Happy Birthday, Twitter

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Birthdays and anniversaries are always a good time to reflect on past successes and failures. On the 7th of November, the social networking giant Twitter had time to do this, as it celebrated its first year anniversary as a public company. At its launch one year ago, its stock jumped 73 percent and opened at $45.10 on its first trading day, ushering a new wave of consumer tech public offerings. However, one year later the picture does not look as rosy anymore. New users are coming to the site very slowly, revenue is growing, but so are losses. Resignation and leadership issues have worried investors. Last week Twitter CEO Dick Costolo tried to reduce these worries by laying out his vision of Twitter’s future: “Our ambition is to have the largest audience in the world”. But will he be able to do so?

Since its founding in 2006, Twitter has emerged as one of the leading social networking platforms. It has around 500 million users worldwide who tweet their 140-character long messages out to the world. Similar to other social-networking sites it earns money through digital advertising and through licensing its data. Overall, the micro-blogging site has quadrupled its revenue since 2012, expecting $1.4 billion this year and is valued at a high of $25 billion. Twitter has also played a big role during political revolutions like the Arab Spring and generated high user growth during big events, such as the World Cup, the Super Bowl or the Grammys. One only has to think of Ellen Degeneres’ celebrity Oscar selfie, which was retweeted more than 3.3 million times. When it comes to major social or news events, Twitter has become the main force, commercially however it is still lagging behind.

The company still remains unprofitable, which is unlikely to change until 2017. User growth is slow and revenues are increasing at a slow pace. One of the reasons for this is that Twitter gives stock-based compensation to its managers, which come to 45% of its revenue; a big sum compared to the 15% that Facebook gives. In an age where everyone wants to work for Google or new start-ups this is Twitters’ way of keeping its top employees.

Despite these high compensations however, the Twitter executive was riddled with management troubles over the last year. Five of Costolos’ executive managers, such as his chief operating officer, his chief financial officer or his product head left the company since its IPO. The leadership problems have worried investors, who fear that the Twitter executive does not know where it is going. Twitter will therefore need more promising strategies, to keep its employees, but also to keep its users.

Facebook for instance has over four times as many monthly active users as Twitter and it is still the dominant force in digital advertising. It has more precise targeting capabilities due the masses of demographic data that it collects and is user-friendlier. Twitter on the other hand can be hard to understand for new users. It takes time to learn how to follow other users or how to set up your own page. Content is ordered chronologically, not selected for you through algorithms like on the Facebook newsfeed.

Realising these problems, Costolo and his team have presented a new strategy outlook last Wednesday. They will introduce a private direct messaging style similiar to Whatsapp and Snapchat, in app-photo and video options and launch more independent apps. Most importantly, they will try to widen Twitter’s user base, by integrating the 500 million users, who visit Twitter every month, but who never sign up. They will try to do so by making it easier to find posts in Google searches and by presenting more content recommendations to logged-out users. Costolo also promised to make it easier for users to sign up to Twitter, providing specific instructions and creating an ‘instant timeline’ for users when they first sign up.

If Twitter manages to pursue these strategies successfully and gets its management turmoil under control, the future of the social media platform should look bright again. However, all these things, private-messaging function, separate apps, instant-timeline sound a lot like what Facebook is doing. It seems that for Twitter to become more successful, it has to become more like Facebook. Time will tell whether users will like that idea. Investors seem to do so already- after Costolo’s announcement on Wednesday share prices picked up 7.5% to $42.52.

Julia Wacket