Here Is Why Twitter Bought Social Data Startup Gnip

Three primary reasons why Twitter has acquired Gnip, a social data startup founded in 2008, for an undisclosed amount.

Twitter Gnip Deal

“Investments in Social data are healthier than ever,” wrote Gnip CEO Chris Moody with news spreading that Twitter has acquired Gnip, a social data startup founded in 2008, for an undisclosed amount.

Gnip was one of the four companies that became Twitter’s first data partner with access to Twitter’s so-called firehose, the full stream of tweets flowing through Twitter on a second-by-second basis since 2006, which now average roughly 500 million a day. Gnip analyzes this information and resells it, primarily to businesses interested in how consumers view them. It is also partnered with other social sites like Tumblr, Foursquare, and Disqus.

The other companies with access to Twitter’s firehose are DataSift, a social data company with $71.7 million in venture backing. NTT Data, which primarily operates in Japan, is the third and the last one is Topsy, which got acquired by Apple for more than $200 million in December 2013.

With this latest acquisition by Twitter, we finally see the social network focusing on data licensing which till now had left such analysis to partners.

Twitter gets serious in Data Licensing

Selling access to the firehose is a reasonably important business for Twitter.

During the company’s S-1 stated last year, the data licensing business only brought in about a tenth of what Twitter’s overall revenue is ($70 million on revenues of $665 million total). With this acquisition Twitter wants to make the data-licensing part of its business more sophisticated and giving it more room to grow. Even though data licensing may decline as a percentage of Twitter’s total revenue, but in absolute terms it will continue to grow, reports Quartz.

Prior to this deal, data companies like Gnip and others existed to act as the middleman for Twitter and external companies that wanted access to that data. With Gnip, companies could access Twitter data from Gnip, rather than from Twitter itself. This was especially useful in Twitter’s early “Fail Whale” days, when too many data requests to its system would crash the young service, states CNN Money.

However, Twitter’s change in strategy to focus on data licensing is not only driven by the fact of reaping cash only - it was about validating Twitter data as a desirable product, reports re/code.

Twitter now plans to bring the management of all of those relationships in-house, which could signal that it actually takes that revenue stream seriously.

Twitter feared Gnip being acquired by a rival

The change in Twitter’s strategy and acquisition of Gnip is also driven by the fact that it feared rival companies could have scooped away Gnip. The fear of Twitter was speculated by some industry executives, reports WSJ.

“The writing on the wall was that someone was going to buy Gnip,” said Nova Spivack, CEO of Bottlenose, an analytics company that buys data from Gnip and DataSift, and has analyzed it for companies including PepsiCo Inc., General Motors Co., and Warner Bros.

Besides it is said that last year Apple’s acquisition of Topsy for $200M had raised red flags at Twitter HQ. Topsy was one of several Twitter partners that have been focused on gathering and parsing data from Twitter’s platform. It allows customers to tap into a store of over 425 billion tweets from 2006 onwards to sniff out trends.

With Topsy gone, it made sense for Twitter to bring a big data company in-house. If Gnip and Datasift were acquired by competitors, Twitter would have been left with no choice rather than building a comparable big data infrastructure itself from scratch. An option that Twitter was not open for.

Gnip’s customer and employee base

Finally, Twitter has a history of buying out successful partners. Boulder-based startup Gnip, which has only raised $6.64 million in venture backing with 85 employees has served customers in more than 40 countries.

This means that Twitter not only grabs a crucial service of repackaging raw stream of Twitter data from Gnip but also the customer base as well as the team of talented engineers schooled in the ways of Twitter and big data.

With this acquisition Twitter is also attempting to please developers many of whom might have been feeling discontented with Twitter since it tried to kill consumer-facing apps in 2012, reports Pandodaily.

In addition to helping Twitter augment its existing APIs and create new tools for interested parties, Gnip will continue to serve its existing customers. But with it no more being an independent third party, equations might change going further.

This also means that DataSift is left as the industry’s only independent multi-network social data platform – enabling organizations to access social data from a diverse cocktail of over 20+ public social data sources, adds Rob Bailey CEO at Datasift.

The new deal brings good news for Twitter, Gnip and software companies that work with the data resellers stressing the importance of social data. But it also means that social data ecosystem has become slightly less open.

Image credit: VentureBeat photo illustration/Eric Blattberg