Sidelined Twitter struggles to make profit and find a role
OPINION: I’m currently packing my bags for South by South West (SxSW) a digital, film and music conference held in Austin,Texas.
Now in its 31st year, SxSW has been the launchpad for a heap of digital startups including Foursquare, Phonebooth Free and Twitter.
Although Twitter was live several months before SxSW 2007, it was the event itself which really launched it. Twitter provided SxSW with a solution to the problem of how to quickly share emotions, quotes and insights; and in a way that would scale across a rapidly evolving event.
Over the following five years the microblogging site took off, growing to 230 million users and then floating in 2013 with a market valuation of US$40 billion (NZ$54b). Since then it’s gone kind of sideways, with challenges around monetisation, social engineering, bitchiness and fake ‘‘bot’’ accounts.
Five years later it’s got just 330 million users, way fewer than the likes of Snapchat or Messenger and just a fraction of Facebook’s reach. Locally it’s a similar story with Twitterers having remained flat at around 350,000.
Ironically, it was the discoverer of ‘‘fake news’’, President Donald Trump, who’s been a bit of a saviour for the sidelined social media platform over the past year. It’s Trump’s channel of choice when it comes to savage, surprising or just downright weird utterances to the world (and often to his employees).
Trump’s hair-trigger on Twitter has helped created a resurgence in the platform, with Twitter president Omid Kordestani pushing back on requests to ban him.
Trump’s use of the network this year has also coincided with the NYSE-listed company moving into the black.
Last week Twitter announced a US$91 million profit. Given the current market valuation, that’s not much in percentage terms. But this is the first profit Twitter has made. Ever.
As someone with a historical fondness for Twitter, the profit figure made me think that finally, it had found a sustainable business model.
Sadly, that’s not the case. Scratch a little deeper on the results and you’ll find Twitter’s leadership team delivered a profit not by ramping up revenue, but by cutting costs.
Twitter has slashed sales and marketing activity, pulled back on research and development, and put the brakes on staff share options. Together, cuts in these three areas delivered savings of around US$170m, which helped enable the US$91m of profit.
That is the beauty of web businesses. While you can’t control revenues, you can control expenses because you don’t have big overheads or fixed-price contracts in place.
You can just cut. Witness here the likes of Facebook, LinkedIn and Uber, who are able to let staff go and still meet their operational requirements, no sweat. Well, not much sweat anyway.
These companies are the opposite of old-world firms such as Fletcher Building, a business that is now struggling with fixed-price contracts for two big projects, Auckland’s International Convention Centre and One Central in Christchurch.
Contracts which can’t be backed out of without risky and pricey legal proceedings, and which Fletchers is locked into fulfilling despite the commercials likely being unsustainable.
Mind you, for all its current woes, Fletchers does have a history of solid profit streams, something Twitter does not. So now chief executive Jack Dorsey needs to ratchet up revenue. To date, Twitter’s main revenue has come from advertising and data licensing. But it’s not enough.
Particularly when it’s up against two huge and versatile online ecosystems – Google and Facebook.
These ecosystems can offer you seamless experiences while staying within that ecosystem, with opportunities to clip the ticket on revenue at almost every stage.
Also known as closed platforms or walled gardens, these are software systems where the host has control over applications, content, and media; and will throttle access to non-approved applications or external websites.
You see this in the way Facebook keeps you inside its world as you consume news, video, undertake trades, share images with friends and coordinate social meetups. And the way that Google Chrome remembers your passwords, how it lets you move seamlessly across email, calendar, YouTube and photo libraries.
Twitter doesn’t really fit with this model. You go there for a reason – to check the pulse or consume news – not to hang around.
Rather than being a home base, it’s more like a Wikipedia of social media. You go there, do your business, then leave. Except unlike Wikipedia you can’t run it with 300 staff and annual donations.
So in contrast to its roots at SxSW, Twitter is now a solution looking for a problem.
Right now it’s temporarily a profitable solution, but that doesn’t make it a good one or a sustainable one.
Mike ‘‘MOD’’ O’Donnell is a professional director and writer. His Twitter handle is @modsta and he’s a bit excited about heading to SxSW.