Twitter: when 330 million users are not enough
Apr 19, 2016
Twitter's future uncertain as growth rate declines and market value drops, despite its global impact and revenue expectations of over $2.5 billion.
The microblog that iconized 140 characters has a global impact. There is no public figure in the world who does not shape their identity through an account on the network, whose revenue this year is expected to exceed US$2.5 billion. However, fame and relevance are not enough for Twitter. Ten years after its creation, the service has the lowest market value since its IPO, a decreasing growth rate, and a decreasing number of active users. Despite the weight of 330 million users, the future is not entirely certain.
The importance of Twitter is indisputable, as is its penetration. All global events happen on its timeline. Osama was "killed" live on a user's timeline, his neighbor; Obama announced his re-election victory with a legendary tweet, "Four more years"; The attack on Charlie Hebdo, Paris, Boston Marathon or Brussels, celebrity breakups and marriages, achievements and announcements - everything public goes there. The architecture of 'weak links' on which Twitter operates is the perfect reverberator of information. Unlike Facebook, which decides to propagate more or less a certain bit of information according to the interests of its algorithm, on Twitter, the information connection markers - #hashtags and @mentions - make messages and events gain or lose strength as users echo them more or less without an arbitrary factor influencing.
And yet, the service is experiencing a crisis of confidence/identity. How can one explain that a service with this magnitude of clients can be in jeopardy?
Utility and popularity are not synonymous with profit
"The fact that a service is popular does not mean it is economically viable or interesting," says Mark Ramsey, media consultant, and host of the 'Media Unplugged' podcast. Ramsey's opinion is not a shot in the dark. The Wall Street investors who rushed to secure their share in the IPO of the company just over two years ago are taking the opposite route and the value of the stock that reached the US$72 mark is now stuck at US$17 with no prospect of change in sight. Twitter's growth in 2016 should be close to 20%, but it is falling. Even with hundreds of millions of users, the microblog has lost 'relevance' in the social ecosystem. WhatsApp (900 million), QQ (860 million), FB Messenger (800 million), QZone (653 million), WeChat (650 million), Tumblr (555 million), and Instagram (400 million) have larger user bases - of course, not counting the 'Godzilla' social Facebook (1.5 billion).
The same data architecture that gives Twitter its greatest virtue in the reverberation of information is what makes monetization more laborious. First, the tool's timeline is less comfortable for advertising. Mobile by nature, Twitter provides less space for a user experience that seduces advertisers, compared to other platforms. In addition, the nature of the bond between transmitter and receiver is not dedicated to relatives and friends, like other social networks. "On Twitter, the ads distract me; on Facebook, they make sense," says Ramsay, who classifies the service as a messenger of public figures to users. Twitter is much better as a broadcast service than as a social network.
Despite the leading role in breaking news events, Twitter is not preponderant in terms of traffic to general sites. According to a report by the Parse.ly site Only about 5% of page views of American publications come from the microblog. This number is only significantly higher for niche publications, such as technology and journalism. "Even without generating significant amounts of traffic, Twitter is where the news 'happens', says the report.
Low growth is sacrilege on Wall Street
"Nobody creates a service thinking about how to sell it to investors. Twitter does an excellent job of being... Twitter! The possibilities of making money are not bad for the company, but they may not live up to the expectations of its shareholders," says Ramsay.
The company is expected to earn US$2.5 billion this year - a non-negligible amount - but the growth forecast for this amount is not exciting for this industry (US$4 billion in 2018). The accounts have been closing in the red (in the last quarter of 2015, the loss was US$90 million). Each user represents about US$5 for Twitter today (which should double in the next two years), but without growth in its base, the service becomes a victim of the profit thirst of investors, which does not admit stagnation.
"The lack of profits is not as frightening as the lack of growth," says Sam Ro, editor of Yahoo Finance. "Technology investors bet on the future. Take Amazon, for example: despite marginal profits, there is a huge growth rate and the value of the shares is soaring."
As investment funds and investors have not declared the end of the fight, Twitter continues with a certain margin of maneuver. Most consultancies and funds suggest that their clients buy or hold the company's assets, with very few suggesting selling, especially since the value of the shares is at a negative record, with systematic shrinkage over the last 18 months. Twitter has extremely qualified engineering, cash in hand, and a brand worth billions of dollars, with wide penetration.
However, the world of technology start-ups is extremely Darwinian. Individuals ("companies") that have some kind of weakness and do not evolve tend to disappear. Twitter cannot be accused of immobility - it has tried everything to gain ground. Acquisitions of related services like Vine and Periscope and bets on novelties like Moments, a kind of news aggregator, changed the dynamics of the microblog. More recently, Twitter announced a partnership with the NFL for the transmission of American football matches through the service. Making such moves was risky - Twitter could have alienated its hardcore users. It did not alienate them. But it also did not reverse the trend of low growth rate.
What would be the best possible scenario? Ramsey thinks it would be for Twitter itself to find an improvement that would resume growth ("but this is very unlikely"). In this case, the recovery of credit with investors would give room for the company itself to invest more, making acquisitions and developing innovations. It is difficult to describe the worst scenario, because it depends on knowing 'worse for whom?' The average user and the Morgan Stanley fund (one of the major shareholders of Twitter) certainly have different interests.
Would a purchase by a larger company be possible? "Totally. In fact, it would be the most likely in the long run, if growth is not resumed and the value of the shares continues to fall. The buyer would probably be a technology company, to be able to add the service to its own portfolio, cutting part of the costs by combining those of the two companies," says Ramsey. And who would be a potential buyer? "Few companies other than Google would have the profile and money for that." Place your bets...