Twitter Taps More Seasoned Dorsey to Restore Site's Lost Allure

  • Board decides a founder as CEO is its best path forward
  • Dorsey's decision complicates IPO for payments startup Square

Why Twitter Named Jack Dorsey Permanent CEO

Bringing back the creator of the 140-character tweet proved too alluring for Twitter Inc.’s board to pass up -- even if means sharing him with another company.

Twitter named co-founder Jack Dorsey permanent chief executive officer, removing the interim title he’s held since July. Dorsey’s strengths as an inventor of the social-media service, and the sense that he has matured as a leader, ultimately outweighed the board’s concerns about him also remaining CEO of payments company Square Inc.

Dorsey’s biggest challenge is defining Twitter. It’s an oddball product, beloved by insiders who cherish its rapid-fire, text-heavy format, but impenetrable and confusing to others. The company has struggled to hold on to users and its stock has tumbled, leading to a desire to change the service in a way that keeps its most loyal participants engaged, while making it simpler and more enjoyable for newbies. Twitter’s board is betting that as a founder, the 38-year-old Dorsey can establish a new vision that broadens Twitter’s reach.

“A founder has the moral authority to make changes that can be very scary to make,” said Mike McCue, CEO of Flipboard Inc. and a former Twitter director. “It’s almost like you’re a parent and you know what is best for your child and you know that it may hurt for a little bit, but it will be better overall.”

Officially elevating Dorsey required accommodation from both Twitter and Square. The mobile-payments company, whose headquarters is a short walk from Twitter’s San Francisco offices, is preparing to hold an initial public offering before year-end, and having Dorsey split time with another company could make it a tougher sell to investors.

Sputtering Growth

The events that led to Dorsey’s return stem from Twitter’s struggle to attract and keep users. Twitter’s monthly active users for its main app increased by just 2 million, to 304 million, in the second quarter. Hundreds of millions of people have stopped using the product or log in only sparingly, according to Peter Stabler, an analyst at Wells Fargo Securities. Facebook Inc. has about 1.5 billion users. Even many of Facebook’s individual apps are larger than Twitter: Instagram has more than 400 million users, while WhatsApp has about 900 million.

Twitter’s shares rose 7 percent to $28.15 at Monday’s close in New York -- just above the company’s IPO price of $26. Difficulty adding users had sent the stock falling more than 26 percent this year as investors lost confidence in its long-term prospects.

“Without user base and engagement growth, long-term opportunity will likely be capped,” Stabler wrote in a report to investors.

Dorsey has warned that reversing the slowdown in user growth will take time. When the company reported quarterly results in July, he said product announcements “have not yet had meaningful impact on growing our audience,” which he called “unacceptable.” Twitter hasn’t “done a great job at aligning the entire company” around its strategy, he said.

Phase 3

Dorsey’s return as CEO marks the beginning of a third phase for Twitter, said Flipboard’s McCue. The first was introducing the product and having millions of people use it to share information. The second was developing a business model and becoming a public company. Now the company is facing an “existential moment” and must make changes to add users, McCue said.

“It needs very substantial product leadership,” he said.

Dorsey will also be aiming for a better outcome than what occurred during his earlier stints at Twitter. After co-founding the company in 2006 with Ev Williams and Biz Stone, he departed in 2008, then returned later to lead product at the company. During that second tenure, he developed a reputation for setting a vision and generating employee enthusiasm. But he struggled at executing his ideas, often changing his mind at the last minute and micromanaging projects, according to a former executive.

Dorsey’s ‘Fingerprints’

Some employees have said that in the three months since he was named interim CEO, Dorsey has been more mature and tactical than during his first stretch at the helm. Twitter has picked up the pace of product releases. A new feature allowing retailers to sell merchandise through Twitter was broadened recently, while ways to share links have been expanded. The company also has been experimenting to curate tweets from events, a project internally called Project Lightning.

Dorsey sends staff memos explaining what products are in progress, attempting to increase transparency. He also asked employees to reflect on what worked or didn’t work in a project, using reports called “retrospectives.”

“You’ve already seen his fingerprints on the company,” said Robert Peck, an analyst at SunTrust Bank who advocated for Dorsey to be named permanent CEO. “Ultimately, how he and the company will be judged is the rollout of these products and their ability to attract more users to the platform.”

Twitter also has a better foundation than during Dorsey’s first two stays at the company. Under newly promoted Chief Operating Officer Adam Bain, who had been head of revenue, sales more than doubled to $1.4 billion last year and are estimated to reach $2.2 billion this year.

Acting Fast

Twitter’s board settled on Dorsey after considering such candidates as former Cisco Systems Inc. executive Padmasree Warrior and CBS Interactive Inc. President Jim Lanzone, people familiar with the matter have said. Ultimately, Twitter’s board decided that having Dorsey, who sent the first-ever tweet through the service when it debuted, will allow the company to execute a new strategy quickly to reignite growth.

David Yoffie, a management professor at Harvard Business School, said company founders can act fast because they are better steeped in the products and culture than outsiders. Twitter’s situation is reminiscent of Charles Schwab Corp., where founder Charles Schwab was a director when the brokerage firm reinstalled him as CEO.

“He had a very clear understanding of the organization, the people, and where he saw there were problems -- and acted very quickly,” Yoffie said.

Dorsey has cast himself along the lines of Steve Jobs, who remained CEO of animation studio Pixar when he returned to lead Apple Inc. in the late 1990s. Elon Musk also leads two companies he founded: electric-car maker Tesla Motors Inc. and aerospace company Space Exploration Technologies Corp.

“Founders tend to get more leeway and more patience in making more material pivots than a non-founder would get,” said James Cakmak, an analyst at Monness Crespi Hardt & Co. “Twitter is at a crossroads right now, so any extra leeway certainly helps, and the founder status brings that.”

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