After Twitter Q4 Earnings: Should Twitter Change Everything or Return to its Roots?
Twitter reported its quarterly earnings on Wednesday, and yet again, the overall picture it painted was predictably grim.
After more than a year adrift, Twitter's fourth-quarter earnings showed a collapse in the growth of one of its most important fundamentals, its user base. Twitter, of course, has long been a punching bag for Wall Street nearly every quarter since it went public, but this time it's starting to look like the company is flatlining.
Crisis Time for Twitter
Twitter's report to shareholders tried to paint a rosy picture, boasting a 48 percent growth in total revenue Q4 year over year, and the same rate of growth in advertising revenue over the year. In addition, Twitter's total revenue of $710 million hit analysts expectations on the nose.
But what core financials don't show is that Twitter, as a social media network, is now not only stagnant, by some measures it's actually shrinking.
This quarter, Twitter's monthly active user (MAU) base stagnated with approximately the same 320 million MAUs that it reported the previous quarter.
Excluding users that only access Twitter through text message, so-called "SMS Fast Followers" that never see the revenue-generating ads Twitter displays on typical users' timelines, its MAU count actually went down from 307 million to 305 million in Q4, as TechCrunch noted. Similarly, Twitter saw its MAU count for the U.S. fall from 66 million to 65 million.
Co-founder and returning CEO Jack Dorsey, in an earnings call Wednesday, explained the key factors he would be working on to transform Twitter's dive in users (and after its Q4 earnings, also in share price) back onto the path of healthy growth.
"Refining our core service and making it more intuitive, investing in live-streaming video, giving creators and influencers the best tools, investing in making Twitter safer and better supporting developers," were the top priorities, according to Dorsey. If those sound like familiar directives, it's because half of them were touted last year by former CEO Dick Costolo as keys to gaining momentum towards -- you guessed it -- growing a larger monthly active user base. Dorsey added safety and live streaming to the list, since both the issue of online harassment and Periscope blew up last year.
Two Paths Forward
Meanwhile, tech pundits and armchair CEOs have weighed in on how to fix Twitter. The suggestions largely fall into two camps: Go for broke with huge changes or pare down and get back to its roots.
Move Fast & Break Things (Including Twitter)
The first viewpoint -- that Twitter needs to make much bigger changes, and fast, in the basic way users interact with the network, how the company displays ads, or even abolish Twitter's iconic character limit -- is closer to what Dorsey sounds like he wants to do. That doesn't necessarily mean it's the right direction for the company, though.
Take the (more or less) chronologically ordered Timeline, a feature as fundamental to Twitter as the 140-character limit on tweets, for example. Forbes' Kathleen Chaykowski thinks Twitter needs to do more than just fiddle with it, as it did with last week's launch of the "best tweets" feature.
"If Twitter wants to be a billion-person app, deeper curation, or a full-fledged algorithmic timeline will likely be necessary," wrote Chaykowski.
Changing the 140-character limit was the chief suggestion of Jeff Jarvis. Writing on The Guardian, Jarvis argued the ways people use Twitter now "must be beginning to pound at the retaining walls of 140 characters."
He added that the fragmentary nature of tweets could be creating an emotional distance for users, which could be a reason why the social network has that unique "safety" problem of user harassment.
However, Jarvis admitted changing the limit from 140 characters to something like 10,000 characters isn't a silver bullet. "If Twitter is shedding users and seeing its stock fall, experimenting with character limits is not going to help." Cleaning up confusing rules like ".@" replies, as Dorsey mentioned this week, is a similar exercise in futility, compared to the fundamental problems investors see with Twitter.
Or Stop Trying to Be Facebook
The other option is to get back to basics, and bring its ambitions back down from the globe-dominating social network investors seemed to expect at the company's IPO, back when Twitter was valued at nearly $32 billion, or more than three times as much as the company's under $10 billion valuation this week.
This camp sees the problem of Twitter's stagnant user base growth as a matter of perspective. The actual "problem" is that Twitter thinks it has a problem, that the company (and its investors) puts such big emphasis on that metric at all.
As Vox's Timothy B. Lee concluded, "Twitter might just have to accept that it's not going to be as big as Facebook."
Lee argued that since it went public, Twitter's priorities have been driven off course by Wall Street's ideas of what constitutes success for the company -- "a basic assumption that Twitter needs to resume the growth of its user base to be considered a success."
Instead, Twitter could be a highly profitable business with its 300 users, which Lee notes many of who "are passionate daily users." For Twitter, the focus then would be more on quality than quantity, as many of those passionate daily users happen to be journalists, investors, public figures, and other influencers that are highly valuable to advertisers.
Writing for The New York Times, Farhad Manjoo came to the same conclusion, arguing that "Twitter can still run a fine business that generates enough to maintain and improve the reach of the service. But every Internet company doesn't have to be the biggest, boldest, always-growing entity we are conditioned to expect."
Manjoo even goes further, suggesting a Wikipedia-style nonprofit model might be right for the company. "Twitter should think of itself and portray itself to investors as more of a public utility than as a business that never stops growing, and that could ever hope to approach the market value of Facebook."
Twitter, in this view, is fundamentally weird, unique, and not everyone's cup of tea. "Twitter is for power users," argued Lee. "Facebook is for everyone else."
The Worst of Both Worlds
While it looks Dorsey could be planning big changes (option one) to fix Twitter's Wall Street woes, it's possible Twitter continues down the path it has been on.
That path, set in motion under Costolo, is the worst of both worlds: Messing with fundamentals and introducing new half-baked "Facebooky" features, alienatoing core users, while not fully committing to a revolutionary top-to-bottom refresh of its entire product and strategy -- which seems necessary if Twitter actually has aspirations to rival Facebook in any meaningful way.
It's the middle road, breaking the best parts of Twitter -- or at least turning off the core users it currently has with annoying changes -- while remaining a weird enough product that your grandparents (who are probably on Facebook) can't understand how to use it and never join.
My suggestion for Dorsey? Either quickly institute big changes that will reshape Twitter into a likeness of Facebook, or stop trying and let Twitter be Twitter. Pick one option or the other, but then fully commit.
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