The Economist explains

Why Twitter has run into trouble

By A.E.S.

ON FEBRUARY 5th Twitter, the social network popular among chirping celebrities and journalists, saw the price of its shares fall to a record low. Part of that drop was caused by LinkedIn, a professional social network, which forecast lower growth. That prompted jittery investors to push down LinkedIn’s shares by more than 40% and knocked down prices for Twitter and Facebook stocks too. However Twitter has only itself to blame for the depth of its struggles. Its market capitalisation is around a third of what it was a year ago, at $9.5 billion. The company that sells pithiness through its 140-character tweets has begun reciting a never-ending litany of problems, including slowing rates of user-adoption and a near-constant churn within its executive ranks. Last October Jack Dorsey, one of Twitter’s founders, replaced Dick Costolo as the company’s boss, and since then more executives have left, furthering the impression the firm is in turmoil. Some expect disappointing results when Twitter reports earnings on February 10th. What has gone so wrong?

Twitter was founded in 2006, two years after Facebook. The two social networks were once believed to have equally bright prospects, and some even thought Twitter could surpass Facebook in terms of revenues and users. Dick Costolo promised to build “the largest daily audience in the world”. Unlike Facebook, Twitter has always been strong on mobile, so it should have had an edge as users and advertisers started spending less time on desktop computers in favour of their mobile phones. It did not pan out that way. Today Facebook has nearly 1.6 billion monthly active users, while Twitter claims only around 320m.

Twitter has suffered from three interrelated problems that have prevented the firm from soaring to the heights many had expected. First, there has been too much executive turnover, preventing the firm from agreeing upon a consistent vision. Second, the perceived turmoil has given advertisers pause. While many brands find Twitter a seamless way to reach online consumers, executive departures and internal changes have made advertisers feel that the platform is not as mature as Facebook or Google and kept them from writing such large cheques. Third, newbies find Twitter too complicated to use, which has prevented potential users from signing up for the service and sticking around. Twitter is in the challenging position of needing to keep its regular users happy while making changes to attract a new audience.

Mr Dorsey wants to be for Twitter what Steve Jobs was for Apple: a founder who came back to rescue his company. He has focused on trying to make Twitter easier to use, creating a “Moments” function, whereby users can see what the big stories of the day are. But he has a lot more work cut out for him. Twitter is still not profitable. The cheaper its shares become, the more likely it is to be snapped up by another internet or telecoms company. Such a prospect looks far more likely today than it was a few months ago, though Mr Dorsey is likely to rebuff any such offers: he hopes to turn the firm around on his own. Twitter’s struggles are a cautionary tale to other technology companies. The public markets have become especially unforgiving to internet firms whose growth has slowed. Twitter also points to the limitations of its own fame. It helps to be a brand-name firm people recognise, but that is not enough to save a company that fails to deliver on its high-flying promises.

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