Twitter Is Killing Itself In Order To Grow And Please Wall Street

Mar 29 2014, 12:57pm CDT | by

Twitter Is Killing Itself In Order To Grow And Please Wall Street
Photo Credit: Forbes Business

In case you missed it, Twitter (TWTR) is having big problems as a public company.

They don’t have a problem with their core product.  Its users seem to adore it.  And it’s not a problem with making ad money from it.  All indications are that that’s going swimmingly.

The problem is that its executives are worried that not enough people use it.  And, because of this, they feel external pressure – from

Wall Street – to increase the number of users it has how often people use that.

Since it was founded, Twitter has always been compared to Facebook (FB).  Twitter’s always been smaller but it’s felt that they were more ideally situated to take advantage of the shift to mobile.  Facebook was built in a PC era; Twitter was originally built to be an SMS app (later adapted to PCs).  It had mobile flowing through its blood from birth.

But one of Facebook’s – under-appreciated – geniuses has always been its mass appeal.  It was so easy, even your mom could use it.  Combine that with a winner-take-all phenomenon which occurred at the end of the last decade when it dramatically expanded into basically all the geographies around the world and Facebook was able to very quickly get to over 1 billion users (now at 1.2 billion monthly active users).

Twitter has always had the ambition of growing to similarly large numbers of users, but there growth has really stalled out in the last

year at around 241 million users.

Just last week, it was reported that Instagram – now owned by Facebook – will surpass Twitter in users by the end of this year.

Twitter’s growth flat line – which applies internationally as well as domestically — has created a crisis of confidence within the upper ranks of Twitter – especially since it’s playing out in the first few months after the company held its IPO.

The reaction by Twitter seems to have been to broaden the appeal of the product to the masses.  Grandma doesn’t know what an “@” sign or a hashtag is, so let’s try and make the product easier to use.  Let’s add photo-tagging.  Let’s add more frequent notifications that tell me two people I follow are having a conversation about the Academy Awards, so that maybe I’ll join in.

As someone who joined Twitter in 2007 and use it at least 50x more than I use Facebook, the effects of all these Twitter product tweaks has been to water it down and make me less (not more) interested in using it.

Now, I’m not grandma.  So maybe the calculus by CEO Dick Costolo and others is: who cares?  Maybe they believe the Twitter die-hards like me will always use Twitter. This is all about onboarding the normals, come hell or high water.

These product tweaks won’t make me likelier to use Facebook.  But it will make me likelier to seek out what’s next – probably through messaging apps.

I would argue that Twitter doesn’t have a product problem or an ad problem.  The company built a great product with a lot of appeal.  The reality might be that there is a ceiling to the number of users who will use it.

And maybe that’s ok./>/>

It’s madness to try and dilute Twitter down into a Facebook clone.   Costolo and the board might “think” that’s what Wall Street wants from them, but guess what Wall Street will do to the stock if the core Twitter users start disengaging en masse?  If you think they have a growth problem now, just wait.  All the Wall Street friends who wanted Twitter to grow more will turn around and start selling the stock because of rapid disengagement of Twitter’s core users.

Fickle, thy name is Wall Street.

Twitter shouldn’t be changing its core product to get more growth.  They should be buying totally new companies which are just about to grow in adjacent areas, using their wildly (still) over-priced stock.

Essentially, they should start following the Facebook playbook of buying any leading company in an adjacent space that’s a threat.

They should have bought Instagram, but they didn’t go public soon enough and were at a disadvantage in bidding compared to Facebook.

They should have bought a messaging app when they were cheaper, giving up on idea that their direct messaging would be able to keep pace.

And now they would be crazy not to make a run at a messaging app like Kik, even if it meant giving up a significant portion of their shrinking in value shares.

Twitter as a company is still valued at $28 billion.  That’s 33% below its all time highs around $70.  But, to me, it’s still wildly over-priced, given their stagnant growth.  Twitter would do well to use that currency to pick off an emerging giant like Kik with that stock — even if it had to do it at a huge price relative to the traditional Twitter business.

Costolo needs to skate where the puck is going – not where it’s been.

Allowing Twitter users to photo-tag each other?  Please.

Let Twitter remain a niche – but a wonderfully rich and unique niche that no one else can imitate.  Don’t turn it into some milquetoast version of Facebook.

[No positions in any of the stocks mentioned]

Source: Forbes Business

 
 

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