As Washington was fixated by the sound of gunshots over a quiet Capitol on Thursday, tech watchers pounced upon the release of the most hotly anticipated public document of the year: Twitter's S-1, which companies file with the Securities and Exchange Commission before offering stock to the public. These aren't your typical financial disclosure forms. They're meant to be compelling narratives about why what the company does is so special, and how it's going to win the future. At the same time, it's forced to divulge some previously guarded secrets, and admit the things it fears the most.
Here are the most interesting revelations from Twitter's sandwich board for the markets:
1. Two co-founders have gotten out completely.
Twitter's invention is generally credited to three guys -- Evan Williams, Biz Stone, and Jack Dorsey -- who rallied the troops at the company's San Francisco headquarters the day before the S-1 dropped. There's actually another one, Noah Glass (Twitter bio: "i started this"), who no one ever hears about. They've all moved on to new projects, but while Williams and Dorsey retain 12 percent and 5 percent of the $10 billion company respectively, Stone and Glass are nowhere to be found on the filing. He and other early investors, like the wunderkind Marc Andreessen, sold off their stakes somewhere along the way, and won't be affected financially by their creation's success or failure.
Who's still in? Early investors like Benchmark Capital, Spark Capital, and Union Square Ventures -- as well as a low-profile New York-based private equity firm that's played a much bigger role than most have realized.
2. Twitter really, really doesn't want to be compared to Facebook.
In a time when Wall Street is still deciding what it thinks about social networks, Twitter was always going to be measured against the Menlo Park behemoth, which famously flopped on IPO day. But Twitter is asking investors to consider them as two separate beasts.
For one thing, the offering itself is different: Twitter filed secretly ahead of time rather than with a lot of flash, it's not offering as many shares, and it's giving shareholders equal rights, rather than creating multiple classes of stock.
More interestingly, though, Twitter also itself in an entirely different social generation than Facebook's: Walled gardens are so 2011. Twitter, by contrast, is "open to the world," with content can be shared almost infinitely. Radical openness is Twitter's competitive edge, allowing it to become the "content creation, distribution and discovery platform for the Internet." There's an understood tradeoff here: People are willing to share more about themselves in environments they feel are more private. Twitter's bet is that what we're already divulging is valuable enough.
3. Twitter has three clients, but only one really matters.
The core of the S-1 is its value proposition to people who might pay money for Twitter's services. Two are relatively minor: Data miners that might want to search and analyze billions of archived tweets, and the "platform partners" that use Twitter to enrich the content they put out.
The filing spends most of its time talking about the third: Advertisers, which currently make up 87 percent of the company's revenue. Twitter talks about the "interest graph," which can be used to precisely target commercial messages in real time to people based on traits like gender, geographic location, and even what television advertisements they've tweeted about in the past. The idea is that no other medium gives an advertiser the opportunity both to reach exactly the kind of people it wants as well as create a broadly appealing viral campaign that can spread in unpredictable ways.
The filing does disclose that Twitter hasn't yet found enough paying customers to turn a profit, which means that its market debut depends on how well it's convinced investors that business plan could actually work.
4. Twitter's growth is linear, not exponential.
Tech companies that depend on large user bases like to see a nice U-shaped growth curve. Twitter has been steadily adding users, but not at the rate of Facebook, which went from 600 million users in year 8 to 1.1 billion two years later. That raises the question of whether Twitter will ever achieve the kind of ubiquity it needs to deliver the returns it's predicting.
Perhaps for that reason, Twitter wants investors to use a different metric to evaluate its success: Rather than the commonly accepted benchmark of revenue per user, the S-1 offers "timeline views," which is a way of measuring how much a user checks Twitter. There, it can tell a slightly better story: Revenue per timeline view is up 26 percent for the year ending July 30, 2013.
5. Twitter doesn't see itself as irreplaceable, and it does see advertising as a zero sum game.
The problem with simple concepts is that they're easier to replicate and incorporate into existing platforms. In the section where it lays out future risks, Twitter raises the possibility that Google and Facebook could develop Twitter-like functionalities that become more popular overseas, where they're already stronger. Also, it knows that one company's loss is another's gain.
"In order to grow our revenue and improve our operating results, we must increase our share of spending on advertising relative to our competitors, many of which are larger companies that offer more traditional and widely accepted advertising products," the filing reads.
In social land, user engagement might be infinite, but the financial rewards for it are not.