Clunky Dorsey

The firm’s returned boss has yet to turn it around

Feb 13th 2016|SAN FRANCISCO

FAITHFUL followers of Twitter believe that Jack Dorsey, one of the social network’s founders, is the only person capable of turning around the struggling firm. Mr Dorsey (pictured, during a recent Old Testament beard experiment) returned as its boss last year, taking over from Dick Costolo, who had led the company during a chaotic round of executive departures and strategic changes. True believers hope Mr Dorsey will be a reincarnation of the late Steve Jobs, who returned from exile to restore Apple to greatness.

So far, however, Mr Dorsey has yet to perform miracles. On February 10th Twitter reported lacklustre earnings for the first full quarter that he has been back in charge. It now has 320m monthly users, no more than it had in the previous quarter, and it is unlikely to turn a profit until 2019.

When Twitter went public in 2013, some believed it could become larger than Facebook, an older rival. Mr Costolo promised to build the “largest daily audience in the world”. Its prospects looked bright. Unlike Facebook, which began as a service on desktop computers, Twitter has always been popular on mobile devices, so it did not have to cope with a difficult transition.

However, it has become clear that Twitter will never become the giant it was supposed to be. The pace at which it is adding users has slowed far sooner than it did at Facebook (see chart). Mark Zuckerberg’s outfit, which now has 1.6 billion monthly users, has grown swiftly by buying potential competitors such as Instagram, a photo-sharing site. One sign of Twitter’s ill health is that its number of users in America has stayed flat, at around 70m, for a full year, suggesting that it is approaching a ceiling in the world’s most important advertising market.

Three problems have been hampering Twitter’s growth. First, there has been too much turnover of executives. At least 20 have left in the past two years. This has made it impossible to decide and act on a consistent strategy. Second, the reports about management turmoil have heightened an impression among some potential advertisers that the platform is not as mature as Facebook or Google, and thus is not worth taking as seriously. Third, new users find Twitter too fiddly compared with the alternatives (including Instagram and messaging services such as WhatsApp), which discourages them from continuing to use it.

That said, many users and advertisers do still value Twitter. It is one of the best ways to reach people who influence the public’s conversations about brands, says Laura Desmond of Publicis Groupe, a giant advertising firm. However, to expand its audience, Twitter is in the difficult position of needing to keep long-time users happy while it makes changes that will increase its appeal to new ones. Mr Dorsey’s changes so far include “moments”, a new function which offers users a selection of the day’s top stories; and giving more prominence to tweets that Twitter’s algorithm judges more relevant. But more radical steps will be needed.

Twitter is not the only tech firm with which investors, concerned by rich valuations and a gloomy economic outlook, are losing patience. In this volatile market, being a listed company with slowing growth is as bruising an experience as being attacked by trolls on social media. Yahoo and Yelp, two other struggling internet firms, have also been battered by the market. On February 4th LinkedIn, a professional networking site, beat analysts’ expectations for its quarterly earnings but forecast that its growth rate would slow significantly. This sent its shares down 44% the next day, wiping nearly $11 billion off LinkedIn’s stockmarket valuation.

The sagging share prices of Twitter and other fallen internet stars have inevitably prompted takeover speculation. Twitter’s market capitalisation is now around $10 billion, less than a third of what it was a year ago. That makes it affordable for quite a number of firms. News Corporation, whose boss, Rupert Murdoch, is an active tweeter, recently denied rumours it might bid. Mr Dorsey is unlikely to want to sell up yet: he wants his flock to keep the faith, and still hopes to pull off a miracle.

This article appeared in the Business section of the print edition under the headline "Clunky Dorsey"