook is the only option for marketers who want significant reach in mobile.
However, Twitters recent MoPub acquisition combined with the social networks reach and data can be a significant option as well if Twitter is able to continue to build its user base, which is currently significantly smaller than Facebooks.
Twitter will also need to build out its advertising offerings to address the needs of specific verticals.
One of the challenges for Twitter is continued sustained growth, said Rajeev Chand, managing director and head of research at investment bank Rutberg Co., San Francisco. Quarterly user growth has slowed over the past few quarters, likely by competition from a series of new communications apps from WhatsApp and Instagram to SnapChat and Whisper.
Another challenge is developing monetization products for specific verticals such as TV, news, and retail, he said. They have done a set of recent hires, such as Jennifer Prince – TV and media – J.J. Hirschle retail – and Vivian Schiller news – to build those capabilities and execute on those opportunities.
Chantal Tode is associate editor on Mobile Marketer, New York