How Twitter Can Get its Mojo Back
I wrote an article two weeks ago about how Netflix can get back to growth after their revenue stalled. Many of you enjoyed that, so in the wake of Twitter’s 30% share price drop over the past three weeks I’ve decided to give my analysis of what Twitter needs to do in order to grow both their revenue and their user base.
The reason why Twitter’s stock price dropped so dramatically despite them having their most profitable quarter ever, bringing in $100M in earnings, is because their user base stayed flat. In fact, they actually went down by a million from 335M to 334M. This is partly because they’ve been banning millions of spam and fake accounts, and will continue to do so. This means if they don’t start bringing in new real users then their next quarterly report could hurt their stock even more.
Twitter’s stock could easily drop another 50% over the next year if they don’t start growing both their revenue and their user base. They were valued at over 75x earnings coming into this report, which is high but not if you’re growing. The company’s valuation dropped from $35B to $25B, which still values it at right around 50x forward-looking earnings which is very high for a non-growth company. Non-growth companies are typically valued somewhere between 12-25x earnings, which is why again, Twitter could drop another 50% if they don’t get back to growth.
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What Can Twitter Do?
Twitter has a few major problems that hold the platform back and none of them are easy to fix which is why Twitter hasn’t been able to fix them. First, Twitter trolls. This is something Twitter has dealt with for a few years now, but they still lack a solution. Twitter has a lot of harassment and trolling largely due to the fact that you can be anonymous on Twitter. Unlike say Facebook where your account is tied to your identity so anything you say can be found in the future by your employer or your mother (not to say Facebook isn’t having its own problems with fake accounts), on Twitter accounts don’t have to be tied to real people.
This is the one thing I don’t have a strong opinion on how to fix. I think perhaps their new approach of mass banning spam and troll accounts might be the right approach. This is a problem every major social platform from Facebook to Reddit to Tumblr have all faced, hopefully Twitter can get past it too.
New User On-boarding
This is where Twitter really needs to improve. The great thing about Twitter is that each user’s experience is unique and curated by the user based on who they follow. Everyone’s feed is different. But this is also a major hurdle for new users to jump over. When you first join Twitter you’re not following anyone and your experience is not custom curated for you. So, new users are not able to instantly see what makes Twitter so great, they have to work for it. Twitter combats this by recommending accounts to follow but those are mostly just generic popular accounts and media outlets.
How do you fix this? In a few ways. When a new user joins, Twitter needs to quickly assess what this person’s interests are in order to figure out what content will keep them most engaged. Perhaps have a question when users join that asks, “Why did you join Twitter?”. And the pre-filled answers are “To connect with friends”, “To stay on top of what’s happening”, “To follow interesting people and topics”. If they choose “Friends” then ask to connect to their contacts so Twitter can quickly identify all of their friends’ accounts. If they choose “What’s Happening” then recommend different media outlets and users who discuss news and trending topics. If they choose “Interesting people/topics” then prompt them with a list of topics and have them select which they are interested in, then recommend users who get high engagement rates that discuss those topics frequently.
That’s the basic idea, a quick questionnaire when a new user signs up that allows Twitter to gauge their interests and get them to a curated experience faster. Of course, this will take a lot split testing of questions and much trial and error but something of this nature could work.
A content strategy would be the final strategic prong to bring in new users, but the other problems will need to be solved first for this to work. Twitter needs to use exclusive content to bring new users in. This is where things could get expensive, but if they’re going to throw money at something it should be this. They need to purchase the rights to sporting events, or partner with creators and media companies to create exclusive content only available on Twitter.
This is a sure-fire way of acquiring new users, and at the same time Twitter can gather data on those new users to better recommend accounts to follow, allowing for a better user experience quicker than is normally possible.
Time to Make Money (Increasing Ad Revenue)
This is where I have much more expertise in that we at MGR run Facebook and Google campaigns all day long, and there’s a reason why we don’t give much love to Twitter. The ad/conversion tracking is weaker, and the return on investment (ROI) is lower. While the CPM on Twitter is actually pretty good at about $7 (Facebook is about $11), Twitter lacks the user data that Facebook and Google have that make them so valuable. Google has user-intent data, meaning they approach advertisers saying “Hey, this person is searching for hotels in San Francisco, do you want to advertise to them?”. And Facebook has behavioral and demographic data that tell advertisers “Hey, this person is really into muscle car pages and has been posting about wanting one, do you want to advertise your dealership that sells Mustangs to them?”. On top of having tremendous user data, both Facebook and Google have fantastic tracking mechanisms for when the user leaves the platform to know if they converted or not for certain ads. Twitter is very limited on all of those fronts, which is why advertisers have not flocked to them in the way they have towards Facebook and Google.
There’s no reason Twitter’s behavioral tracking shouldn’t be at or near the level of Facebook, but it’s not. Facebook’s algorithms are very good at analyzing behaviors while Twitter’s algorithms are mediocre at best. Twitter should easily be able to gauge a person’s interests and potential buying patterns by scanning their tweets, retweets, and likes, but for some reason they don’t. Or I should say they do it but not nearly as effectively as Facebook does.
Advertising is very much a performance driven business, and the platforms that being the best ROI will win. So, when you combine poor off-site tracking with mediocre targeting it makes sense that Twitter’s ad platform hasn’t taken off in the way many had hoped.
A New Type of Ad Platform
The advantage that Twitter does have is real-time, in the moment advertising. When something happens, or something’s trending, Twitter is the best real-time sharing platform. They need to capitalize on this by creating a robust “Real-Time and Trending” ad option. Create a platform where businesses are easily able to see “what’s hot” right now and let them quickly create ads that target those trending hashtags, and the users that are engaging in that trend.
For example, if I’m a beer company and I see a festival or party being talked about that’s going to happen tonight, I can directly advertise my beer to a group of people who are very likely to be drinking.
The next step would be for Twitter to create intelligent ads that don’t require advertisers to actually sit in front of a screen constantly monitoring trends. Instead, the advertisers could set up dynamic ad templates, and then when Twitter detects a trend, Twitter’s algorithms customize those ads specifically for that trend. Back to the beer example. If there’s a festival tonight where people will be drinking, the beer company can have an ad template set up for festivals and Twitter would fill in the blanks with the festival name and choose from a selection of images the on the algorithm it thinks would perform best based on previous campaigns.
These are things that you can kind of do on Facebook already with dynamic ads, but Twitter could take it to a whole new level with “Real-Time” advertising. There’s your ten billion dollar idea Twitter, now build it. And I can tell you as an advertiser I would absolutely use that tool for my clients if you created it.
Twitter has come a long way over the past couple of years, and as a Twitter user I want to see the platform succeed. They are profitable, but they could and should be making much more than they are now, but it will take tactful execution to do so. And they must do so at the risk of their valuation dropping another 50% or more. The opportunity is there Twitter, now it’s time for you to reach out and grab it.