Category Archives: Twitter

Advertising, Earnings, Q4 2016, Twitter

Yet Another Reset for Twitter

Here we are, almost eleven years into Twitter’s history and a little over 18 months into Jack Dorsey’s second term at the company, and Twitter is heading for yet another reset. The company says it’s already been through a reset on its consumer-facing product, and that the changes it’s made are delivering results: positive year on year growth in daily active users, though Twitter still refuses to provide the underlying metric. It now says ad products need to go through a similar reset and re-focusing process. As a result of all this, the company isn’t even providing revenue guidance for Q1.

Here’s a quote from Twitter’s earnings call:

we remain focused on providing improved targeting, measurement and creative for direct response advertisers

Specifically, that’s from Twitter’s Q1 2015 earnings call, almost two years ago. But on today’s call, Anthony Noto said almost exactly the same thing again – some of this stuff has been in the works for over two years, and Twitter still doesn’t seem to be making meaningful progress. Rather, it’s now evaluating its direct response ad products to figure out which are delivering an appropriate return on the resources invested in them, with a view to killing some off.

Why is this all taking so long? It seems Twitter has been unable to focus on more than one big project at once, despite its arguably bloated workforce, and it’s hard to avoid the sense that this is mostly about management. It starts with Jack Dorsey, who is trying to run two public companies at once, but it continues with the next layer of management, where there’s been huge turnover in recent years and where product management seems to have been a particular challenge. It feels as though Dorsey at once wants to own product, because he has the authority of a founder in this area, but doesn’t really have the time to do it properly, which means both that things don’t get done and nominal heads of product get fed up.

The other big problem is that Twitter’s big competitors for direct response advertising – notably Facebook and Google – are just way better at this stuff than they are, and Twitter simply hasn’t made anywhere near enough progress here over the last few years. As a result, Twitter is enormously susceptible to competitive threats – its guidance for Q1 is so broad because there was a meaningful difference in competitive intensity between the beginning and end of January alone. Any company that can’t predict its revenue a quarter out with reasonable confidence because of the competitive environment is really struggling.

In the meantime, ad revenue is actually falling year on year, despite the modest MAU growth and apparent growth in DAUs. US ad ARPUs dropped 8% year on year in Q4, and total US revenue was down 5.3% despite flat MAUs. The supposed increased engagement simply isn’t translating into revenue growth. The revenue growth trend for Twitter as a whole is pretty awful:

In percentage terms, the growth rate has been falling since Q2 2014, but even in pure dollar terms, growth has been slowing for a year. The EBITDA guidance for Q1 suggests a pretty big drop in revenue in the quarter, extending the streak here.

What Twitter’s management said today in their shareholder letter and on the earnings call is that it will simply take time for the increased user growth and engagement to flow through, and that Twitter essentially has to convince advertisers that it’s making progress in getting users engaged. But advertisers don’t spend money because of user growth trends – they spend money because it’s effective, and stop spending where it isn’t. Twitter seems to have a fundamental issue convincing advertisers that money spent on the platform will actually pay off, and I don’t see that changing just because it tweaks some ad formats.

Earnings, Q3 2016, Twitter

Twitter’s Terrible New Metric

Note: this blog is published by Jan Dawson, Founder and Chief Analyst at Jackdaw Research. Jackdaw Research provides research, analysis, and consulting on the consumer technology market, and works with some of the largest consumer technology companies in the world. We offer data sets on the US wireless and pay TV markets, analysis of major players in the industry, and custom consulting work ranging from hour-long phone calls to weeks-long projects. For more on Jackdaw Research and its services, please visit our website. If you want to contact me directly, you’ll find various ways to do so here.

In the shareholder letter that accompanied Twitter’s Q3 earnings today, the company said:

consider that each day there are millions of people that come to Twitter to sign up for a new account or reactivate an existing account that has not been active in the last 30 days.

That sounds great, right? Progress! And yet this very metric is the perfect illustration of why Twitter hasn’t actually been growing quickly at all. Let’s break it down:

  • Starting point: “each day there are millions of people” – so that’s at least 2 million per day every day
  • There are ~90 days in a quarter, so 2 million times 90 is 180 million, all of whom count as MAUs in the respective months when they engage in this behavior, and could be potential MAUs for the quarter if they stick around for a couple of months
  • Over the course of this past quarter, Twitter only added 4 million new MAUs
  • That implies one of two things: either 2.2% or less (4/180) of that 180 million actually stuck around long enough to be an MAU at the end of the quarter, or a very large proportion of those who had been active users at the end of last quarter left
  • In fact, it might even get worse. Based on the same 2m/day logic, 60 million plus people become MAUs every month on this basis, meaning this behavior contributes at least 60 million of Twitter’s MAUs each quarter (quarterly MAUs are an average of the three monthly MAU figures) even if all 60 million never log in again. On a base of just over 300 million, that means around a fifth of Twitter’s MAUs each month are in this category
  • Bear in mind throughout all this that I’m taking the bear minimum meaning of “millions” here – 2 million. The real numbers could be higher.

In other words, this metric – which is intended to highlight Twitter’s growth opportunity – actually highlights just how bad Twitter is at retaining users. Because Twitter doesn’t report daily active users or churn numbers, we have to engage in exercises like this to try to get a sense of what the true picture looks like. But it isn’t pretty.

Why is retention so bad? Well, Twitter talked up a new topic-based onboarding process in its shareholder letter too. In theory, this should be helping – I’ve argued that topic-based rather than account-based follows are actually the way to go. But I signed up for a new test account this morning to see what this new onboarding process looks like, and the end results weren’t good.

Here’s what the topic based onboarding process looks like:

topics-560

So far, so good – I picked a combination of things I’m really interested in and a few others just to make sure there were a decent number of topics selected. I was also asked to upload contacts from Gmail or Outlook, which I declined to do because this was just a test account. I was then presented with a set of “local” accounts (I’m currently in the Bay Area on a business trip so got offered lots of San Francisco-based accounts including the MTA, SFGate, and Karl the Fog – fair enough). I opted to follow these 21 accounts as well, and finished the signup process. Here’s what my timeline looked like when I was done:

timeline-560

It’s literally empty – there is no content there. And bizarrely, even though I opted to follow 21 local accounts, I’m only shown as following 20 here. As I’m writing now, it’s roughly an hour later and there are now 9 tweets in that timeline, three each from TechCrunch and the Chronicle, and several others. This is a terrible onboarding experience for new users – it suggests that there’s basically no content, even though I followed all the suggested accounts and picked a bunch of topics. Bear in mind that I’m an avid Twitter user and a huge fan of the service – it provides enormous value to me. But based on this experience I’d never come away with that impression. No wonder those millions of new users every day don’t stick around. Why would you?

In that screenshot above, the recommendation is to “Follow people and topics you find interesting to see their Tweets in your timeline”. But isn’t that what I just did? As a new user, how do I feel at this point? And how do I even follow additional topics from here (and when am I going to see anything relating to the topics I already said I was interested in)? Twitter is suggesting even more SF-centric accounts top right, along with Ellen, who seems to be the vanilla ice cream of Twitter, but that’s it. If I want to use Twitter to follow news rather than people I know, which is how Twitter is increasingly talking about itself, where do I go from here?

I hate beating up on the companies I follow – I generally try to be more constructive than this, because I think that’s more helpful and frankly kinder. But I and countless others have been saying for years now that Twitter is broken in fundamental ways, and there are obvious solutions for fixing it. Yet Twitter keeps going with this same old terrible brokenness for new users, despite repeated promises to fix things. This, fundamentally, is why Twitter isn’t growing as it should be, and why people are losing faith that it will ever turn things around.

M&A, Twitter

The Problem With a Twitter Acquisition

As I’ve said before, I’m both a heavy user of Twitter and a critic of the way it’s currently being run. The lack of growth and the slow pace of change to the product are closely intertwined, and neither is good for Twitter in the long run. (See here for all my past writing on Twitter.)

Because of the slow growth and diminishing expectations of Twitter’s eventual size as a business, the share price is tanking, and that’s raising the prospect of an acquisition (recently, of course, the very prospect of an acquisition has been fueling a rise in the stock price).

Recode had a nice piece a while back breaking down the potential acquirers and arguing for and against each of them, with Kara Swisher and Kurt Wagner taking it in turns to present the pros and cons of each. My summary of that piece was as follows:

There’s a fundamental problem with all the potential acquirers, and that’s that none of them seem likely to do anything meaningful to solve the product problem. Among the potential acquirers are several companies who could create substantial synergies with their own existing ad businesses, including Google and Verizon. Others could do interesting things with the data. But none of them have the kind of track record in consumer social products that gives me any kind of reassurance that they would do better in evolving Twitter as a product than the current management. Let’s review:

  • Google – famously inept at creating successful social products, more likely to acquire Twitter with the intent of finally fixing its own social challenges than to add meaningfully to Twitter’s abilities in this area. Decent ad synergies though.
  • Salesforce – literally no experience in consumer-facing products. Yes, it recently acquired Quip and with it founder Bret Taylor, but one executive isn’t enough. Again, some interesting synergies in other areas, but zero on the end user product side.
  • Verizon – another play for ad synergies, when taken together with AOL and Yahoo (assuming the latter goes through now that the hack has been exposed). But Verizon has no history with successful web or social products (and see Go90 for a recent example of a non-telecom product…).
  • Facebook is probably the only example among those frequently cited that obviously does get social, but it seems so much more likely to be successful in aping Twitter’s features than as an acquirer, not least because of possible regulatory barriers, that this just seems plain unlikely.
  • Microsoft and Apple also seem unlikely. The former has done some interesting things with small app acquisitions lately in the productivity space, but not in true consumer apps, and again has no social chops at all. The argument for an Apple acquisition also seems thin, while it vies with Google for the title of least socially adept consumer technology company.
  • Private equity buyers would have the advantage of doing the turnaround work in private without having to report to public shareholders quarterly. But that only makes me worry that there would be even less urgency about the product changes that need to take place.

In short, the prospects for an acquisition that would actually help solve the fundamental product problems seem very poor indeed. Add to that the inevitable turmoil and further delays in execution caused by the acquisition process itself, and I’m still more hopeful that Twitter will finally get its act together as an independent entity rather than be acquired. It’s just too hard to see things getting better rather than worse under an acquisition scenario.

Earnings, Q2 2016, Twitter

Twitter Q2 2016 Earnings Commentary

Twitter reported its earnings this afternoon, and I’ve been sharing some quick thoughts and charts on Twitter itself, appropriately. I’m a massive Twitter fan and user, and it’s enormously important to my business, but I continue to be somewhat bearish on its potential as a business, as my earlier posts will show. This quarter’s results did little to change that perception.

MAU growth better but not great

There are lots of ways to look at Twitter’s monthly active user numbers, but they all show more or less the same picture:Twitter MAUs Q2 2016Sequential MAU growth Q2 2016Year on year MAU growth Q2 2016The fact is that, no matter how you look at it, there’s progress here, but it’s minimal. A year after taking over at CEO, Jack Dorsey still has precious little to show as far as returning his beloved Twitter to user growth, and that should be unacceptable to investors. Long-term, Twitter has to outgrow its present size and scope, and the company isn’t doing enough to make that happen. This older post outlines my thinking about how best to do this.

Worrying trends in US ARPU

The other worrying thing is that US ARPU seems to have dropped instead of rising last quarter, which shouldn’t be happening given overall trends and past patterns – I’ve included Facebook’s ARPU up to Q1 2016 as a comparison:US ARPU Q2 2016As you can see, both companies typically see a spike in Q4 each year – something that every ad company sees – followed by a drop in Q1, but then a return to growth in Q2. Twitter has seen that pattern in the past, as has Facebook, but not this quarter, when ARPU dropped back to below Q3 2015 levels. I haven’t seen an explanation for that yet, but it’s absolutely not the sort of thing Twitter or its investors should want to see happen right now.

There is some interesting commentary in Twitter’s shareholder letter about its ad rates and how they’re positioned in the market. Though there’s careful and somewhat wishy washy language in there, the biggest challenge is that CPMs are too high, and Twitter isn’t doing enough to justify its price premium. It sounds like it will now work on that, but again it feels like we’re seeing a “coming soon” sign where we should have seen real progress by now. This has been a known issue for months, and yet Twitter hasn’t done enough about it.

Live video and monetization

Lastly, live video, which seems to be Twitter’s big focus from a user perspective. We’ve already seen some trials of the capability recently, and although the concept is good, the UI needs work. But the bigger issue is that, while everyone else investing in live video is doing it for the ability to sell masses of ads users will actually be forced to watch, in most cases Twitter is investing in non-exclusive video where the vast majority of the ad space is sold by others. Can is make enough money from this marginal opportunity to make it worthwhile? Will it be a meaningful contributor to revenue and profits over time? That’s the big question here, and I still don’t feel like we have an answer for it. Meanwhile, the core product experience of Twitter continues to suffer both for existing power users and for the kind of new users Twitter needs to attract. Not good enough, in my opinion.

NFL, Twitter, Video

The NFL’s Twitter Gamble

Earlier today, I published a post titled “Twitter’s NFL Gamble“. The post illustrates perfectly the danger of jumping on breaking news too quickly, in that a major piece of information emerged after I hit “Publish” on the post, which totally changed the dynamic of the story. So here I am with a second post in the same day on the same topic, from quite a different perspective. A good deal of the material in the initial piece still holds, but the key point from the title no longer makes as much sense.

The key piece of information was reported by Recode, and concerns two important elements – the price Twitter paid, and the nature of the content it will carry, specifically as it relates to ads. Here are the two key paragraphs from that piece:

“While the NFL and Twitter haven’t disclosed the price for the package, people familiar with the bidding said Twitter paid less than $10 million for the entire 10-game package, while rival bids topped $15 million. Those numbers are a fraction of the $450 million CBS and NBC collectively paid for the rights to broadcast the Thursday games. (A note from Twitter’s Investor Relations Twitter account notes that the company had already baked the cost of the deal into their 2016 guidance.)

One big reason for the disparity is that CBS and NBC have their own digital rights, and they will own most of the digital ad inventory in their games, people familiar with the deal say. So Twitter will be rebroadcasting the CBS and NBC feeds of the games, and will have the rights to sell a small portion of the ads associated with each game.”

With this as context, it becomes clear that this is far less of a gamble for Twitter than I originally understood, and actually far more of a gamble for the NFL. Splitting the broadcast and digital rights for the Thursday night games was a great innovation, and one I actually wrote up pretty positively in a post for Techpinions. But it now appears that the NFL has chosen not to be as disruptive as it might have been. Rather than license these rights to a new online video player, with all the advertising rights packaged in, the NFL has chosen to forego a big new revenue opportunity from the digital world and instead hand the ad revenue opportunity mostly to CBS and NBC, while Twitter merely gets the benefit of increased traffic from broadcasting games almost entirely packaged up by others.

That represents a big gamble on the NFL’s part, that it’s better off giving most of the rights to traditional players rather than opening up a new opportunity with a major video player from the online world. The Recode reporting certainly suggests that the NFL even chose to go with Twitter despite the fact that its offer was lower than others. The NFL may appear to be doing the opposite of gambling here, but the risk is that it’s setting up these online rights as something much less than what they could be. Over the next few years, these online rights could be really lucrative, and this Thursday night package was a great way to really test that market, but the NFL is putting all its eggs in the broadcast basket instead.

NFL, Twitter, Video

Twitter’s NFL gamble

Bloomberg broke the news this morning that Twitter is the winner of the digital rights package of Thursday night games the NFL has been auctioning off recently. Twitter came out of left field (if that’s not the wrong metaphor for this particular sport), and it’s worth thinking about both why Twitter would want this deal, and what the implications might be.

Update: some significant new details have emerged since I wrote the first version of this post, notably that Twitter has likely paid far less for these rights than previous rights owners, in part because it will sell very few ads itself and will largely carry the broadcast and ads provided by the network broadcasters. As such, the size of the gamble is significantly smaller, and the comments about guidance also make more sense. I subsequently wrote a second piece which covers the later news.

Firstly, we know now that Jack Dorsey really is serious about making live – and live video specifically – a focus in 2016! So far, Twitter has been used almost entirely for people to talk about live events being broadcast on other platforms, which has meant it hasn’t been able to benefit as directly as some other players from those live events, even if massive numbers of tweets were sent and even shown on television. Last night’s NCAA Championship basketball game is a great example of this. This deal suddenly gets Twitter directly into the business of showing these games and tapping into some of the additional associated revenue opportunities. It also significantly ups Twitter’s live video game from short, grainy videos to professionally produced content.

One of the most interesting things is going to be seeing how this fits into the Twitter product – with all the other bidders, there were obvious existing platforms for broadcasting NFL games, but with Twitter they’ll have to create a completely new home for this kind of thing. It’s possible they might use Periscope, but given the poor quality of most Periscope videos until now, I would think the NFL might have qualms about having their high-quality content appear there. Now that the news is out from the NFL, with comment from Twitter, we know that Twitter is describing the experience as being “right on Twitter,” but I’m curious to see the exact implementation.

The other big questions is how Twitter will do selling ads against this content – it’s obviously a very different type of advertising from what they’ve sold before, but it gives them their first real opportunity to cross-sell these different types of ads and break into television advertising for the first time. It may also be a first real opportunity to make really good money from the “logged-out users” Twitter has been talking up for so long, but who are so hard to advertise to effectively.

And then there’s the question of how much Twitter paid for the rights here. It’s hard to guess at because this package of rights is very different from any other similar package sold before – non-exclusive in the US, but exclusive internationally. But almost no matter what the exact number, it’s likely to be a meaningful fraction of Twitter’s overall revenue. That’s one of the reasons Twitter is such a surprising bidder (and winner) – it’s a much smaller company than most of the other names that were bidding, with just over $2 billion in revenue last year. If the rights costs in the hundreds of millions of dollars, which seems likely, then they may well cost 10-20% of revenue. That’s a huge gamble, and we all know the gamble didn’t pay off for Yahoo. The strangest thing is that the Twitter Investor Relations account tweeted this morning that all expenses associated with the rights are already baked into its guidance for the year. That seems particularly odd given that Twitter likely didn’t know whether they’d won the rights yet when they announced their guidance, and it’s a material amount of money.

Hopefully we’ll get more detail on all of this either later today or over the coming weeks, but it’s a fascinating illustration of the sheer breadth of the companies getting involved in the live video business at this point, coming from a diverse set of starting points within the broader industry.

Instagram, Twitter

Twitter and Instagram’s Communication Screwups

Note: both the Beyond Devices blog and Podcast are now available as a channel on Apple News, which is available if you’re using a device running iOS 9. Click on the button below to read this article there and follow the Beyond Devices channel.

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Today, hundreds of Instagram accounts were suddenly filled with panicked posts about a change to way the Instagram feed worked, which filled certain account holders with dread that their followers would no longer see their posts. In the previous few weeks, there were similar panics among Twitter users about two purported changes to that product: removal of the 140-character limit for tweets, and an algorithmic timeline similar to that being contemplated at Instagram. What’s striking about all three of these examples is that the companies arguably only have themselves to blame for the negative reaction, which could have been avoided if only they had communicated properly with users of their respective services.

In the case of Twitter’s supposed removal of the 140-character limit, reports started to surface over the first weekend in January that Twitter was considering a change, and it took a Twitter post (one that ironically embedded a sizable text document as an image) from Jack Dorsey to address the situation.  The problem was that Twitter had allowed a rumor about a possible change to get legs for several days before the company officially addressed it. Ironically, this month Dorsey finally announced that the company wouldn’t be raising the limit after all, but that just goes to show how powerful the user backlash was.

Twitter’s actual change – to an algorithmic timeline – also met with a significant user backlash, primarily from the sort of power users likely to pick up on news reports about the service and also the users most likely to care about such a change. In the end, Twitter better explained how the algorithmic timeline would work and – importantly – made clear that it could be turned off. When many users first experienced the new timeline a few days ago, they didn’t like it, but were able to turn it off. In the end, things weren’t nearly as bad as some users worried, but Twitter did itself a huge disservice by not explaining this better from the beginning.

And now we have Instagram’s equivalent moment – the company announced a few weeks ago that it would be introducing an algorithmic feed which would show the most “meaningful” posts first. However, it didn’t make clear exactly how this would work, and importantly didn’t specify whether users would be able to choose between this new feed and the current feed. As a result, and given Facebook’s history of making a similar change, many brands and creators on Instagram were understandably worried that their posts would suddenly become invisible to users. Then, at some point in the last 24 hours, a rumor (false, as it turns out) began to spread that the change would happen today. Hence, something like a game of what we Brits call Chinese Whispers and Americans call Telephone happened, and you had all those panicked posts on Instagram.

In all these cases, if the companies had just done three things, all the user backlash could have been avoided:

  • Communicate about the change before (or immediately after) rumors start
  • Make clear exactly what is planned, and when it will take effect
  • Specifically make clear that the changes will be optional rather than forced on users. (To be clear, we still don’t know if this will be the case on Instagram, but it absolutely should be).

Instead, you have overreaction by users, a huge backlash against something that may not even be happening (or may not be as bad as people fear), and a PR nightmare, all of which could have been avoided. I expect that to some extent any change to a major service that’s used by hundreds of millions of users will trigger some amount of panic, but in all three of these cases, the reaction has been much worse than it needed to be, and the companies only have themselves to blame. Nature and the Internet both abhor a vacuum, and when companies fail to communicate clearly, their users often fill in the gaps with worst-case scenarios, which serves no-one well.

 

Moments, Twitter

The two Twitters

1 Comment

Related: Twitter topic page, with links to all my earlier Twitter posts.

With the launch of Twitter’s Project Lightning and the Moments feature this week, Twitter is reinforcing an important point about Twitter and its future: there isn’t one Twitter, but two. Moments is part of one Twitter, while almost everyone writing about is part of the other, and as such many of those people seem baffled by it.

Twitter 1: Power users and broadcasters

The first Twitter is made up of what you might call power users and broadcasters. That is, these are people who use Twitter a great deal, and most of them have likely spent significant effort doing the following things:

  • Carefully choosing accounts to follow
  • Building up a following
  • Regularly tweeting themselves
  • Engaging with other Twitter users through @replies, DMs, retweets and so on.

Twitter 2: Casual users

The second Twitter is made up of what we might call casual users – people who are trying Twitter on for size, dipping in and out occasionally, or perhaps signing up for a specific short-term purpose with no intention of engaging long-term. These users make up a fairly substantial portion of Twitter’s current audience, but also more importantly the vast majority of the users it has lost over time (who in turn make up the majority of those who have ever tried Twitter). Many of these users have likely never spent significant time   doing those four things I talked about above, and aren’t likely to.

Moments is for Twitter 2

The key thing about Moments is that it’s for Twitter 2, not Twitter 1. And yet the vast majority of the people writing about it are Twitter 1 people – power users and broadcasters. And I’m seeing all these people complaining on Twitter that they don’t find Moments useful, that it isn’t customized based on the accounts they’re already following, and so on. And that completely misses the point.

Just over a year ago, I wrote a piece called “Twitter’s channel model is broken” in which I argued that:

Twitter is effectively an a la carte TV service with hundreds of millions of channels on offer. The burden is on the user to choose individual accounts to follow, which can be an overwhelming experience.

I went on to say:

…live TV only works because you just have to turn on the TV and something is there. If you don’t like it, you change the channel. But on Twitter today, there’s literally nothing on until you explicitly tell the service what you’re interested in, and if you don’t like it, it’s a lot of work to change channels, because you effectively have to create each channel yourself in a very manual and labor-intensive fashion. It works fine once you’ve created a channel you’re happy with, but I suspect many users never reach this point and thus don’t use the service often or abandon it altogether.

Moments as it works today is the implementation of the model that I talked about here. The whole point is that it doesn’t require any training, just like turning on the TV doesn’t require any training – something will be there, and if you don’t like it you can change the channel. Moments provides these channels which can be instantly available the moment someone signs up for the service. If I were Twitter, I would probably allow people to skip the signup process entirely, at least temporarily, but perhaps that will come in time.

I have no doubt that Moments will get better over time and that it will eventually become more customized and curated based on your existing interests. But the whole point for now is to create an easily-consumable product that doesn’t require any work up front. And that’s going to be the key to Twitter’s growth going forward, because Twitter 2 is where all the growth is. Reducing friction in setup and use of the service for these users is therefore a critical element in Twitter’s future success.

Feeding Twitter 1

The big risk is that Twitter will focus so much on Twitter 2 that it fails to feed Twitter 1. Twitter 1 is the most vocal Twitter, and essentially all the influencers – whether celebrities, power users, or reporters – are in Twitter 1. Ignoring Twitter 1 as the company focuses on Twitter 2 would be a huge mistake, especially because so much of the content consumed by Twitter 2 is provided by Twitter 1. There’s a symbiotic relationship here, and one that Twitter has to be very careful not to disrupt.

Two Twitters

The problem is that Twitter has another goal it’s trying to achieve: monetization. Twitter’s monetization strategy involves serving up ads, which in turn requires that people use Twitter’s own apps or its website to consume those ads. And yet Twitter 1 disproportionately uses third party clients like Tweetbot and Twitterrific. Because of Twitter’s insistence on monetization through advertising, and its general discouragement of clients that replicate the core Twitter experience, it’s started withholding some important features from the API it makes available to third party clients. My own Twitter client of choice is Tweetbot, which just received a big overhaul with lots of cool new features, but which is unable to show group DMs or the recently released Polls feature. If I only ever use Tweetbot, I am simply never aware that I have group DMs (several of which I’ve missed as a result), and tweets with polls just look rather empty because there’s no indication that there is anything other than the text there.

At this point, Twitter has an important decision to make: should it begin to make some concessions in order to feed Twitter 1? There are signs that it’s starting to do so, as some Verified users are no longer seeing ads in the Twitter client. This is an interesting example of recognizing the value that Twitter 1’s most influential users have, and granting some favors in return. Shutting off ads might cause some power users to use the first-party client again, but if Twitter is forgoing revenue from these users anyway, why not let them use the clients they want, and give the makers of those clients access to the new functionality too through APIs? The third party clients are limited already by the caps Twitter put on user growth a while back, so there’s little danger here of mass adoption of new clients.

The fact is, Twitter needs to do more to publicly acknowledge and respond to this increasing bifurcation between the two Twitters if it’s to avoid the core experience becoming unusable for both groups as it seeks to bridge the gap between them. Releasing a true power-user client of its own (not the buggy mess that is Tweetdeck) or re-embracing third party clients would be an important step in this direction.

Earnings, Q2 2015, Twitter

Thoughts on Twitter’s Q2 2015 earnings

Twitter is one of the companies I’ve written about most here on Beyond Devices. Some examples from the past year include:

You can see the full set of past posts here. I feel like last quarter’s post in particular sums up a lot of the same themes that came out of this quarter’s earnings call, but there are a few new points I want to make. I also tweeted out some charts earlier which you might find interesting, and the full set of Twitter charts will be in the deck that will go to Jackdaw Research Quarterly Decks subscribers soon.

Jack Dorsey’s audition went well

Given Square’s IPO plans, a lot of people have speculated that Jack Dorsey would be out of the running for the permanent CEO job at Twitter, especially given that the board has signaled it wants a full-time CEO. However, given the opportunity on today’s call to take himself out of the running, Dorsey refused to do so. Instead, he effectively auditioned for the post of permanent CEO during his remarks, and I think he did a fairly good job. Ironically, the market reacted badly, but I think what they’re reacting to is the true state of Twitter, versus the overly-rosy version Dick Costolo had been trying to sell the Street for the past few quarters. I don’t have a transcript yet, so this is all based on my own hastily typed notes, but some of the key things Dorsey talked about that stuck out to me were:

  • Realism about user growth and how poor it is, and how this is unacceptable – Twitter appears to have become stuck at around 300 million users, but it clearly has massive potential to be more than that, and Dorsey seems keen to fulfill that larger potential. Interestingly, there was almost no talk about the “logged out users” that were such a favorite of Costolo’s. Costolo appeared to have largely given up on logged-in user growth, but Dorsey doesn’t seem to have done so.
  • Realism about the product itself and its shortcomings. Dorsey clearly sees a lot of value in the product as it is today (as do I and millions of others) but as I’ve written before, it’s really not a good fit for the users Twitter wants. As Dorsey put it, the product isn’t immediately compelling to the new user and takes a lot of work to become so, which drives the high abandonment rate.
  • A focus on the users of Twitter first and foremost – Costolo often seemed to talk far more about advertisers and building a media company and so on far more than benefiting users, but Dorsey seems more focused on the users, and with the advertising side actually going very well right now, it’s about time someone put the users clearly first again. The key challenge here is to balance the needs of two very different groups of users – the users it has today, and the users it wants to add. Their needs – and the product they want to use – will be very different.
  • Clarity of vision about what Twitter should be – Dorsey’s sentiment was that Twitter should be “as easy as looking out of your window. It should show you what’s most meaningful in the world, first, before anyone else, straight from the source. And keep you informed and updated throughout your day.” That’s actually a great vision of what Twitter is for many people, and what it needs to become for many others, and importantly it’s user centric rather than some vague vision of a media platform. The other side of it was mentioned too – Twitter as a communication platform – “the most powerful microphone in the world.”

Many of the same challenges remain

However, the market reacted to the content of those remarks from Dorsey and from the others on the call, which were frank but also downbeat about the near-term prospects of Twitter. User growth is indeed very bad; engagement remains low, with a DAU/MAU ratio far lower than Facebook’s, even in Twitter’s top markets; there is no immediate prospect of these things changing, although Dorsey has a plan to do so over the medium term. Monetization, meanwhile, was phenomenal again, and drove significant growth in revenues and beating analyst estimates for the quarter. It looks like Q3 will be strong on revenue growth again if the guidance is to be believed. But as I’ve said before, better monetization can only carry you so far as long as user growth is lacking, and getting user growth going again has to be priority number one now that the ad side is ticking over well.

Earnings, Q1 2015, Twitter

Thoughts on Twitter’s Q1 2015 earnings

Twitter’s earnings last night were something of a mess. Revenue fell short of the company’s forecasts, user growth was nothing special, two previous metrics were retired and two new ones introduced which don’t look great right now, and to top it off, the earnings report was accidentally posted before the market closed. Last quarter, I said this about Twitter’s results:

…there are three main growth drivers for [companies like Twitter]: user growth, increased engagement, and better monetization of that engagement. Twitter’s problem continues to be that only one of these three is going in the right direction… User growth has been slowing significantly over the past two years, and especially over the last few quarters. This quarter the company added just 4 million MAUs (or 8 if you’re charitable and give them back the 4 million additional MAUs they claim they lost to an iOS 8 bug). Even at 8 million, that’s by far the slowest growth in several years. Engagement, meanwhile, as measured by timeline views per MAU, has also been stagnant or falling for several quarters. The only metric moving in the right direction is monetization, and boy is it moving in the right direction!

I’ve often used these three metrics – user growth, engagement, and monetization – as a framework for evaluating Twitter’s earnings, and in Q4, only one was moving in the right direction. In Q1, however, even monetization stumbled, leaving the company without a single improving metric among the three. Let’s quickly review the key metrics here. Continue reading →