What Twitter needs to do next

Could this be the end of the line for Twitter?

While no one’s writing a eulogy for the popular microblogging service just yet, the rush of shareholders heading for the exits over the past week strongly suggests growing doubts surrounding the company’s longer-term prospects – and increasing pressure to radically refocus the company’s priorities.

Investors hammered Twitter’s shares last week after it reported underwhelming financial results, and again yesterday after the initial lock-up period following its November 2013 IPO expired. The latest selloff sent the stock plunging 17.8 per cent on the day, and it continued to sink Wednesday as it tested new intraday lows around $30. The stock has lost close to 60 per cent of its value from its late-December all-time high of $74.7,3 largely based on investor fears of flattening growth, limited user engagement and escalating costs.

The Twitter selloff reflects darkening clouds over the entire social media space. Facebook was off 3.6 per cent in trading yesterday, while LinkedIn dropped 6 per cent and Yelp fell 11.5 per cent. Twitter’s numbers in particular stoke deeper worries that its goal of joining Facebook as a default global social media service for the masses could be out of reach. To reverse weakening stakeholder interest, the company needs to move quickly.

Some key strategies could include:

Appeal to mainstream users
Twitter is a deeply ingrained culture within the digerati. Unfortunately many less tech-savvy users have difficulty understanding Twitter’s value proposition and its often-cryptic user interface built out of hashtags, handles and retweets. Its user base will continue to languish at around quarter-billion users unless it finds a way to appeal to less tech-inclined users.

Fix its engagement problem
According to Twopcharts, 44 per cent of all Twitter accounts have never sent a tweet. Even those who have sent tweets aren't exactly burning up their Twitter feeds: 30 per cent of existing Twitter accounts have sent between one and 10 tweets, and only 13 per cent of all Twitter users have sent 100 or more tweets. Advertisers won’t pay a premium if the majority of accounts gather dust. Twitter must find new ways to pull users deeper into its world.

Become app-centric
Amazon and Twitter launched a service this week where users can shop by replying to any tweet containing an Amazon product link and adding the #AmazonCart hashtag. When they log into their Amazon accounts, the tagged items are waiting in their wish lists, ready for purchase. Services like this will reinforce Twitter’s power as a full-blown monetizable online operating system and open the door to new revenue streams.

Twitter’s challenges as a newly public company echo Facebook’s experience after it went public in May 2012. At the time, stakeholders didn’t buy into the company’s plans to monetize its billion-plus users and build a mobile ad business. Facebook shares nosedived amid launch day glitches and a yawning gap between lofty pre-IPO expectations and the cold reality of making good on those promises. It took close to a year before its strengthening mobile advertising revenues finally convinced investors it was the real deal and validated social media as a legitimate market segment.

Twitter isn’t dying anytime soon, but its failure to launch as strongly as early investors had hoped could cripple its long-term goal of becoming an eminent, lasting global social media utility. Slackening user growth coupled with troubling signs it can’t actively engage – and profit from – the users that it has are prompting a fundamental shift in investor perception.

Enthusiastic pre-IPO predictions of Facebook-like growth have given way to a somewhat dimmer reality, and Twitter doesn’t have unlimited time to find its differential strengths and build a profitable business on top of them. While it works to reignite growth and control costs, investors remain skittish about its future prospects. It’s a story that will take far more than 140 characters to complete.

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca