Twitter’s Law of Unintended Consequences

As I’ve outlined in a recent blog post, where Twitter has shown it has “legs” isn’t in the area most hyped by its founders.

As it turns out, “What are you doing?” hasn’t been much of a foundation for building a money-making social media platform. And in fact, the inevitable media backlash has now set in — even as the number of new Twitter users have begun to plateau and the majority of current members use the service hardly at all.

But hard on the heels of the Iranian and Moldovan unrest, in which Twitter played an important role facilitating the organizing of anti-government public demonstrations, comes another use of Twitter that few could have foreseen.

A recent article by Steven Sears in Barron’s Magazine outlines how Twitter is being used to affect the share price of stocks. According to Sears, “Before the market opens and throughout the trading day, Twitter lets you tap into market-moving news .. and link through attached URLs to more detailed analysis … You can control your information streams by deciding who to follow, and who can follow you.”

That’s hardly revolutionary behavior. But here’s the interesting part: By law, brokers must save instant messages and e-mail correspondence, but no such mandate exists for tweets on Twitter.

What this means is that some of the more sensitive information or speculation about a company makes it onto Twitter long before it’s broached elsewhere.

One example noted in the Sears article was Matrixx Initiatives, the manufacturer of Zicam nasel spray. Speculation that using Zicam might damage people’s sense of smell started to circulate on Twitter. The result? The stock price fell dramatically from $19 to $13 … and those following the news about Matrixx on Twitter were “in the know” a lot sooner than others.

So here we have yet another example of the unintended consequences of adopting new communications techniques. Twitter is effectively replacing instant messaging capabiliites — without the attendent legal paper-trail requirements.

I wonder what’s next?

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