Friday 21 October 2016

A tweet move, but Little faces large problems at Twitter

When the former RTE broadcaster Mark Little becomes the head of Twitter's Irish operation next month, he will do so at a time when the social networking outfit is trying to tackle some huge challenges. As its investors continue to moan, the company has seen one-time rival Facebook soar away while new entrants such as Snapchat are about to do the same. Adrian Weckler looks at Twitter's problems, strengths and what it might do next

Published 18/06/2016 | 02:30

Mark Little joins a social media giant with 300 million ‘active’ monthly users
Mark Little joins a social media giant with 300 million ‘active’ monthly users

Twitter's problems

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It has two big problems. First, its user base has stopped growing. While 300 million 'active' monthly users is a significant number, it's the same as a year before.

In a world where millions are still connecting online for the first time, this is perceived as a cause for concern, indicating that Twitter is falling behind rivals. And it's not just Facebook, with 1.6 billion users, that Twitter is losing out to. Snapchat has reportedly overtaken Twitter in the number of daily users (150 million). Meanwhile, messaging services such as WhatsApp (owned by Facebook) and iMessage (from Apple) are starting to become major social networking services in their own right.

Twitter's other big challenge is advertising and revenue growth. At present, over two-thirds of the world's online advertising revenue goes to just two companies: Google and Facebook. Twitter is left to scrap with other social media services such as Pinterest and LinkedIn, as well as the world's online media. While it has 130,000 advertisers in total, it is advancing at a slower rate than many rivals.

Last year, Twitter grew its ad-based revenue from $1.4bn to $2.2bn, a 58pc increase. (In profit terms, it lost $521m last year, down from $578m the year before.)

But Snapchat, which has only been around for four years, looks likely to power past Twitter in ad revenue soon, having just opened up its ad platform to third parties. This is because its video prowess and young addicted audience make for a much more natural advertising environment.

Twitter's strengths

If Twitter has some weighty challenges, it also has a few considerable strengths.

It has become one of the world's most active and important news activity services, with all global media feeding, discussing and drawing from the system.

In the US presidential election, for example, Twitter is the most important forum for candidate exchanges, reactions and soundbytes.

Whatever candidates Donald Trump or Hilary Clinton says gets amplified to a far greater audience because of Twitter's central role in today's current affairs.

As such, Twitter is close to being a utility for media in the same way as Facebook is a quasi-utility for social connections.

Amid all the talk of doom and gloom, that could gives the social networking company sticking power.

What it might do next

Twitter knows that it needs to improve its prospects quickly. In recent months, it has moved to expand the range of ad products it sells through the service.

This ranges from the frivolous to the technically complex.

For example, it now lets advertisers target users according to what emoji (small keyboard pictures) they use within tweets.

So-called 'carousel ads', where multiple tweets or pieces of video are incorporated into a single ad, are also being rolled out.

More generally, Twitter wants to reach a higher number of non-Twitter account holders. According to its outgoing Ireland managing director, Stephen McIntyre, it is looking to find ways to advertise to the estimated 500 million non-Twitter subscribers that land on tweets (on by clicking through from some external link.

Facebook is already doing this, selling ads based on a cookie it attaches to your browser so that the ads you see as you surf the web relate to your visit to Facebook, however brief that visit might have been.

Twitter is also starting to make bets on other companies. Just this week, it made a reported €60m investment in the Berlin-based music streaming service SoundCloud.

It almost bought the Spotify rival two years ago so the fact it's back in for a piece of SoundCloud means that it's looking for ways to expand beyond advertising to its existing user base.

Why Google might buy it

Last Monday's €23bn capture of LinkedIn by Microsoft, together with an expected upsurge in tech-related mergers and acquisitions, has revived speculation that Twitter could be a takeover target.

Indeed, its shares have risen over 10pc during the week for precisely that reason. In some respects, Twitter could be considered cheap: its market cap is now just over €10bn, having been close to €30bn two years ago. And it is now the largest independent social network outside of China.

"The LinkedIn acquisition makes all the remaining players more valuable due to the scarcity of those that have achieved scale," said Lou Kerner, founder of the US-based Social Internet Fund venture capital firm.

So who would a possible suitor be?

The most obvious company would be Google, which has repeatedly tried and failed to build social networking products.

Google also has over €60bn in cash which is more than enough to afford a company like Twitter.

On the other hand, it may be harder to leverage Twitter as a commercially valuable asset.

For example, it doesn't have the sort of professional data that made LinkedIn a lucrative pitch. And it doesn't have any significant growth prospects, either.

"Twitter has scale but what it doesn't have is growth," said Kerner.

"Acquirers are looking for products that can help drive their growth and don't need to be fixed."

Irish Independent

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