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CanTwitterFindaReliableGrowthModel?

knowledge.wharton.upenn.edu /article/cantwitterfindreliablegrowthmodel/
Feb17,2016StrategicManagementGlobalFocusNorthAmerica
Twittersusergrowthhasstalled,withmonthlyactiveusersdroppingfrom307to305millionbetweenthethird
andfourthquartersoflastyear,andspurringworryaboutthelongtermprospectsofthecompany.CanTwitterbecomeatrailblazingmediacompanyakintoFacebook?
OrwillitfaceadeclineingrowthsimilartocompanieslikeYahoo?

Tofostermoreengagedusers,TwitterneedstocreatesomeofthestickinessthatkeepspeoplecomingbacktofrequentlycheckFacebook.Onebrightspotonthe
companysfourthquarterearningsreportwasa48%bumpinadrevenuefromayearago.ButTwitter,whichwillturn10inMarch,facesthepotentialofalienating
dedicatedusersifitventurestoofarintopaidcontent,orifittinkerstoomuchwiththemodelthatmadeitattractivetopeopleinthefirstplaceforexample,thesitehas
alreadybeencriticizedbyusersaboutreportsthatitmightabandonthe140characterlimitfortweetsordeviatefromthesitescurrentchronologicaltimeline.ButTwitter
couldthriveifitcanfindwaystocapitalizeonitsstrengths.Possiblestrategiesforsuccessincludemovingtoasubscriptionmodel,providingkeyproductenhancements
andmoreeffectivelyleveragingthevolumesofdatageneratedbytheservice,accordingtoWhartonexperts.

WhatmakesTwitterstruggleandwhatmakesTwittersuccessfularethesamethingsTwitter,saysPinarYildirim,amarketingprofessoratWharton.Onlineplatforms
canbecomesuccessfuliftheycanutilizeconsumersocialnetworkstoacquiremoreconsumers.IfTwitteruserscanmotivateotherstojoinandkeepeachotheractive,
thenTwitterhasagoodchanceofsuccess.Unfortunately,thisisnotthewaythesiteisstructured.Itoperatesonindividualssharinginformation,ratherthanindividuals
whoarewithinasocialnetworkorfriends.

ToYildirim,TwitterisverydifferentfromFacebookbecauseitsnotaspersonal.Twitterisacouldbeorwannabenetworkwhereconsumersshareandreceive
informationfrommanystrangersandfriends.

KevinWerbach,alegalstudiesandbusinessethicsprofessoratWharton,saysthereisdisconnectbetweengrowthexpectationsforTwitteranditsroleintheworld.
Twitterisagrowthstockthatisntgrowing,atleastintermsofusers.Becauseofitswidespreadadoptionbythoughtleaders,celebritiesandcompanies,Twitterhas
alwaysbeenmoreinfluentialthanitsusernumberssuggest,saysWerbach.ItstheclosestthingwehavetoamirroroftherealtimeInternet,whichistremendously
important,butthatdoesntmeanitsthemostvaluableservicebythegrowthandmonetizationstandardsofWallStreet.

Indeed,TwittercapturestherealtimeInternetwell.ThecompanythrivesduringliveeventsliketheSuperBowlorbreakingnewseventssuchastheParisterrorism
attacksortherecentdeathofSupremeCourtJusticeAntoninScalia.SincesteppingbackintotheCEOroleatTwitterinJuly,cofounderJackDorseyhastriedtorefocus
TwitteronitscoreDNA.InashareholderletterreleasedFebruary10,Dorseysaid:Twitterhasalwaysbeenconsideredasecondscreenforwhatshappeninginthe
world,andwebelievewecanbecomethefirstscreenforeverythingthatshappeningnow.

Indeed,Twitterdelivered2015revenueof$2.22billion,upfrom$1.4billionin2014.Thecompanyhadanannualnetlossof$521million.

Dorseyoutlinedfiveprioritiesfor2016inordertoboostTwittersengagementandgrowth.TwitterwillsimplifyitsserviceandboostvideothroughitsPeriscopeservice.It
willalsomarshalinfluentialpeopletousetheplatformandimplementsafetyfeaturestomaketheservicesaferfornewusers.Finally,Twitterwillinvestinhiringadditional
softwaredeveloperstocreatenewfeatures.
WhatmakesTwitterstruggleandwhatmakesTwittersuccessfularethesamethings.PinarYildirim

DavidHsu,amanagementprofessoratWharton,saysthatDorseysfinalpointiscritical.TwitterisinaracefortechnicaltalentandcompeteswiththelikesofGoogle
andFacebook.Twittersstockdeclines,aswellasslowfeaturerollouts,mayturnawaytalent.Inmanyways,Twitterhasrestedonitslaurels.Theresnodoubtthat
Twitterisaveryeffectivemeansofcommunication,butitdoesnthavethestickinessfortheaverageperson,explainsHsu.WhathasTwitterdonetomovetheneedle
ontheproductoverthelastfiveyears?TherestheshadowofYahoothere.

AddinthemanagementupheavalpriortoDorseytakingover,anditsunderstandablethattheproductroadmapforTwitterhassuffered.DorseywastheCEOshortly
afterTwittersfounding,butthenyieldedthereinstocofounderEvanWilliamsin2008.DickCostolotookoverasCEOofTwitterin2010,beforecedingthehelmbackto
Dorsey.

DorseyaddedintheshareholderletterthathewasconfidentinTwittersproductplansforbothusersandmarketers.Ourworknowistosetourselvesuptohaveeven
greaterimpactoverthenext10years.Weareconfidentwewill.

OnaconferencecallFebruary10,DorseysaidTwitterisarevampedcompanywithbetterfocus.Wespentthelastsixmonthsstructuringtheorganizationandour
leadershipteamtomovewithgreateragilityandfocus,reviewingthestateofourserviceandstrategy,learningfromwhatweveshipped,anddevelopingastrongerpoint
ofviewaboutwhatweareandwhatwewanttobe,saidDorsey.

DanielLevinthal,amanagementprofessoratWharton,saysDorseyiscapable,butnotesheissplittinghistimebetweentwocompanies.DorseyisalsotheCEOof
Square,anecommercepaymentscompany.HavingaparttimeCEOis,inmyview,inherentlyflawed.Aboardchairwhohasanoperationalroleatanothercompany
canworkfine.ButforcompaniesofthescaleanddynamismofSquareandTwitter,adualoperatingchiefdoesntseemhealthyfortheexecutiveorthetwocompanies,
saysLevinthal.

GivenallthemovingpartsinTwittersbusiness,itsunclearwhatthefirmsgrowthexpectationsshouldbe.Investorswantmoregrowthintheuserbase,butLevinthal
saysTwittermayhavemaxedouttosomedegree.

Acommonpathologyforbothfirmsandthestockanalystswhofollowthemistoextrapolatefromhighgrowthrates,henotes.Theworldhasfinitesizeandsodoall
markets.Unliketelephoneservicesormessagingapps,Twitterisnotgoingtohaveuniversaladoption,andinevitablytherewasgoingtobesomeplateauingofitsrateof
adoptionbynewusers.

Inmanyways,Twitterhasrestedonitslaurels.TheresnodoubtthatTwitterisaveryeffectivemeansofcommunication,butitdoesnthavethe
stickinessfortheaverageperson.DavidHsu

NicheorNot?
ButPeterFader,amarketingprofessoratWharton,doesntviewTwitterasanichesocialnetwork.Yes,thecompanyneedstodevelopmoreengagementamongusers,
buthesaysithasanedgeinlivecontentthatnoothernetworkhasdeveloped.

IdontseeTwitterasniche,butasabehemothinitsspaceofmicroblogging,saysFader.YoucouldarguethatTwittergoesheadtoheadwithFacebook,butforwhatit
does,Twitterdominates.Twitterisbig,andnoonehasfiguredouthowtodoitbetter.ItsinterestingtomethatFacebookhasadoptedmoreTwitterfeaturesthanthe
otherwayaround.

HsuagreesthatTwittercanstandonitsown.ThecoreofTwitterisfastinformation.ThatswhyitisbetterthanTheNewYorkTimesorCNN.Twitterallowsanyonetobe
thereporterandhaveabroadcastchannel.

DorseysaidonTwittersearningsconferencecallthatthecompanyisinvestingheavilyinitsPeriscopebusinessandthetechnologythatgoeswithit,withtheaimof
betterintegratingvideoandtweets.

TherearetwokeychallengestoTwittersfuturegrowth,Whartonexpertssay.Thefirstchallengeistoavoidpursuinggrowthinawaythatwoulddilutetheprimarydraw
ofTwitterforitsmostdevotedusers.Thesecondistodevelopfeaturesandabusinessmodelthatboostengagement.

Forexample,Twitterwasrumoredtobeconsideringremovingthe140characterlimitontweets,anideaFadercalledadisaster.Henotedthatlongertweetswouldbog
downthesocialnetworkscontentandruintheexperienceonamobiledevice,whichisthesourceofthemajorityofTwitterstraffic.

HsuaddsthatTwittersvalueistheshortness.IdratherhaveTwitterthinkaboutwaystomakethatplatformmorevaluable.

Dorseysplantodoubledownonliveandfastmovingcontent,whichcanbecuratedthroughanewfeaturecalledMomentsthatoutlinesthetoptrendsonTwitter,makes
sense,butYildirimsaysthecompanyneedstoaddvaluearoundrapidfireinformation.Itisnotclearexactlywhatusersorcompaniesaregettingoutofthiscontinuous
informationexchange,shesays.

Itismoreimportanttokeeptheusersontheplatformactive,andtheiractivitywillnaturallykeepothersactiveandattractmorepeople,sheadds.Themainreasonwhy
peopleareunhappywiththegrowthplatformofonlinesocialnetworksisbecauseitissymptomaticoftheactivitylevelsofcurrentusers.

DorseysaidTwitterplanstotakerealtimeeventsanddevelopconversationsaroundthemtoboostengagement.OnceyouseeaneventunfoldonTwitter,theresareal
senseofelectricity.Theresarealsenseofbeingrealtime,beinginthenow,beingintheknowabouteverythingthatshappening,saidDorsey.Andthenyoustart
gettingintomoreofthestronger,stickiervaluepropositionsfortheservicearoundmessaging.

WerbachsaysTwitterneedstosolveitsengagementissuesquicklysinceothermessagingplatformsareemergingandcouldusurpthecompanysrole.Twitterwasthe
firstmajorsocialmediaplatformbuiltonamessagingframework[originally,SMS].Ironically,itsnowatriskoflosingouttobiggerorfastergrowingmessagingbased
servicessuchasSnapchat,WhatsAppandWeChat,henotes.TheresonlyroomforsomanytoolsasfoundationalinfrastructureforInternetusers.

Twitterwasthefirstmajorsocialmediaplatformbuiltonamessagingframework.Ironically,itsnowatriskoflosingouttobiggerorfastergrowing
messagingbasedservicessuchasSnapchat,WhatsAppandWeChat.KevinWerbach
TwitterPremiumvs.AdGrowth?

TheothersideoftheengagementequationforTwitterismarketingandadvertising.

Today,mostofTwittersrevenuecomesfromadvertising.InTwittersshareholderletterforthefourthquarter,Dorseysaidthecompanyhad130,000activeadvertisers,
moresmallbusinessesusingtheserviceandlargercompaniesthatusedtheplatformasacustomerservicechannel.CitingaMcKinseystudycommissionedbyTwitter,
DorseysaidthevolumeofcustomerserviceconductedonTwitterhasgrown2.5timesoverthelasttwoyears.

Twitteralsohasatreasuretroveofdatafromtherealtimetweetsthatflowthroughitssystems.ThisdataisusedinanalyticsapplicationsfromTwitterpartnerssuchas
IBMandDataminr.Thatdatacouldbemonetizedinnewways,expertssay.

Fornow,DorseyindicatedTwitterisfocusedonmakingtoolsforadvertisers.HsusaysTwittercoulduseitsdatatofindnewmarketstoboostlicensingrevenue.Twitters
revenuefromdatalicensingandotherbusinesswas$70millioninthefourthquarter,up48%fromayearago,butthatismuchsmallerthanthe$641millioninad
revenue.

FadersaysTwittercangrowitsadvertisingbusiness,butsubscriptionsmaybethebestpathforward,andnotesthattheblueprintforTwittersubscriptionshasalready
beenestablishedbyLinkedIn.AdvertisingwontworklongtermforTwitterbecauseitviolatestheprinciplesoftheuserexperience,hesays.TwitterPremiumcouldbe
adfreeandoffernewfunctionality.

HsusaysTwittercouldalsobemoreusefultolargecompanies,whocouldpayasubscriptiontoaggregateconversationsabouttheirbrands.Twittersplatformcouldbe
usedtobrainstorm,aggregatecollectiveknowledgeandcaptureinternalconversations.

FadersaysTwitterwouldfacechallengesinbecominganenterprisevendor,butstillcouldchargeconsumerstoofferbettersearchcapabilities,analyticsanddashboards
withitsdata.TwittercouldchargeasmallamountandoffersomethingsimilartotheLinkedInmodel,saysFader.Thissubscriptionservicewouldberolledingradually.

YildirimsaystherealvalueinTwittermaybeitsdata.Twitter,likeFacebook,hasagreatopportunitytobuildandselladsortargetedTweetstoconsumers,butalsocan
sharedataonconsumers,shesays.SinceTwitterhasinformationabouttheprofessionalcirclesandinterestsofindividualsthroughthepersonalitiesandbrandsthey
follow,itissittingonagoldmineifitcanutilizedatapotentiallymoreeffectivelythanFacebook.