How should we think about Twitter, its users and the people who see all of those tweets?
The usual way of assessing how a social network functions goes something like this:
Step 1. People join the network.
Step 2. They write and post things on the network.
Step 3. The bigger the network, the more enticing it is to advertisers who want an audience. They pay to sprinkle ads around the platform.
Step 4. Rinse and repeat.
Facebook is the Sun King of social networks and its scale entrances advertisers. Facebook has 1.4 billion users and all of their data, so it offers both reach and targeting. Wall Street gets this model. It likes this model. And it rewards this model.
Twitter, on the other hand, never fit this mold, which prompted many investors to flee the stock over the last year. When the company reported quarterly earnings yesterday, its executives said that there were 288 million active Twitter users worldwide. That’s not enough to give advertisers huge reach, and new user growth on Twitter has slowed.
But Twitter's revenues have risen handsomely over the last year and the stock market is rewarding the company so far this morning; its shares are up more than 17 percent so far today. This isn't unfounded because Twitter's future has some emerging bright spots, despite the erratic stewardship of its chief executive, Dick Costolo.
To be sure, Costolo is trying to tackle some of Twitter's most nettlesome problems. Twitter’s user interface isn’t intuitive, and the work it takes to find useful or entertaining information on the network scares off some newbies.
Twitter has rolled out a new homepage and sign up process that should help users find stuff even if they don’t know who to follow or how to tweet. Costolo has also conceded that rampant abuse and hate speech on the site have driven away users. He wants to put a stop to this too.
Until those issues are fully addressed, users might not think of Twitter as essential. For example, an iOS update last quarter inadvertently and temporarily wiped Twitter from Apple's mobile devices. A million users disappeared because they couldn’t be bothered to download the Twitter app again or reset their passwords. (That’s certainly not how a large swath of Facebook users feel when that network goes down.)
So Twitter is working hard to get user growth to move in a positive direction, which everyone can agree is good. But the more interesting thing about Twitter right now is that it’s trying to redefine how we think a social network should work.
Unlike Facebook, Twitter isn’t a closed system. Tweets are discrete packets of information that can embed themselves in lots of places on the web, far beyond the walls of Twitter.com or the company’s app. They appear in news stories, run along the bottom of television screens, and appear embedded in other websites and apps. They're embedded in this column.
An advertiser who creates content for Twitter, which is called a "promoted tweet," can have the same reach beyond the narrow Twitter network -- giving marketers (and Twitter) a way to make money off of people who aren’t Twitter users.
Twitter has struck syndication agreements with Flipboard and Yahoo Japan to sell ads outside of its network. And the company already confirmed a partnership with Google which will allow tweets to show up in Google searches in real time.
How all of this ultimately affects Twitter’s bottom line is unclear because the company will have to share revenue generated by the syndication deals.
Marketers are increasingly eager to be on Twitter, perhaps because users are actively engaging with promoted tweets. While they currently spend more per user on Facebook than on Twitter ($41.02 versus $23.40, respectively), the research firm eMarketer says that the amount spent is growing faster at Twitter. The firm estimates that between 2013 and 2016, advertisers will increase spending on Twitter at a rate of about 45 percent a year, versus 29 percent for Facebook.
Investors appear to be signaling that it might be time to think about the relationship between Twitter, the people who tweet and the advertisers who engage with them in a new way, and that there might be more than one model for a successful social network.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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