Twitter is aggressively changing its platform. Is it too little, too late?

By Denny Jacob

Executives at Twitter Inc. knew the social-media company’s platform lagged behind competitors in terms of innovation and being more dynamic for users. They were ready to change that this year by rolling out new features in order to boost engagement and broaden its appeal.

Initiatives like live audio conversations and in-app subscriptions are a sea change for Twitter, but it’s venturing into territory that its competitors have occupied for years. But it may not be transformative enough to compel new and existing users to spend more time on the platform as competitors continue to dominate in the social-media space. Companies such as Facebook parent Meta Platforms Inc. and Snapchat owner Snap Inc. are expanding their services into burgeoning areas like augmented and virtual reality to make their platforms more dynamic.

“Over the last five years, they’ve been very slow and hesitant to upgrade the product,” said Craig Huber, CEO and founder of Huber Research Partners. “The service hasn’t changed anywhere near as much as other places we’ve seen with social media and I think that’s hurt them in the marketplace with users.”

Twitter needs these initiatives to pan out because it’s key to appealing to a broader population beyond just the fraction of total users who actively use the app. This in turn will give it a way to acquire better data on what users are interested in; without such data, Twitter’s advertising business will become less appealing to most marketers. This threat to its main source of revenue will crimp its growth opportunities and put it at risk of becoming an irrelevant social-media platform in the long-run.

Twitter, which launched in 2006, introduced new concepts to the platform in its early years but has largely remained the same since 2017. This is partly because Twitter was too dependent on brand advertising and not investing enough in advertisements that get users to take action like downloading an app through its direct response platform, according to Mark Zgutowicz, senior research analyst at Rosenblatt Securities Inc.

Twitter’s brand advertising revenue does well with tentpole events like the Olympics and concerts, but such events were at risk in 2020 due to the COVID-19 pandemic. The company has prioritized building up direct response ads since then. In February on Twitter’s Analyst Day, the company noted its long-term goal is to reach an even split between the two types of advertisements.

Twitter’s new features, while geared toward users, are aimed at boosting its ad business too. During a third-quarter earnings conference call, then CEO Jack Dorsey illustrated how Communities – which gives users the ability to tweet to a group rather than all their followers – could do that. He noted that the feature offers personalization and relevance for advertisers because it provides a clear signal of what people are interested in.

“And they have the ability to act on more intent, not just the people that they’re trying to reach,” Dorsey said on October 26.

Some of Twitter’s troubles also stem from a lack of priority to content creators and influencers, according to Brian Honigman. Other platforms have been more active in supporting them since they attract engaged users and are shaping the overall experience on social media.

”They haven’t supported creators in a big, meaningful way,” said Honigman, a marketing consultant who focuses on social media and a professor at Kellogg School of Management. “They’re starting to roll out some stuff now but it all kind of feels like an afterthought and not that distinctive or robust.”

Analysts and industry observers believe the lack of vision and focus can be traced back to Dorsey, who served as CEO of both Twitter and Block Inc., formerly known as Square, simultaneously for more than six years. The Twitter cofounder relinquished his role at the social-media company on November 29.

A representative for Block did not respond to a request to make Dorsey available for this story.

In his stead, Chief Technology Officer Parag Agrawal was elevated to the top position. While the leadership change was initially welcomed by investors, shares of Twitter have continued their recent freefall as the core issues it is dealing with go beyond just a change in CEO.

A representative for Twitter did not respond to multiple requests for comment.

Over the last five years, Twitter’s stock has churned upward. In early 2017, it was around $19 before soaring as high as $80 earlier this year. It currently sits around $45 following Dorsey’s departure, questions about Twitter’s direction and broader concerns about the pandemic.

But Facebook’s stock has skyrocketed nearly 180% during the same time period by comparison, jumping from around $120 in early 2017 to nearly $336 currently. Investor confidence has risen as the company has placed a greater focus on attracting content creators to keep younger users on its platforms.

Even Snap, which went public four years after Twitter, has also seen its stock rise faster than Twitter’s. After opening at $24 on March 2, 2017, it reached as high $83 in late September – just a few months after Twitter – before declining to around $48 during the last two months. Snap’s focus on e-commerce and wearable glasses that incorporate its augmented reality technology has made investors excited about its future prospects.

While distinct innovation is still a point of concern, some of Twitter’s latest initiatives – Twitter Blue, Spaces, Communities – should help diversify the platform.

”You kind of have to throw out a load of things at a wall to see what sticks and figure out what works. So I don’t think you can criticize Twitter for trying out some of these routes to new revenue streams,” said social media consultant Matt Navarra.

While Twitter still has much to do on the product side, its financial health has mostly withstood the turbulence of the pandemic. Last quarter’s total revenue of $1.28 billion was in-line with analysts’ expectations as its top line wasn’t as impacted by recent privacy changes introduced by Apple Inc. The company expects total revenue for the fourth quarter to be between $1.5 billion and $1.6 billion, which is also in line with analysts’ expectations. Analysts also expect annual total revenue to continue steadily rising as it has over the last few years.

However, Twitter’s return to profitability will take more time following the disruptions of the pandemic. It reported a net loss of $1.14 billion in 2020, compared to a net gain of $1.47 billion in 2019. Analysts expect a loss around $265 million for 2021, but gains around $245 million and $445 million in 2022 and 2023, respectively.

Despite these challenges and some expected revenue loss in 2022 from the sale of its MoPub business, Chief Financial Officer Ned Segal said there are no changes to Twitter’s goal of generating $7.5 billion or more of annual revenue in 2023 during a conference call for last quarter’s earnings.

Although analysts also expect annual total revenue to continue rising in the next few years, they point to areas like flat growth among monetizable daily active users in the third-quarter and management’s expectations to grow expenses in 2022 as potential hindrances to those long-term expectations. 

While these new features may give users more reasons to use the app and help Twitter in the short-term, it’s long-term outlook is uncertain given the recent shift in focus on the metaverse – broadly considered the next phase of the internet where virtual reality and augmented reality become more intertwined with its usage.

For now Twitter must continue working to convince more users that its premium features are worth the time and money. A quick search on the latest tweets about Twitter Blue, however, results in disdain for the service more often than not. But some users have come to appreciate its utility.

Jonah Manzano, a musician based in Australia, rejoined Twitter in May 2020 in order to promote his music. He subscribed to Twitter Blue this past July because he likes trying out new features that social media platforms roll out. 

While he doesn’t take advantage of everything it offers, Manzano has ideas about how the service can improve. One way would be if users had the ability to tweet 4K quality videos, which he thinks will draw content creators and make more users curious about Twitter Blue. Another is to offer the service in tiers so users can pay for certain features and decide if they want to upgrade when new ones are introduced. 

“The people who want to actually subscribe to it will say I wonder what’s next?” said Manzano.