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I don't fully understand...why not just post your video to Youtube and then tweet the URL?
Why not just post your image to Flickr?
Having never used TwitPic, I actually consider that a valid question.
But isn't that the case for many websites out there? Just because you wouldn't use something, doesn't mean someone else wouldn't. In this case, it's integrated, saves a step and doesn't require an additional account to be created.

And a ton of people use Twitpic:

http://siteanalytics.compete.com/twitpic.com/

I'd like to see some correlations between how many users a site has and its longevity, exit, revenue, etc...
Integration as a differentiator doesn't seem to be enough of of a drawn in this context. Friendfeed integrates with other sites that do all of this, and more, as long as they have RSS feeds, and people still use the likes of twitter. With Friendfeed you get to pick which services you want to you use to, say, manage photos, be that flickr, or picassa, or even FF itself.

There must be some advantage to the marketing of these kinds of "add on services" to simple things like twitter that draw people to them; either that or twitter is so stupid simplistic (and they keep removing features) that the market is drawn to add features that the core developers have no interest in maintaining.

the method of sharing is built right into TwitPic, TwitVid.io, etc.

That's really important.

I suppose the only real reason to use Twitpic or TwitVid over Flickr & YouTube would be for the Twitter-specific features. For TwitVid, I guess that's easy access to retweet, favorite, or reply to a video. For Twitpic, I suppose that would be the reply chains that appear below the pictures. I'm still surprised that's enough to make people want to use these services over the more popular/mainstream ones.
Within certain demographics, twitpic is more popular than flickr. It may not even be that hard to find people who use twitpic and don’t even know what flickr is.

Another advantage: if you’re using twitter, it’s easier to get started with twitpic than with flickr, since you don’t need a new account. Obviously this does not apply if you were using flickr already.

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One very good reason is that it's way faster to upload to Twitvid and share stuff than Youtube. They auto-tweet it once the vid is done processing so you don't even have to wait.
It looks like the .com (http://twitvid.com) belongs to someone else, does anyone else see this as a pretty big hurdle to adoption?
the problem is the name...even on techcrunch article they are branded as twitvid, not twitvid.io
On twitter the guys own twitter.com/twitvid

owning @twitvid will also be super valuable to get ahead

Actually, this raises a good point...they don't own @twitvid. What's to stop Twitter from taking it away and giving it to the Twitvid.com guys and reasoning that Twitvid.io should use @twitvideo?

(yes, I'm aware that people don't own domain names, either)

It seems like it's not the end of the world. Dropbox doesn't have dropbox.com, and they're doing well. It's a constant annoyance, but it doesn't kill you. What kills you is making something users don't like. As long as you make something users like, you can survive domain name problems.
But its a constant annoyance which is going to stay for ever. Why not choose a different name? (Or buy the domain, before launching, its going to cost more, the more successful you become.)
One factor is that future money is worth less.
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1 - Dropbox.com is obviously not dropbox mistaken users will go to Google. 2 - Dropbox isn't really a site. It's more something you install on your machine. I use dropbox and I don't remember knowing that it isn't on dropbox.com 3 - It probably still costs dropbox something.
Shit, that seems pretty brainless. TwitCam, TwitSee, TwitSight, TwitEye, Twitwhateverthehellbutfortheloveofchristownyourdomainsdotcom.

Great way to funnel traffic to the wrong url, everything they do in marketing will send traffic to TwitVid.com, their competitor.

Really well done, really well executed. The .com version might be dangerous, as people tend to type the .com intuitively, but these guys got the advantage of an early release...