Twitter is our id, Facebook is our Ego

I was speaking with my good friend Howard Lindzon, my partner in several Twitter-related investments, about the differences in the way people communicate on Twitter and Facebook. Howard's sense is that everybody lies on Facebook; that people represent a kind of "false self," so that it is hard to really know what a person is like from their Facebook profile. He feels differently about Twitter, however, holding the belief that people's tweets are a much closer representation of their true self than Facebook. So that someone who is a jerk on Twitter is likely a jerk in real life, and someone who is thoughtful and careful in their tweets is also like that offline. After considering Howard's theory, I am convinced that he is right. Then it hit me. There is a framework for conceptualizing the differences in peoples' communication between these two media: Freud's structural model of the psyche. In short, Twitter is the id, while Facebook is the ego.

The Twitter experience is one of quick bursts, rapid-fire communications that flow from one's brain straight out to one's fingers and onto the screen. For most, there isn't a ton of premeditation that goes into one's tweets. As we've learned with email, there are things people will say in an email that they would never say to someone's face: this has cost large corporations hundreds of millions of dollars in fines and billions of dollars in lost market value resulting from thoughtless, unmediated behavior. An entire industry, email monitoring, has emerged from the disasters of Wall Street and other businesses where impolitic, hurtful and downright stupid communications have been dredged up in discovery associated with myriad lawsuits. While real-time messaging behind the corporate firewall is now aggressively monitored, the lion's share of message volume is out in public for all to see. And there isn't a ton of motivation for mediating one's tweets; also, given the bounded nature of the messaging, it often results in a quick stream-of-consciousness that reflects the need of the tweeter to be heard and/or their desire to impress or shock. Consider Freud's description of the id, circa 1933:

It is the dark, inaccessible part of our personality, what little we know of it we have learnt from our study of the dream-work and of the construction of neurotic symptoms, and most of this is of a negative character and can be described only as a contrast to the ego. We all approach the id with analogies: we call it a chaos, a cauldron full of seething excitations... It is filled with energy reaching it from the instincts, but it has no organization, produces no collective will, but only a striving to bring about the satisfaction of the instinctual needs subject to the observance of the pleasure principle. [Freud, New Introductory Lectures on Psychoanalysis (1933)

In short, it is all about me, I can't really control it, and it feels good. This seems to me to be a pretty interesting way to think about many peoples' use of Twitter: "I'm getting a coffee;" "I just had a lousy subway ride;" "Check out this article, it's really good;" "isn't Congress missing the boat on this issue?;" etc. I WANT TO BE HEARD. I WANT PEOPLE TO CARE. I WANT TO FEEL IMPORTANT. READ ME! READ ME! Do most people actively manage their image on Twitter, or is it merely a reflection of one's inner self? I'm going with the latter.

Facebook, conversely, requires a much bigger upfront investment to get value out of the medium. A user needs to create a profile, invite friends, join groups, and establish an identity. This is a deliberate process, one which prompts at least some thought (at least among those over the age of 21). It is clearly not the ADD Twitter experience, where one need take no more than 5 seconds to rip out a tweet off the top of one's head. The user has enough time to use their conscious thought to create and maintain a Facebook presence, leading to an output that is more reasoned and more calculated than their Twitter identity. This sounds a lot like Freud's description of the ego:

...The ego is that part of the id which has been modified by the direct influence of the external world ... The ego represents what may be called reason and common sense, in contrast to the id, which contains the passions ... in its relation to the id it is like a man on horseback, who has to hold in check the superior strength of the horse; with this difference, that the rider tries to do so with his own strength, while the ego uses borrowed forces [Freud, The Ego and the Id (1923)]

With a Facebook identity representing a stake in the ground, it takes on a sense of permanence, of solidity. This is something that begs for more time and consideration than the Twitter stream, a constant cacophany of jabs, jokes, jousts and jeers. A mountain versus a river. A stock versus a flow. Their characters are entirely different and appear to tap into different parts of our make-ups. It is the difference between what we want others to see and what we can't help showing. The ego and the id. Our mediated self and our raw, inner being.

Twitter = Discovery

As you may have read, Stocktwits just closed its Series A round with True Ventures. Tony Conrad, of Sphere and WordPress fame, will be joining Howard, Soren and I on the Board. I am very excited about our new partner, and know that Tony's entrepreneurial IQ and product development expertise will be a huge asset to the Stocktwits team.

I have shared my views about Twitter in the past, and have only become more wedded to the ecosystem through my investments in TweetDeck and bit.ly. Given the passage of time and my greater intimacy with the medium, I decided to do a re-read of my "foundation" post of October 2008 titled Twitter: Monetize the Apps, not the Platform. Here is an extract from that post; it still accurately reflects my feelings about Twitter, its promise and its shortcomings:

I love Twitter because of its immediacy, the "one to many" concept and the fact that culturally, so many of those on Twitter monitor and manage their messages with a vigilance far exceeding that of email. This is its power at the most basic level. But when you think of creating communities around Twitter, be they related to companies, brands, entertainers, common interests, politics, etc., it is easy to see the massive power that can be harnessed pretty quickly.

So what do you need? Groups. Perhaps human-curated groups. With hierarchies and sub-hierarchies to help people best search and discover pockets of people they want to follow. Much as AOL, iVillage and the other major portals did to help organize and target their massive horizontal audiences. This easily helps new users get engaged and get busy, as they can simply wade in and find relevant groups with a few clicks. Further, groups are great targets for future advertising and lead generation, as they've self-selected into particular areas of interest.

You also need vertical applications. Investing. Shopping - cars, music, etc. Travel. And on and on. With a sufficiently robust API, the developer community can innovate in much the same way as they have for the iPhone. Create a Twitter App Store? Maybe. But the main goal should be providing the environment for developers to come up with great stuff that will be used, that ultimtely people will be willing to pay for.

Interestingly enough, many of my predictions have come true. There has been an explosion of applications built on top of Twitter, attempting to make sense of its vast and disaggregated audience. To this day, if I go on the native Twitter site and use its search functionality, I don't get much out of the experience. I get infinitely more value from the apps that have been built courtesy of the Twitter API. The problem then as now relates to discovery: how do I find people who care about the stuff I care about, find people from my past just as I do on Facebook, build a universe of people whom I follow that creates real community as opposed to a series of disjointed entities? These are still questions that remain to be answered. At the end of the day people want connectedness and relatedness. Yes, news updates and worthwhile and I follow a handful of bots to keep me current, but my follow list is largely comprised of people whom I like and respect, people who create interesting content that stimulates my thinking and brings me new perspectives. But I'm sure there are many more people out there I'd like to be following that I simply can't find, and vice versa. This is a mega problem that will invariably be solved, but it hasn't been yet.

Stocktwits is merely one answer to the profound question that is discovery. In its domain, it is a category-killer product. But we need many more Stocktwits to drive value to vertical communities - and affiliates and advertisers - across the Twitter landscape.

What Keeps Me Awake At Night: Economy Edition

The stress tests are done. All is well. Green shoots are popping up all over the place. The worst is behind us. Everything is cool, right? Well...

This is how my nightmare goes. The US Government has adopted the following mantra: BUY TIME. Buy time for:

• the stock market to recover;
• sentiment to improve;
• retail demand to pick up;
• credit markets to open up;
• bank balance sheets to be rebuilt;
• banks to lend to both consumers and small businesses;
• businesses to begin hiring again;
• homeowners who were once on the edge to be able to pay their mortgages;
• real estate prices to rise;
• residential and commercial mortgage-backed security prices to rise; and
• TOXIC ASSETS TO BECOME DE-TOXIFIED.

The US Government has done everything in its power to avoid the perception that it has lost control. Statements such as "None of the largest banks will be left insolvent," providing both direct capital injections and indirect support through the FDIC debt issuance guarantees, the AIG payouts that were funneled to Wall Street counterparties, TALF, etc. Further, the SEC and Congress were silent when FAS 157 was relaxed, providing further support to bank and insurance company balance sheets "as is." Buying time. Congress could have forced transparency, could have let the largest banks get restructured, could have facilitated a comprehensive plan against the illiquid asset problem. But this was not the path taken. And if the stock and bond markets continue to go straight up and if risk premia fall, then the "Big Brother" approach taken could be vindicated.

But what if, just what if, the economy hasn't turned the corner? What if job losses continue apace, residental mortgage defaults continue to rise and corporate bankruptcies spike? As defaults ripple through the system, given the lack of transparency and granular, easily accessible data around mortgage-backed security vehicles (CMBS, RMBS) and credit default swap (CDS) positions, how are we to untangle the mess in a timely and efficient manner? How are investors supposed to accurately price risk in the absence of this data? The US Government can continue its posture of uber-borrower, but this game can only go on for so long. Let's say the Chinese government gradually reduces its net purchases of US Treasuries, and also shortens the duration of its Treasury portfolio. As the US Treasury continues to run the printing presses, the Chinese would gradually build a compelling argument (and a powerful economic position) as to why the US Dollar should no longer be the global reserve currency and the basis of exchange in oil. Profligate spending coupled with fewer willing buyers will drive up US dollar long rates, debase the currency and set off a very unpleasant inflationary cycle. With plummeting real asset values, spiking inflation and high credit costs, the US would be in a very uncomfortable position, indeed.

The Administration and Congress have clearly taken the path of least resistance. Wiping out of the stockholders and unsecured bondholders of our largest financial institutions would have been a political nightmare, but it would have enabled the market to purge the excesses that our system has wrought over the past decade. An emphasis on generating comprehensive data and full transparency around toxic asset portfolios would have also helped in the process, creating a much clearer picture of ultimate ownership and a basis for working out the problem credits (and counterparties). This wouldn't have produced nightmares, it would have yielded wakeful pain followed by catharsis and and way forward. The path taken looks and feels good today, but potential troubles lurk just below the surface.

Is there a monster in my closet? Well, maybe...

On a Crash Course With the Rule of Law

As noted in my post on the invariable failure of the Treasury's PPIP initiative, it is impossible to coax liquidity from the sidelines if asset owners are unwilling to trade at a price approximating market value. In this case, banks perceive themselves to own a valuation call option, one where they hope time will boost asset values such that underwater (at least on a mark-to-market basis) securities have time to recover. While this is a negative approach supported by weak and ineffectual accounting rules, banks are not violating the rule of law.

Consider, however, the looming time bomb that is the Commercial Mortgage-Backed Securities (CMBS) market. With the hundreds of billions of 5 year paper originated between 2005-07, there is a huge refinancing requirement just over the the horizon. Many, if not most, of these projects are not readily financiable in today's market environment. Further, the complexity of their capital structures has given rise to an array of misaligned motives that will invariably find their way into court. Think about the unrated, junior most layer of the capital structure. These investors, with expected IRRs at inception of 20%+, are looking at a zero payout at this point  However, many also hold the servicing rights to the structures, and are charged with the responsibility of acting in the best interests of all debt holders. With the scepter of refinancing just 1-3 years out, all is not looking good. But with the hammer of their contractual rights and historically low interest rates, they are currently able to service the debt without the pressure of necessarily selling out, which is exactly what the AAA senior tranche would like them to do. So you have the AAAs who felt very secure in a liquidation scenario not controlling the timing or manner of liquidation, while the unrated z-bond holders are bust on a mark-to-market basis but holding most of the cards. At the end of the day the magic of securitization didn't disseminate risk, it spread responsibility. And in the absence of a need to mark-to-market, the vehicles can continue to exist as members of the walking dead. Now that the day of reckoning is rapidly approaching, their legal construct will necessarily be tested. The General Growth Properties bankruptcy will be our first mega-scale test of whether these Special Purpose Entity (SPE) structures hold up. This is a clear indictment of the way these vehicles were established, and the blame lies squarely at the feet of the structurers (convoluted and conflicted, no?), the rating agencies (AAA-rated super senior? Really?) and the investors (were these documents ever read?). When all is said and done, the rule of law will show us the way. But if the courts determine that the legal underpinnings of the CMBS market were somehow flawed and that the contractual terms between the junior and senior creditors are abrogated, then what is an already complex and fractured market will only get worse with a seemingly endless stream of litigation and confusion.

Another train wreck is the auto companies. Chrysler is currently staring into the abyss, soon to become part of the Fiat family. In the meantime, Chrysler's bondholders are in a game of chicken with the US Government, which would like to portray them as "obstructionist" and "putting their interests in front of preserving the company." Well, duh. What else did the the Government expect them to do, donate their holdings to the Chrysler pension plan? The kind of coercion and stiff-arming going on here, if not amicably settled, will land the Obama Administration and recalcitrant Chrysler creditors in a pitched court battle, which could have ramifications for not just the auto industry but any sector where the Government seeks to get "enthusiastically" involved. Is restructuring under the Administration's watch somehow more beneficial to all constituencies than under the experienced eye of the bankruptcy court? While the Administration has been pulling strings from the sidelines and tacitly engineering the bailout of the financial sector, it has steadfastly refused to force troubled institutions to face into their problems, whether through bankruptcy or radical restructurings of their businesses. The inconsistencies between the treatment of the autos and the banks is blinding, likely leading to suboptimal outcomes in both cases. Pussyfooting around with the banks. Wielding the hammer with Chrysler and GM. It just doesn't make sense.

One thing is certain: while many transactional lawyers have found their business drying up, bankruptcy lawyers will be in strong demand for years to come. May heaven help us all...