Welcome to the TwitterBubble

FT article about funders lining up to fund Twitter based startups:

Even though Twitter itself is yet to generate any revenue, early-stage investors are pouring millions of pounds into small companies in the Twitter “ecosystem” in the London area.

London has produced the most popular of the many third-party tools used to post to Twitter, called Tweetdeck. Reading’s Tweetmeme, which tracks the most popular news stories discussed on Twitter, is attracting millions of visitors a month while Twitterfeed, based in Tooting, is used by thousands of publishers to post their latest headlines on to the site.

“In the UK we’ve got a real phenomenon going on,” says John Borthwick, the British-born chief executive of Betaworks, a New York company that has invested in Tweetdeck, Twitterfeed and Twitter itself. Just as Scandinavia took an early lead in mobile technology, “the UK has become fast-forward in terms of social”, thanks to high broadband penetration.

In fact, reading some of the more breathless commentary doing the rounds one can see the unmistakeable signs of Bubblepsych, albeit a microblogging Microbubble. The underpinning logic is very sound, in our view:

Saul Klein of TAG and Index Ventures, which also backed Skype, sees Twitter as part of a more fundamental shift in the internet to being a “live experience” rather than serving static web-pages.

“The web has gone through three major phases,” he says. “The first was publishing. The second was more personalised and social. What we are seeing now is the growth of real-time services, such as status updates and micro-blogging. The way you find value from that is fundamentally different to anything we’ve seen before.”

We'd agree that the Web is moving to a realtime Web, and in fact will evolve from there (we believe that real time will by necessity demand a filtered, predictive web). But to put one's eggs in the Twitter basket is a big risk, as you are essentially handing power over to a proprietary environment owned by a 3rd party that itself does not yet have a route to making profits - in fact in our view its most likely route to profit is a charge on those same services using its ecosystem. There is also, in our view, very little barrier to entry for newcomers so it will be hard to ensure a competitive advantage.

Wordpress adopting widepread RSSCloud, Google adopting PubSubHubbub, and the relative ease of building a Twitter API system via open source components implies to us that the "real time" ecosystem landscape is going to get much more competitive, and quite fast, so good luck to Twitter and all who sail on her - I think they will need it. And just in case, as the FT notes:

....even though their names betray their origins, many of these businesses are expanding to include other social networks, such as MySpace and Facebook – just in case Twitter turns out to be a fad after all.

Very sensible - build a brand and early user base on Twitter but be ready to move across other ecosystems. Or even better, plan to be across all from teh start - the risk is other platforms will build on these other ecosystems too. From a funding point of view, a flutter on Twitter is a great idea - but betting the nest egg probably isn't!