Tweeting Out a #SOS

The new Twitter CEO will be facing a tough time as users shift their attention to a newer breed of social media platforms.

Twitter recently announced the departure of chief executive Dick Costolo after five years at the helm. He will be replaced temporarily by co-founder Jack Dorsey as the company embarks on a search for a long-term replacement.

Things change quickly in the world of social media. Companies can have a very short life cycle and barriers to entry are low. It sometimes feels like all that’s needed to create the next social media giant is someone with enough time to kill in a university dorm. If a new platform catches the public’s imagination then a former giant of the industry could wake up and find itself obsolete. News Corp (ASX: NWS), for example, found that out the hard way with Myspace.

If the number of active users on a platform decreases, so does its value to advertisers, so the key challenge for any social media company is to continue evolving so that its existing user base stays engaged and new users sign up. Evidence is beginning to mount that Twitter is struggling in these areas.

Table 1 - Current ranking of social media companies in Apple App store free download list
CompanyAust.America
Facebook Messenger22
Facebook43
Instagram65
WhatsApp714
Snapchat96
Skype1524
Pinterest3018
Dubsmash3313
Kik5220
Twitter6116

Twitter claims 308 million monthly active users (MAUs), 43% more than the 215 million it had at the time of its IPO in 2013. However, that’s still well behind the 1,441 million users of Mark Zuckerberg’s Facebook (Nasdaq: FB) behemoth. That’s not necessarily a problem – Facebook has been a phenomenal success and is perhaps the exception rather than the rule.

The biggest worry for Twitter is how quickly younger social media companies are catching up. Despite being launched four years later than Twitter (in 2010), Instagram already boasts 300 million MAUs, is growing more quickly and will likely soon become the undisputed number 2.

In a world looking to share everything instantly, including pictures and videos of cats, their dinner or even a bus trip, a 140-character line of text is just a bit dull. Newer social media platforms have created a flexible and creative environment for young people to express themselves in any manner they see fit – and usually away from the prying eyes of parents still learning how to tag people into photos on Facebook. Whilst Twitter has tried to fight back by removing the 140-character limit on direct messages, it may already be too late.

This is also having an impact on new users. Currently Twitter sits outside the top 50 in Australia and regularly outside the top 20 in the USA on the top free download list in the Apple app store. This is a long way behind nearly all its major competitors.

Twitter still has a purpose and this will likely insulate it from a severe exodus of users. However, it will need to evolve rapidly if it wants to regain the momentum that took it from start-up to a multi-billion dollar media company.

The very thing that set it apart and made it popular – the short and sharp delivery of information in real time – may now be holding it back. Just to make things tougher for any new CEO, the company hasn’t yet reported a single dollar of net profit, it isn’t forecast to do so until 2018, and there has to be a chance it never will.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Join the Conversation...

There are comments posted so far.

If you'd like to join this conversation, please login or sign up here

Related Articles