Why Are They Twittering? A Modest Proposal

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Why Are They Twittering? A Modest Proposal

Advisor
Posted February 16, 2017 in Business Technology & Digital Transformation Strategies

At the Cutter Digital Transformation & Innovation Bootcamp, Cutter Fellow and Harvard Business School Professor Karim Lakhani talked about digitally-driven disruption of traditional business models for value creation and capture, discussing platform models like Facebook and Twitter. To date, Twitter has clearly done a good job “creating value.” But unlike Facebook, it continues to struggle with the “capture” part of the equation.

Twitter just reported another in a string of “disappointing” financial reports showing:

  • Year-over-year revenue growth below 1%

  • Effectively flat user growth (4.5% yer-over-year vs. 3.3% 3Q year-over-year)

  • Average revenue per user fell 4%

  • Global ad revenue flat; US ad revenue down 7%

  • Stock-based compensation up 1%; marketing expenses up

  • Operating loss on US $771 million

Twitter is also hitting new lows on the news, but the company still has an $11 billion market cap.

This valuation reflects classic “there must be a pony in here somewhere” thinking — shareholders are generally loathe to watch their investment (or stock options) burst into flames, so it is not surprising to see intense amounts of flailing and bloodletting while players scramble to patch the leaks in this Titanic.

Just before this report, I had the opportunity to explore Twitter’s future with a bunch of undergraduate business majors. Not one of the 30 or so students (who should be squarely in the company’s target market) claimed to be a regular Twitter user. Not one of them said they would pay a subscription for the service. When asked to imagine what Twitter might do differently, their responses were not much different from what Twitter management is proposing — but when I asked how successful any of those moves might be, I got shoulder shrugs.

One brave soul suggested that Twitter close down, not unlike Michael Dell’s approach to Apple during that company’s darker days. While I can see the merits in that option (it’s certainly better than watching the company’s cash pile shrivel to zero), I think there is something about Twitter that keeps everybody from just throwing up their hands. But that something may not be, as they say, “monetizable.”

Where Twitter has consistently shown value and differentiation is as a lightweight, organic, slippery communications conduit for transient social events — from fluff like the latest Kardashian antics to more meaningful events like the Arab Spring. This makes sense given its embrace of lightweight clients built around SMS messaging.

Now, Twitter has tried to get celebrities to pay the freight with “promoted” tweets, and there is probably a niche market in the PR industry for this that is sustainable, but not at the scale dreamed by Twitter investors. Likewise, there may also be a news industry niche as a headline aggregator. Both of those niches, however, are coming under more intense fire from competitors.

One Twitter response is video. Not only is Twitter late to this party, but stuffing a Twitter feed with video a) requires a bigger client that is harder to make ubiquitous and b) gums up the lightweight, casual Twitter interface that is one of its key differentiators.

So Twitter may ultimately be one of those good ideas that is not a good business. If the world values the original idea, a non-shutdown option presents itself: turn Twitter into a nonprofit.

Making Twitter a nonprofit organization would preserve the parts of Twitter that society seems to value, while freeing it of the constant struggle to justify its existence to Wall Street.

It is possible? Maybe. What if:

  • A majority of Twitter shareholders agree that this is a good idea (or at least a way to salvage something from their investment).

  • The IRS lets shareholders contribute their TWTR stock to a new tax-exempt nonprofit foundation and take a deduction (at their basis, not an inflated value)?

  • Substantial additional reductions in headcount get operating expenses to a level that can be supported by interest on Twitter's existing cash (around $3 billion) plus some donations from foundations interested in freedom of speech and communications around the world? This would imply some R&D to make messages hard to stop.

That organization would have a comprehensible mission — and the hope of a sustainable future. As opposed to Twitter, which has an incomprehensible mission and a dubious future.

Full disclosure: I’m an extremely casual (a few times a year) Twitter user. It doesn’t work on my dumb phone. I tried it on my desktop, and the content wasn’t compelling enough for me compared to my Facebook feed. I get my stupid Presidential tweet fix from Facebook re-posts. I’m not trying to build a business based on “followers,” so that aspect is also irrelevant. After this experience, I am reminded of nothing so much as Biggus Dickus’s query in Monty Python’s Life of Brian: “Why are they twittering”?

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About The Author

Lou Mazzucchelli is a Fellow of Cutter's Business Technology & Digital Transformation Strategies and Data Analytics & Digital Technologies practices. He serves as Lecturer and Entrepreneurship Programs Coordinator at Bryant University’s College... Read More

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