Is the FTC going after Twitter for bulldozing its ecosystem?

Updated: According to news reports on Thursday, the Federal Trade Commission is looking into Twitter’s business practices — and specifically, the way it has dealt with third-party developers whose products and services rely on the Twitter platform. Although the news doesn’t necessarily mean Twitter is under official investigation, since the FTC often conducts informal inquiries that never proceed to the official stage, it means the company’s behavior must have raised enough critical flags to catch the regulator’s attention, which is rarely good.

A report from Business Insider, which appears to be based on anonymous source, says the FTC has contacted UberMedia, the company founded by well-known technology entrepreneur Bill Gross that has had a fractious relationship with Twitter for some time (we’ve reached to UberMedia for official confirmation, and will update if we get a response). Another maker of Twitter-related apps reportedly said that the company’s legal counsel “advised us not to talk about” the topic. Twitter communications manager Matt Graves, meanwhile, told us the company had no comment on the reports. Update: the Wall Street Journal says a source confirmed that the FTC is “reviewing” Twitter’s behavior.

If the FTC — which rarely comments on investigations when they are in the informal stage — is actually conducting some kind of inquiry into how Twitter has treated third-party apps and services, the regulator is going to find plenty of material. The network has had a love-hate relationship with what some have called its “ecosystem” for the past year or more, something we have documented a number of times here at GigaOM.

From fledgling service to dominant player

When Twitter was just getting started as a fledgling service and trying to expand its user base, the company seemed happy to allow anyone to build a Twitter-related app by using the open API (the application programming interface that provides access to Twitter’s data). Soon, the market was filled with Twitter clients and services that posted photos to the network — such as Twitpic and Yfrog — URL shorteners like Bitly and other applications. But that attitude changed dramatically when Twitter started buying apps and creating its own competing features.

The turning point seemed to come when the company acquired Tweetie, a Mac client for Twitter, and Twitter investor Fred Wilson of Union Square Ventures wrote a blog post about how third-party companies should focus on other things apart from just “filling holes” in Twitter’s feature set — the implication being that this was a recipe for disaster.

Evan Williams

Twitter co-founder and former CEO Evan Williams later admitted that the company “screwed up” in the way it handled this affair and its evolving relationship with developers. But soon Williams was replaced as chief executive by Dick Costolo, and a number of observers say the Twitter culture changed dramatically as far as its ecosystem was concerned: the company started tightening the rules on use of its API, and it also started cracking down on third parties like UberMedia.

Gross’s company seems to have originally triggered Twitter’s ire by trying to launch its own advertising service, just days before Twitter launched its own ad-related offering called Promoted Tweets. Gross began buying up third-party Twitter clients like Echofon and Twidroyd, and there was talk that UberMedia wanted to create its own alternative Twitter-style network — but then Twitter shut down several of the company’s apps for what it said was behavior not allowed by its terms of use.

Twitter nabs TweetDeck from UberMedia

At about the same time, UberMedia was reportedly in negotiations to acquire TweetDeck, a popular client used by power users of Twitter to monitor multiple accounts and lists through a single interface. But following the shutdown of its clients (who were later reinstated by Twitter after UberMedia responded to the company’s complaints), the deal fell through. Within weeks there were reports that Twitter was negotiating to acquire TweetDeck, and that acquisition ultimately went through in May.

What the FTC’s interest is in opening an inquiry is, or whether it will amount to anything but a few innocuous letters to Twitter competitors, is impossible to say. But whatever the outcome happens to be, an inquiry can’t be a positive thing for a company that is busy trying to grow quickly enough to justify the valuation its last financing assigned to the company. Some observers believe that financial pressure has contributed to the kind of behavior the regulator is allegedly looking at, by forcing Twitter to control its platform more rigidly and squeeze out potential competitors (Twitter is launching a site for developers that appears to be aimed at repairing some of those relationships).

This isn’t the first time Twitter has come under FTC scrutiny: the company was the subject of an investigation about privacy breaches that saw user information taken from the system, and Twitter eventually settled with the federal regulator in March.

Post and thumbnail photos courtesy of Flickr user Social Sidekick and Wikimedia Commons