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Twitter's Decline in Growth and How CEO Dick Costolo Plans to Fix It

Feb 5 2014, 7:25pm CST | by

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Twitter's Decline in Growth and How  CEO Dick Costolo Plans to Fix It

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Twitter's Decline in Growth and How CEO Dick Costolo Plans to Fix It

The big concern heading into Twitter’s first earnings report as a public company was user growth.

With good reason, it turns out. Twitter said its growth in active monthly users rose only 4% from the third to the fourth quarter (though up 30% from a year ago, to 241 million people). That wiped out any trace of investor joy over a surprise profit and higher-than-expected revenues.

Twitter’s shares were plunging nearly 18% in extended trading after the close and earnings report today. That followed a drop of well under 1%, to $65.87, in today’s trading. And it only got worse after the earnings call with analysts.

CEO Dick Costolo tackled the user growth issue head-on nearly from the start of the earnings call. “We are doubling down in 2014 to accelerate the growth of our core user base,” he said in initial comments. “We believe combined changes over the course of the year will start to change the slope of the user growth curve. … We will reach many more people” in 2014, he added.

Twitter started down the road in the fourth quarter with new features such as expanding direct-messaging and allowing messages to include photos, as well as adding videos and photos to the timeline. He said direct-messaging rose 25% in the quarter. Searches, another feature Twitter has been working to improve, rose 120%, Costolo said. “That gives us confidence … that the roadmap will be successful.”

Costolo noted that until last year, Twitter’s growth had happened essentially with no work. But as it has grown, the difficulties of new users figuring out how to use Twitter, as well as dropoffs in usage, have become more apparent. “We simply need to make Twitter a better Twitter,” he said.

How? Costolo outline four main areas:

1) Enhance the Twitter experience on mobile devices. Costolo cited a new native mobile signup that makes it much easier to get on Twitter immediately.

2) More photos and videos. Through a program called “media forward,” Twitter hopes richer media experiences will make it more accessible to a broader audience.

3) Better tools for conversation. That includes the improved private messaging, but Costolo said more is coming to make Twitter an even more effective “town square.” But Twitter also needs to make it less threatening for people to post, not just lurk and read others’ posts.

4) Better organization of content. Twitter has already begun moving away from a strictly chronological organization of tweets, offering threaded comments (connected by vertical blue lines) and the ability to explore topics more easily.

Some of these changes may hurt other metrics investors care about, such as the number of timeline views. Threaded conversations, for instance, reduced timeline views in the fourth quarter, down 7% from the third quarter, Costolo said. “We need to bridge that gap between broad awareness of Twitter and engagement in the platform,” he said. “People need to ‘get it’ in the first moment. That is absolutely a focus for us.”

Overall, the changes will get more people more engaged in Twitter, Costolo promised. “You will see us launch much more” in terms of new features, Costolo said. “It will be a combination of changes … that will change the slope of the growth curve.”

Although user growth, or lack thereof, received the most attention today, another concern was a decline in the number of timeline views per user. That’s an indication that people aren’t engaging as much with tweets, says Forrester analyst Zachary Reiss-Davis. The reason, he says–and one that Twitter needs to address more directly–is that “they have been slower to update the site compared with other social networks.”

Analysts and investors may be more concerned about the user growth and other metrics than the folks who pay the bills. Craig Elimeliah, VP and director of creative technology at ad agency RAPP, said in an interview that Twitter’s absolute reach–still less than a quarter of Facebook’s–isn’t his chief concern. What Twitter has is reach among very influential people, such as celebrities and experts. “The reach of Twitter is much greater in terms of the culture than most people realize,” he says. “Twitter can really capture the moment.”

Nonetheless, Twitter also needs to capture more people capturing the moment, or it faces the prospect of losing momentum to rivals such as Facebook.

Source: Forbes


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