What’s happening to Twitter?

Ricardo Pérez. Profesor. IE Business School

29 March 2016

It’s a critical moment for Twitter. Following a great success story, it is now facing the challenge of managing to grow its user base in order to ensure the bird can keep flying.

Tumbling share prices, loss of investor confidence, and memes showing a drowning bird. It would appear that a lot of people are concerned about what’s happening to one of the best promotion tools that we have seen in recent years. There seem to be two main concerns. The first is about the level of revenues in the US compared to the rest of the world. The second is about the capacity to find a definition of service (what it does for clients) that most people can understand, and makes more people sign on to take it outside the environments in which it  is currently bogged down. Let’s see if we’re able to analyze both aspects in a bit more depth. 

Take a look at the numbers and the reasons people are worried. Twitter has done a tremendous job with revenues, having grown its income by 48% compared to last year. The problems arise when we look at the evolution of user numbers, which have stagnated since the previous quarter, and have even dipped slightly in the US (from 66 to 65 million). With a total of 320 million users worldwide, its revenues are concentrated in its home market, where 644% of its income is generated. And that is where the problem lies. In Twitter’s key market, where it generates 60% of its income, its revenues are growing by an average rate per user (ARPU) of 50%. Better optimization, better advertising tools, and attracting massive attention are what Twitter and its team do well, but if it can’t grow user numbers the question many are asking is what is going to happen to its ARPU. It stands at over $6, which is about half that of Facebook in the same market. And that’s were the second problem arises. What is Twitter to its users? And above all, what is Twitter for all those who are not users, or those who have tried it and stopped using it? 

Therein lies the crux of the problem. One of the keys to growing in the current environment is that the client/user has to have a clear idea of why they want to use a given application.  Some reasons for using can be easily explained in terms of entertainment, news, public personalities (and those who aspire to become one). But other reasons are not so clear. How do you find people to interact with? Is the aim to listen to or interact with someone? And what if you’re not famous? If you have to spend time explaining what an application or technology can be used for, things get complicated.  

The social networks we use on a day-to-day basis enable us to interact easily with environments that are more or less close to us, with clear rules on what to do – basically because everyone is there, and it’s easy to learn from the people who surround us. It’s easy to find someone, know what to expect, feel rewarded. Twitter is more complicated. When all is said and done, ease of use is a key factor for the uptake of a particular technology. That’s not Twitter’s strong point. In fact it could be described as a weak point. This problem is partly the fault of the very investors who are now just starting to worry about it.

The initial concern of these investors in Twitter was that there was no clear business model. Hence, if they look at their acquisitions, many are oriented to getting to know more about what is going on and offering better advertising options to advertisers. Twitter people have had to focus on showing that they can generate revenues, and leaving almost everything else aside. They have made it clear that there is money to be made, so what they have to do now is create an experience that more users can understand. If they are unable to do that, they will be left with a service that serves some niches, such as people in technology, celebs, a way to make announcement, and little more. It’s not like it is intrinsically bad, but obviously its impact and potential to generate revenues is far more limited than a model that permits people to access realities that surround them, which was the original idea.

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