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As CEO steps down, Twitter's problem is that it's just too public

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Dick Costolo never managed to tame Twitter's eccentric product or Wall Street's expectations

Justin Sullivan/Getty Images

I told my wife last night that Twitter's CEO had stepped down. What had he done wrong, she asked? Too many people were trying Twitter, then quitting, I explained. "That's me," she affirmed. The account I helped her set up has been dormant for nearly two years. "But I always feel like I'm missing something," she continued, musing about Twitter. "And I couldn't live without it during award shows." She often steals my phone when it's time to watch the Oscars or Grammys. "Facebook sucks at that kind of live stuff," she concluded.

Her experience neatly captures the struggles, and opportunities, the newly departed CEO Dick Costolo grappled with since he took the company public. Twitter occupies a central place in the worlds of sports, entertainment, and news. When it comes to the real-time conversation around major events at global scale, it has no peer. Many companies would be thrilled with 300 million users and $1.4 billion in annual revenue. But on Costolo's watch, the company failed to translate that success into a narrative that can meet Wall Street's expectations or a product that connected with a mainstream audience.

In the paperwork it filed with the SEC before its IPO, Twitter laid out the four attributes it believed would differentiate it from the competition: public, real time, conversational, and distributed. During protests in Ferguson, presidential primaries, or the NBA Finals, the dialogue on Twitter is intoxicating, because the central participants in the action are easy to follow, and the dialogue can flow back and forth with observers — retweeted, amplified, and spread around the world at the speed of thought.

Public, real time, conversational, and distributed

But that same public nature has made Twitter challenging for many users. It's typically not a feed based around your family and friends, the way Facebook or Instagram is. It doesn't have a straight-forward messaging utility like WhatsApp or Snapchat, or at least it didn't have a very refined version of that until recent improvements to Direct Messages. And the open nature of the conversation has enabled harassment and abuse on a scale that most other social networks don't have to contend with.

Twitter has picked up the pace of product innovation

Costolo tried to address these challenges. He pushed his product team to reimagine the experience of creating a Twitter account, and of visiting Twitter when not logged in, so that new users would have an easier time finding and following interesting material. Twitter also began to move away from the strictly chronological feed, pinning the best tweets to the top so you could see what you missed while away. For my money, Twitter has improved over the last two years, but so far that hasn't moved the needle on user growth or engagement.

Costolo tried to explain this dynamic to investors, calling the company a series of concentric circles. While 300 million was the hard number of engaged users it reported to the SEC, he said, there was a second, much larger number that regularly visited Twitter to consume content without logging in. Beyond that was an even more massive number of people that saw tweets when they were embedded in articles or referenced on television, who understood that news and gossip and activism happened on there, but didn't touch the actual service on a regular basis.

Investors aren't buying Twitter's new narrative about size

Investors didn't buy it. Twitter was constantly compared to Facebook, though it failed to grow at Facebook's speed or build a business quite as profitable. Twitter arguably has an equal or greater impact on current events and the global discourse, but many of the people who read tweets aren't counted as active users and are therefore difficult to monetize.

While Twitter didn't have the rapidly expanding audience that investors had hoped for, its revenue growth exceeded expectations during most of Costolo's tenure as CEO of the public company. This was his saving grace, until it wasn't. "Dick Costolo deserves credit for stabilizing Twitter when he joined as COO in 2009 and took over as CEO in 2010, and leading the company to an IPO and beyond," says tech analyst Ben Thompson. "Since the IPO, however, Costolo has lost credibility with Wall Street, particularly after last quarter’s results that added slowing revenue growth to existing concerns about slowing user growth. Lost credibility simply can’t be recovered from, particularly for a non-founder CEO."

Twitter is bringing Jack Dorsey, a founder and former CEO, back as its interim chief executive. Some very close observers of the company, like StockTwits founder Howard Lindzon, argue that this change makes little sense. Dorsey isn't well known for creating mass market products or profitable businesses.

Twitter doesn't need a turnaround so much as a new set of expectations. There have been persistent rumors that Google is eyeing Twitter for a takeover bid. Part of me hopes that this happens. The combination could be just the thing the search giant needs to finally grab a meaningful foothold in the world of social media, while giving Twitter the shelter it needs to play to its strengths and avoid the battering that comes with round after round of poorly received quarterly earnings.

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