HANG IN THERE

Twitter’s problem is its investors—not its business strategy

Obsession
Mobile Web
Obsession
Mobile Web

Twitter’s in trouble, everyone says.

Now that Jack Dorsey has returned as Twitter’s CEO, critics are eagerly waiting for the company to move in a new direction. Twitter needs to change its strategy, they say. Twitter needs to change its product. Twitter needs to go through “painful changes,” aka layoffs.

Well, here are my two cents on Twitter: don’t believe the naysayers.

That’s not to say everything’s fine at Twitter. The product probably still needs tweaking, as it could do a much better job hooking casual users. It needs to entice marketers to buy more ads. And it’s true that Twitter’s corporate structure is a bit bloated.

But these changes hardly constitute an existential crisis. Twitter is merely experiencing regular growing pains.

At the end of the day, Twitter remains a highly popular service with a unique product. It hasn’t generated the profits to match investors’ expectations, but it’s still growing nicely at a $2 billion revenue run rate.

The problem with Twitter isn’t its performance. The real problem is its investors have disproportionately high hopes.

Twitter went public before its business had fully matured. The timing of its IPO was largely determined by the fear that the generally buoyant stock market could take a turn for the worse at any moment. The company’s many founders and investors were also eager to become liquid as soon as possible. In contrast, companies like LinkedIn and Facebook went public when their revenue engines were well-oiled. That’s why they’ve been able to deliver quarterly results that satisfy shareholders.

While Twitter is still evolving, its board and management don’t need to embark on some game-changing venture. Instead, they should focus on smaller changes to the product and business model.

One problem is that users who click on Twitter’s “promoted trends” may see negative tweets about the advertised product. This probably makes the marketers who paid hefty sums for the ad boil with rage. But this sort of issue should be easy enough to fix—and when it’s tweaked, Twitter should be able to make a lot more money on it.

Twitter’s value is essentially the same today as it was back in 2009: the platform offers a streamlined, minimalistic approach to social media. It also can’t easily be replicated. A product with a 135-character limit, or a 145-character one, isn’t exactly going to steal Twitter’s thunder.

This should ensure Twitter’s continued growth, or at the very least its sustainability. And because it attracts a lot of eyeballs, it should be easy to monetize in the long run. Attention comes at a premium in our frantic digital era. Marketers are willing to put down cash in order to catch someone’s notice.

While Twitter finds its footing, its stock is likely to keep trading sideways and its earnings will continue to fluctuate. And that’s fine. Twitter stock may be most valuable if it’s bought and then stored away for the next three to five years—much like a fine bottle of wine.

We welcome your ideas at ideas@qz.com.

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