Twitter went public in November 2013, in a hugely successful IPO. The company sold 70 million shares at $26 apiece, but that was way below what the public was willing to pay: the very first trade came at $45.10 per share, valuing the company at some $25 billion.
Since then, however, Twitter hasn't fulfilled its promise. Early hopes of rapid user growth were repeatedly dashed, and in response the company decided to concentrate on other metrics, like "audience", which would count not only people using the service directly but also non-users and logged-out users who encounter tweets in any number of different contexts. (Like, for instance, seeing a tweet embedded in a news story.) If user growth wasn't going to drive revenue growth and profits, then maybe other things might.
That doesn't seem to be working out too well, either. To be sure, revenues have grown quite impressively from $169 million in the third quarter of 2013, the last quarter before the company went public. In the first quarter of 2015, Twitter brought in $436 million. That’s an increase of 160% in just 18 months. On the other hand, expenses are up even more, which means that Twitter’s quarterly losses, far from being eradicated, are actually growing. The company lost $65 million in the third quarter of 2013; in the most recent quarter, it managed to lose a whopping $162 million. So much for profitability in 2015.
As for the share price, well, before those first-quarter earnings were released, it was in the low $50s. But now it’s cratering: Twitter’s worth just $39 a share, which means that if you bought it on day one and held on, you’re significantly underwater at this point.
That's not good, for any public company. Obviously, every company rises and falls in value over time, and many private companies neither know nor particularly care what their value might be on the open market. But public companies are different: the management answers to the board, which is elected by the shareholders, and the main thing that shareholders tend to want is a rising share price.
And it's a particularly big problem for Twitter, a much-loved service which is probably more valuable to its users than it is to its shareholders. Twitter, the stock, needs to show growth — that's the bargain it struck, when the company went public. Even if that growth comes at the expense of some of the characteristics which cause its most active users (I'm one of them) to love and value it as much as we do. As Mathew Ingram says, a lot of Twitter's decisions — going back a good five years — have been about maximizing the value of Twitter the company, even if that comes at the expense of Twitter the social ecosystem.
Indeed there's a case to be made that Twitter the social ecosystem is actually declining in value. Last year, Jenna Wortham diagnosed "a turning point", saying that "Twitter isn’t really about the most important thing anymore — it stopped being about relevancy a long time ago." She added:
Increasingly, I’ve found myself retreating to smaller groups, where the stakes are lower and people are more honest and less determined to prove a point, freer to joke and experiment, more trusting in one other and open to real conversation…
Twitter is starting to feel calcified, slowed down by the weight of its own users, cumbersome, less exciting than exhausting. It may be why less public forms of communication — messaging applications like Snapchat, GroupMe, Instagram Direct and even old-fashioned e-mail threads and Google groups — are playing a bigger and bigger role in the most meaningful interactions during my day online.
Today, of course, she might add Slack to that list — the place where much of Twitter's more professional content has migrated.
Twitter's big weakness, as it stands, is that it's the least social of the social networks. In the early years of Twitter, new users would generally find themselves following their friends — often the friends who introduced them to the service. More recently, however, new users tend to find themselves following celebrities, big corporate accounts, and #brands.
Here's a thought experiment: take all the accounts you follow, and estimate what the median number of followers is among those accounts. Call that your Followee Reach. I'd wager two things: that most people's Followee Reach has been growing steadily for about as long as they've been on Twitter; and that in general the more recently you joined Twitter, the higher your Followee Reach will be. Neither of those two phenomena are particularly good things, since Followee Reach is in large part a measure of how impersonal and corporate any given user's Twitter experience has become. (It's worth noting that Followee Reach tends to rise in much the same way that an individual's follower count tends to rise over time — one way in which the gamification of Twitter, where people compete to get as many followers as they can, can end up hurting the overall experience.)
Twitter has always had a very skewed distribution of follower counts: a tiny percentage of users have enormous numbers of followers, while the majority of users have a few dozen followers at best, and feel that they can more effectively reach their friends by using Facebook or Instagram or Snapchat instead. That's bad for Twitter's business, because if you're not firing up Twitter to see what your friends are saying, you're much less likely to notice any of the paid advertising it features.
That's a problem which is not going to be solved by yet another management reshuffle. If the CEO is ousted, as Ben Thompson advocates, then Twitter would simply be continuing its long history of senior-management chaos, and little good is likely to come of that.
Rather, the solution is acquisition. Twitter needs to be bought. With a market capitalization in the $25 billion range, Twitter is small enough that any of the Silicon Valley giants – Google, Facebook, Apple – could swallow it pretty easily. And once it's swallowed, Twitter will no longer face the same bottom-line pressures. Look at the fate of Instagram and WhatsApp since they were bought by Facebook: neither of them have faced anything like the kind of scrutiny and revenue pressures that have so preoccupied the top brass at Twitter. As a result, both of them have maintained rapid user growth, even though their active user base is already much larger than Twitter's. As Herb Greenberg says, getting bought by a larger company is the "best shot of moving forward to create the strategy that ultimately will keep everybody’s eye on Twitter the service as opposed to Twitter the stock".
So, who should buy Twitter? Facebook.
No, really. Facebook has proved that it is good at leaving its acquisitions alone. It wouldn't be buying Twitter for the revenue boost, but rather as a network diversification play: Twitter would be one more platform for Facebook to sell to advertisers, which could perform in ways that native Facebook ads cannot. Twitter wouldn't diversify Facebook's business, in the way that WhatsApp and Oculus Rift did, or in the way that Snapchat would. Instead, it would do something more immediately valuable to Facebook's shareholders: it would diversify Facebook's revenue streams.
Facebook has tried to buy Twitter in the past: In late 2008, it reportedly offered $100 million in cash plus $400 million in Facebook stock, which would today be worth around $6 billion. So Twitter was right to say no, seven years ago. But now that Facebook has gone public, stock-based acquisitions are much easier. If Mark Zuckerberg acquired Twitter using Facebook stock, that could — depending on the premium he had to pay — turn out to be one of those rare deals where the share price of both the buyer and the target rose in value as a result. A week ago, such a deal would have looked out of reach. But now that Twitter is trading at pretty much the same multiple of revenues that Facebook is, we're in the realm where Silicon Valley's highly-paid bankers might actually be able to hammer something out.
One thing that Facebook has wanted, for many years, is to be much more relevant when it comes to the news. Its efforts along those lines haven't gotten much traction, but Twitter would at a stroke give Facebook unequaled access to the world's journalists and news junkies — just part of a core user base which is generally incredibly loyal and influential . And, most importantly, Facebook could overnight make Twitter much more valuable, as a service, by providing the one thing that Twitter can never do as an independent company.
What Twitter needs, if it's going to remain relevant over the long term, is a way to start turning around that Followee Reach trend. It needs a way to make Twitter deeply personal for most of its users, and especially its new users. A small group of users like me, who have been building and honing the list of people we follow for years, get truly enormous amounts of value out of Twitter — but building that kind of list has never been easy, and most users don't bother.
As part of Facebook, however, everything would change. Twitter would just need to encourage its users to link their Twitter account to their Facebook account. (Twitter tried to implement this feature unilaterally, in June 2010, but it was immediately shut down by Facebook.) That's it. They wouldn't open up their Facebook account to their Twitter followers, or anything like that: indeed, the link need not even be public. But at a stroke it would allow everybody on Twitter to easily start following all of their Facebook friends. (Or at least all of their Facebook friends with a Twitter account.)
At that point, Twitter would start being personal again. It would allow you to see what your friends were up to, without having to wonder how many of their personal updates had been hidden by the Facebook algorithm. It would become a way to converse with your friends, in a much less intermediated way than Facebook. It would be everything that people loved about Twitter in the early days, only with many years of product improvements built in, and with vastly more scale. Twitter could, finally, achieve its potential. If only it were to embrace Mark Zuckerberg as its white knight.