Twitter: the start-up that never grew up

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ithin days of taking over as Twitter’s interim chief executive, Jack Dorsey gave his leadership team an assignment: define what Twitter is for.

At most companies, especially those that have matured enough to trade on the stock market, the purpose of their principle product is clear to its managers and staff. But among the top ranks at Twitter, there was no such consensus. Some suggested it was a media platform, offering live content from big events and celebrities. Others presented it in a more democratic way, as a community where any user could chat with anyone else on an equal footing. A few still cleave to its mission as a sanctuary of free speech.


Mr Dorsey decided to ask Twitter’s users for help. Under the tag #DescribeTwitterin3words, Mr Dorsey used an emoji globe to say it was “the world live”. Users chimed in with a mixture of sincere, snarky and off-the-wall descriptions, including “freedom of speech”, “not for old (people)!” and “time absorbing hell”. But this appeared to reinforce the sense that the people running Twitter had trouble defining the social network themselves.

Discord is not new to Twitter, which Mr Dorsey co-founded nine years ago. It has had a revolving door in its c-suite for years, most recently in June when chief executive Dick Costolo was ousted. But the lack of agreement about Twitter’s central purpose at the top was unsettling for many in the company. How could they hope to address stagnant audience growth and improve a product that is failing to attract and retain users if nobody could agree on what that product does?

Mr Dorsey is trying to hit the reset button, denouncing audience growth as “unacceptable” on an earnings call this week. Anthony Noto, the former Goldman analyst who is now Twitter’s finance chief, warned investors that fixing its growth problem would take a “considerable period of time” — a comment that wiped about $4bn from its market value. “In short, we have not communicated why people should use Twitter, nor made it easy for them to understand how to use Twitter.”

To its critics in Silicon Valley, Twitter is the start-up that never grew up. “It’s as if they drove a clown car into a gold mine and fell in,” Mark Zuckerberg, Facebook’s chief, is reported as saying in Hatching Twitter, Nick Bilton’s book chronicling its chaotic early years.

But unlike most start-ups whose growing pains are suffered in private, Twitter’s angst is happening under the unforgiving glare of Wall Street.

“The key question is, what is ultimately the utility of the product?” says Bob Peck, an analyst at SunTrust Robinson Humphrey. “Is it just niche or can that utility be expanded into the billion or so people that have tried Twitter and churned off?”

In October 2013, when Twitter filed to go public, it had 218m monthly active users posting 500m tweets every day and a quarter-on-quarter growth rate of 7 per cent. By the end of June this year, that quarterly growth rate had slowed to less than 1 per cent. While the overall number of Twitter users has increased in the past two years to 304m, the number of daily tweets they are all posting remains flat at about 500m.


Improvements to Twitter’s advertising business have paid off, with revenues growing 61 per cent to $502m in its last quarter. But with user growth grinding to a halt, some analysts fret that Twitter’s audience might soon decline for the first time as it grapples with leadership and product changes.By contrast Facebook, despite being much larger than Twitter, has continued to grow at a steady clip. In October 2013 it had 1.19bn users; now it has 1.49bn — adding the equivalent of Twitter’s entire audience in less than two years. Twitter may have sparked revolutions, but it is Facebook that took over the world.

Mr Costolo touted improvements such as the “instant timeline” that first-time users are shown when they sign up for Twitter, an attempt to overcome the problem of newbies not knowing who to follow. Early results were “quite positive”, he said. But this week, Mr Dorsey coldly dismissed the efforts of his predecessor, saying they had had no “meaningful impact on growing our audience or participation”.

To some Twitter employees, his words felt like a slap in the face, especially as Mr Dorsey had remained involved at the company throughout the period he was now condemning. But while Mr Dorsey’s words were harsh and his actions severe, some felt that he had delivered a much-needed reality check to its more complacent staff after what one person close to the company called the “bluster and bravado of misdirection” that used to be heard from Mr Costolo.

“While that hurts now, it’s the only way to rebuild the credibility that Twitter has lost,” said Ben Thompson, tech industry analyst at Stratechery.

Mr Dorsey has always been a divisive figure. After helping to launch Twitter in 2006, he ran the company until he was ousted by co-founder Ev Williams. Two and a half years later, Mr Williams was out, in part due to Mr Dorsey’s behind-the-scenes manoeuvring.


During Tuesday’s earnings call, he offered his own definition of what Twitter can be: “as easy as looking out of your window to see what’s happening” while also being “the most powerful microphone in the world”. He pledged to make “the product easier and more compelling to more people” even if it meant reshaping the app.Mr Costolo brought Mr Dorsey back to Twitter to refocus its product development. But after a few months juggling roles, Mr Dorsey quietly gave up his day-to-day duties at Twitter and returned to Square, the payments company of which he was co-founder and chief executive — a role he retains. Mr Dorsey’s supporters say he is a more accomplished leader after more years running Square, which is reportedly preparing for its own initial public offering.

One example of that is a new part of the service codenamed Project Lightning, started under Mr Costolo’s watch and scheduled for release in the coming months. Rather than relying on hashtags or the usual reverse-chronological list of tweets, a team of editors will select the best posts about particular events, from sports games and celebrity spats to political protests. These collections will be instantly available whether the viewer is a logged-in Twitter user or a first-time visitor.

Insiders say Lightning has received significant resources but worry the hefty investment will not be justified by its likely impact on Twitter’s audience. Nonetheless, as the most coherent company effort in a while, it has rekindled momentum and enthusiasm among product and engineering staff.

But Lightning is also a defensive move, coming in part as a response to the popularity of Snapchat, another mobile app offering a window on the world through photos and videos. Snapchat is one of several social apps to have come up rapidly behind Twitter, including Instagram with its 300m monthly users and WhatsApp with 800m.


Mr Jackson, who is joining Dropbox, is one of many senior staff who have left Twitter lately — not for big rivals such as Google or Facebook but to smaller start-ups, which offer more lucrative pre-IPO stock incentives.Despite its importance to Twitter’s bid to win back users from these rivals, Lightning this week suffered a blow with the departure of Todd Jackson, head of the team that has led the product’s development.

Snapchat has hired several members of its salesforce, while Uber, Lyft and Slack have also poached key Twitter engineers and product specialists.

Some of those richly-valued young tech companies may look at Twitter’s rollercoaster share price — it fell 14 per cent after reporting earnings this week — and wonder why they would ever want to go public. Before his departure, Mr Costolo complained about the “very public voting machine of the stock price that accelerates that short-term thinking” encouraged by quarterly reports.

“To date, Wall Street has considered Twitter management to be tone-deaf to their questions,” wrote Chris Sacca, an early Twitter venture backer, in June.

But if investors were happy that Mr Dorsey was finally giving them the straight facts and a clear product direction this week, it doesn’t show in its slumping stock. “One of the frustrations for investors is, why wasn’t any of this stuff done more quickly?” Mr Peck of SunTrust said. “Jack has been there on the board all this time.”

Twitter was already considered a potential acquisition target for a company such as Google, which has never excelled in social media. As the stock falls, Twitter may become more attractive for an acquirer. The clock is ticking for Mr Dorsey before the board appoints a permanent chief, most likely by the end of the year. He must decide whether to quit Square amid its IPO or abandon his attempt to redefine the messaging app he first dreamt up in 2000.

“The potential of Twitter is so vast,” Twitter co-founder Mr Williams told a recent Fortune Tech event, “the real challenge is deciding what to focus on.”