Twitter is killing itself to please Wall Street

The social media company shouldn't be changing its core product in its quest for growth.

By Forbes Digital Mar 31, 2014 10:44AM
TwitterBy Eric Jackson, Forbes Contributor

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.

Forbes on MSN MoneyThe 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 and how often people use the service.

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 (underappreciated) geniuses has always been its mass appeal. It was so easy, even your mom and dad 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 their 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 the company – especially since it's playing out in the first few months after the stock's IPO.

The reaction by Twitter seems to have been to broaden the appeal of the product to the masses. Grandma doesn't know what a handle 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 uses it at least 50 times 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 they 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) overpriced 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 percent below its all-time highs when the stock traded around $70. But, to me, it’s still crazily overpriced, 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.

At the time of publication, Jackson held no positions in any of the stocks mentioned.

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Mar 31, 2014 4:04PM

I don't own twitter stock, so I don't care which direction it is headed.

I text only when I have to and very seldom do I initiate it. I would rather speak than type.

Frankly, I don't get twitter anyway. Call me unsociable and incommunicative, but I don't see the appeal of being informed of someones every thought or experience.

From what I can see, for the most part, it seems to be used by those who are either narcissistic to begin with, or need the constant approval of all those around them. I do not need the approval of others to be happy.

Who would waste time on Twitter of Facebook?  The same ones with their face down in a cell phone, as the world passes by them.
Mar 31, 2014 2:53PM
Apparently, there is a finite number of psychopathic nutcases who can't resist texting every moment of their lives... maybe this IPO wasn't such a good idea. Last one touching stock gets the cooties. 
Apr 5, 2014 8:41AM
Twitter?? Who really cares, anyway.
Apr 5, 2014 10:42AM
I don't use facebook or twitter and have absolutely no use for either one.
Apr 5, 2014 8:47AM
The laughable thing about twitter is it became a public company.
Mar 31, 2014 6:03PM
Revenue efforts going swimmingly?  That must be why it is the most shorted stock on any major exchange in the world.

Just FYI to the author (who is obviously a Twitter fanatic)...Twitter P/E is currently -90:1 with aa three year "growth" forecast of -250:1.  This is the company's own financial projection.

Twitter is NOT a company.  It is a shell game and ponzi scheme all rolled into one.  We saw this all 15 years ago with Webvan Flooz, and  Now the millenials are doing the same dumb thing over again thinking they are the ones that have found "the New Economy".

Twitter, Facebook, Groupon they are all just Dotcom Bomb part II..
Mar 31, 2014 4:27PM
For most users, Twitter seems to be the fastest way to A) ruin your reputation and have people judge you, or B) gain popularity to the point where you have high expectations placed on you to uphold your image.   Yikes.
Apr 5, 2014 8:15AM
Face Book is a farce and only bird brains tweet  
Mar 31, 2014 3:51PM

Wall Street is fixed to the advantage of the rich and powerful. Do not participate in their reality.

Apr 5, 2014 1:53PM
Fads come..... fads go.   From pet rocks to Twitter, Facebook, Instagram etc.  The only humorous element of the whole discussion is that they are traded on stock markets and that techies take these fads so seriously.  Hey, guess what?  I betcha in less than 10 years with the evolution of technology, these will be looked at in the same manner that we look at Walkman cassette players from the 1980's.  These are "airy fairy" commodities which are only as viable as they are popular.  As soon as the public moves on to other fads or newer technology - they will plummet into obscurity.  Just as we lost automotive companies like Tucker, DeSoto, etc., some of the tech companies are going to go ........bellyup!   
Mar 31, 2014 2:55PM
Only 13% of Twitter users still tweet. It's hard to be spectacular when you live in a homeless shelter and panhandle all day. 
Apr 5, 2014 2:14PM
Lord, we can only pray that Twitter kicks the bucket and is never replaced with anything nearly as inane!  Actually, the same could be said for Facebook and practically all social media - these services are guilty of dumbing down their users and wasting everybody's time.
Apr 5, 2014 11:38AM
I don't care what celebrities think and feel.  If I have something to say, it's usually in regards to something on MSN anyway and the only stories you have to twitter on are the minor ones anyway.  I am a nobody so I don't have a following anyways so why bother.
Apr 5, 2014 5:19PM
Twitter, Facebook, texting, - all add up to people not speaking to one another anymore.  It amazes me that people are more interested in tapping at a key pad than having a conversation.  They could all disappear tomorrow and it wouldn't bother me in the slightest.
Apr 5, 2014 5:17PM
Twitter is useless to me.  The only thing Facebook is good for is keeping in contact with in-laws overseas.
Apr 5, 2014 1:54PM
@Cybercraig#Having great sex with a beauty queen right now. I'm sure you were all dying to know that! I'll tweet again when I go to lunch so you'll know what I'm eating.
Apr 5, 2014 9:26PM
FB is lying about their 1.2 billion monthly active users. Just ask around to friends and family, the answers are all the same, "I barely use FB anymore", "haven't logged on for months". Expect FB stock to continue to fall, this shows that FB is no longer the flavor of the month. Everyone knows that FB is for single moms and fat chicks.
Apr 5, 2014 8:36PM
Who cares about Twitter.  Albert Einstein said "I fear the day that technology will surpass our human interaction.  The world will have a generation of idiots."  Well it seems that we are there.
Apr 5, 2014 3:46PM
What I can't stand is the use of Twitter in online sports articles. The writer says something that someone said, and then to prove it or back up his story, the writer posts the exact same words from the person's Twitter account. Too repitious and totally boring.
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