Twitter’s Business Strategy and Financial Performance

Introduction

Twitter is one of the world’s most recognisable brands. Introduced to the market in 2006, the company’s launch coincided with the introduction of smartphones in the United States and other parts of the world (Thomases 2009). Although there were many other social media companies at the time, Twitter differentiated itself from its competition by restricting the number of words that users could send across its platform to only 140 characters at a time (Stelznar 2014). This feature defined Twitter’s target market, making it most appealing to technology geeks and pundits (Jones 2013).

However, the popularity of the social media giant soared when the company advertised itself as the place to be for celebrities and prominent or influential personalities (Curran & O’Hara 2011). Thereafter, it witnessed explosive growth, which prompted the company’s executives to apply for an initial public offering (IPO) in 2013. As of 2014, experts estimated that the company’s users numbered more than 274 million (O’Regan 2016). Today, they estimate this number to be above 500 million (O’Regan 2016).

This paper is a case study of Twitter’s business strategy and financial performance. This case study has been developed amid rampant speculation about the company’s performance; many business analysts and commentators have written articles that depict the company as a ‘dying business entity’, with titles such as ‘The End of Twitter’ and ‘Why Twitter Is Dying’ (Griffith 2015; Guynn 2016).

Although the company has grown its user base to more than 500 million users, recently it has grappled with the problem of a declining number of users (Curran & O’Hara 2011). In fact, in the last quarter of 2015, the company reported a reduction in its user base (Guynn 2016). In the third quarter of the same year, the company reported a low rate of user growth, at less than 2 million of the projected number (Guynn 2016).

Even with Twitter’s popularity and mainstream media recognition, it has failed to capture the market in the same way as Facebook or Google (Ojeda-Zapata 2008). Indeed, a close comparison with Facebook reveals that Twitter enjoys only one-fifth of Facebook’s market share and profitability (Battelle 2009). At the same time, with close to a decade in operation, it is impossible to assume that Twitter is just another new social media company. Despite its many years of existence, some people still do not understand what the company stands for or what value it offers to its users. This paper will answer some of these questions and will provide a comprehensive analysis of the company’s financial performance. However, before delving into some of these details, it is important to understand the company’s business strategy.

What Is Twitter’s Business Strategy?

The online advertising sector continues to grow, giving way to new forms of technology that redefine how people and businesses interact with each other. These changes have given users more control of the advertisement space, as they are able to choose what they want to see and decide the kind of exposure they want for themselves (Lacy 2011).

With so much power in the hands of consumers, observers argue that marketers need to find a way to reach them without openly letting them know it is an advertisement (Curran & O’Hara 2011). The common business model pursued by most social media companies, especially those that have a high user volume such as YouTube and Facebook, is the sale of advertisement space (Lacy 2011). In other words, this strategy involves contacting the owners of social media sites and booking advertisement space (Stelznar 2014).

Twitter offers a different business model from those of Facebook and YouTube, although it has the potential to create a thriving ecosystem of users who project big enough numbers to attract advertisers. At its inception, Twitter engaged its users with a simple message: ‘What are you doing?’ Although this question has changed over time, the company still wants users to discuss what is going on in their lives.

As the company has grown, its services have also grown organically. The fact that its users could share information in real-time attracted many kinds of people, and users all over the world started using the site to express their views about ordinary things in life (Curran & O’Hara 2011). Businesses started to be involved in the process as well, encouraging users to discuss their brands.

As Twitter’s services and user base grew, it ushered in a period where news broke quicker and people began to share information more efficiently (Prodromou 2013). Relevant to this focus, Twitter introduced a new tagline: ‘The best way to discover what is new in your world’ (Weatherization Assistance Program Technical Assistance Centre 2016, p. 3). The main question that Twitter has investigated over the years is how to tap into this potential for discovery and how to put it into practice in a way that is not only beneficial for users but for businesses as well (Dell 2010).

Twitter has not yet developed a profitable business model that can sustain its level of operations. The inability to do so has frustrated some of its investors who believe the company should increase its efforts to develop a strong business plan and elevate the company’s position to the level of other businesses in the industry (Weatherization Assistance Program Technical Assistance Centre 2016). According to Dijck (2013), Twitter’s lack of a profitable business model has been detrimental to its investors who have put in a lot of time and effort in investing in the company.

Furthermore, Makice (2009) argues that the lack of a strategic business model has prevented the company from choosing one strategic direction to manage its business. Such concerns have raised questions about the relevance and benefit of Twitter to its users and advertisers. Nonetheless, O’Regan (2016) has a different view of this argument, saying that Twitter’s business strategy has been hooked on ‘building the largest daily audience in the world’ (p. 1). The company’s business plan has hinged on making the company’s services easier to use and more valuable to its audience. However, realising these goals has often involved tweaking different aspects of its core strategy. According to an article in the Wall Street Journal, Koh (2014) says:

The coming changes include the ability to upload and share videos, beefing up private messaging, more targeted notifications, better use of location, and a ‘while you were away’ feature, which will highlight relevant tweets that were missed while the user was offline. (p. 4)

Part of Twitter’s corporate strategy today also involves bolstering its private messaging function—an attribute that has increased the popularity of Facebook and other similar tech companies. Relative to this focus, Costolo, the company’s CEO from 2011 to 2015, said, ‘I strongly believe private messaging virality is important to our long-term growth’ (Koh 2014, p. 5). The company also intends to invest in developing different applications as part of its long-term business strategy. In the past, it has done so through the development of Vine, an app that allows users to share short videos (Singh & Diamond 2014).

Other tech-based companies, such as Facebook, have adopted the same strategy successfully in the past (Zimmerman & Ng 2012). As part of the change in Twitter’s core business strategy, the company also plans to exclude the news feed, a feature that requires new users to follow people first before they can see tweets. Observers have found that this feature is often a turn-off for many novices (Egger 2014). A speech made by the company’s CEO in 2016 alluded to the fact that management intends to accelerate the pace and breadth of new product development (Koh 2014).

The company made these changes to increase its value to users and improve personal interconnectivity across different platforms (Egger 2014). According to Koh (2014), Twitter’s core objectives today are to strengthen its core audience of users, to eliminate barriers to increased Twitter usage and to deliver new services and apps that encourage new users to become loyal Twitter followers. However, the success of Twitter’s business plan depends on how well it helps the company navigate the challenges posed by the external business environment.

Value of Twitter as a Business and Marketing Tool

Although Twitter has grown to be counted among the largest technology companies, it took a long time for the company to demonstrate its value to individuals, brands and organisations. A survey done in the United States to gauge people’s awareness of Twitter showed that the level of awareness for the social networking site is as high as it is for Facebook, although 41% of the people surveyed used Facebook while 7% used Twitter (Curran & O’Hara 2011). The general argument explaining this finding is the understanding that most social media sites, like Facebook and LinkedIn, have well-defined cases and benefits (Benjamin 2009).

Twitter is yet to establish the same value proposition as these other social networking sites have. However, the data out there affirms the fact that more than 40% of people use Twitter to learn about different products and services (Curran & O’Hara 2011). A similar percentage of people use the platform to give their opinions about different products and services. This section of the report shows the value of Twitter to individuals, brands and organisations.

Twitter’s Value to Individuals

The potential value of Twitter to individuals manifests itself through the fact that the most influential people in society today use the social media platform more than other social media outlets (Griffith 2015). Twitter has attracted more than 500 million users, among whom are political figures, celebrities, individuals and government officials around the world (Weatherization Assistance Program Technical Assistance Centre 2016). These individuals rely on the social media platform to communicate personally, to organise protests and to increase awareness about their activities (Anderson 2010).

Presidents, musicians, actors and sports personalities are only some of the influential members of society who have courted Twitter to gain global attention or to communicate directly with people. For example, Kanye West’s recent tweet to Facebook billionaire Mark Zuckerberg requesting that he invest $1 billion in his ideas elicited global media attention from people who found such a tweet hilarious and surprising because they believed Kanye West had a lot of money.

Facebook has tried to court global influencers this way to no avail (Russell 2011). In this regard, there is a consensus that buying ads to reach influential people in society is most effective through Twitter. The vice president of media and connections at one ad agency affirmed this fact when she said that ‘buying ads on Twitter works great for reaching prominent professionals and leaders who drive public debates. The scale may not be there, he says, but the influence is’ (Griffith 2015, p. 7).

Twitter’s Value to Brands

One of the key values of Twitter in business marketing is the development and promotion of brands. For example, ‘Tweetups’ are a great way to promote brands (Button 2009). Many companies have used these meetings successfully to increase awareness about past and upcoming events. However, experts often recommend that such companies think of hashtags before they choose to tweet about such events (Anderson 2010).

This strategy is beneficial and effective for most companies because people often live-tweet about events using hashtags. By tagging and aggregating the tweets, there is a vibrant online conversation about the event or topic. Many companies have benefitted greatly by implementing such online marketing campaigns, which through the use of hashtags can attract people who are not even in attendance (Weber 2009).

On a larger scale, big multinational companies have proven that they understand the value of Twitter in developing and promoting multinational brands. For example, in 2011, Paramount Pictures partnered with Twitter to advertise the trailer of a new film, Super 8 (Anjum 2013). The partnership helped Paramount Pictures sell more than 1 million sneak peek tickets and helped increase the company’s box office revenues by more than 50% above its projections (Weatherization Assistance Program Technical Assistance Centre 2016).

In a few short years, Twitter has successfully worked with more than 1,600 advertisers who share responsibility for some of the company’s impressive financial performance over the years (Weatherization Assistance Program Technical Assistance Centre 2016). For example, its revenue jump from $28 million in 2010 to $317 million in 2012 largely occurred because of the company’s business relationship with its partners (Anjum 2013). Based on the above statistics, many experts agree that Twitter is a useful tool for increasing public awareness about products. It is even more beneficial for new companies that have just launched or for old companies that have introduced new products (Klososky 2011; Anjum 2013).

Lastly, Twitter is a useful tool for tracking brand conversations. Relative to this fact, Klososky (2011) says that by using different Twitter search tools, a company can automatically track what people are saying about the brand. Moreover, the kind of information that companies are able to obtain this way is very multifaceted; as Dijck (2013) says, companies cannot only find out information about their products and services, but also valuable data about what people think about the company, its competitors and industry trends in general. Companies can obtain such information simply—just by activating the RSS feeder.

Twitter’s Value to Organisations

The value of Twitter to organisations manifests itself in different ways. For example, the social media platform can act as a marketing tool to increase global awareness about an organisation (Anjum 2013). Twitter is also a useful tool for driving consumer traffic in a particular direction. For example, if a company has developed a website, it can tweet about it or share interesting resources it has posted on the website with a link directing people to read more about similar topics on the company’s website (Richardson & Gosnay 2010). If such content is interesting enough, people will automatically tweet about it, driving even more traffic to the company website.

Companies and organisations can also use Twitter to increase awareness about upcoming events and to attract more people and sponsors to their events (Weatherization Assistance Program Technical Assistance Centre 2016). For example, Burberry entered into a partnership with Twitter to increase awareness for an upcoming fashion show. As a result, Burberry reported an increased engagement of more than 14% (Weatherization Assistance Program Technical Assistance Centre 2016). The company also reported a 10-fold increase in brand mentions because of the same partnership.

Twitter also provides a good platform for business and customers to interact. This is one way that Twitter helps organisations improve their public relations effectiveness; through increased interactions between customers and businesses, people can convey messages quickly and in real time (Bodnar & Cohen 2011). This way, customers also find that their problems are solved much more easily than when companies had to publish the same information through print media or buy airtime on television or radio to reach their customers.

Analysis of Twitter’s External Environment

Porter’s five-force analytical tool provides a critical understanding of Twitter’s external environment. This tool investigates barriers to entry, competitor rivalry, the bargaining power of buyers, the bargaining power of suppliers and the power of substitute products as the main forces affecting a company’s external environment.

Barriers to Entry by Potential Competitors

Twitter faces a relatively low risk of entry by potential competitors because it enjoys economies of scale, brand loyalty, absolute cost advantages and high customer switching costs (Jones 2013). Focusing on the company’s economies of scale alone, it has developed an infrastructure network with millions of servers, which have allowed it to develop business deals with companies that have web hosting facilities and those that manage internet infrastructure (Afuah 2014).

It is unlikely that new competitors would be able to bargain for quantity discounts as Twitter can (based on these relationships) because they would simply not have the same web traffic as Twitter (Lap & Lee 2013). By analysing customer switching costs in isolation, it becomes clear that Twitter has another advantage because it restricts the access of its services to other application makers (Afuah 2014). In fact, for the longest time, Twitter users could not export their messages outside the messaging platform (Dance 2010). Lastly, and logically, it would be difficult for millions of users to abandon Twitter for other messaging platforms if they have already accumulated millions of followers (Kruse 2012). This is the most powerful barrier to entry for new entrants in the market.

Rivalry among Competitors

An analysis of rivalry among competitors in Twitter’s external environment highlights the importance of understanding the industry’s competitive structure, demand and cost conditions. Because each of these factors affects the competitive environment, it is important to recognise the stiff competition that has characterised the social media industry in the past decade. For example, two factors that are difficult to ignore are the dominance of Facebook and the growing market share of tech companies such as Whatsapp, Instagram and Snapchat (Fuchs 2013).

Despite the growing recognition of these emerging players in the industry, Twitter has not registered direct competition in the past eight years, largely due to the above-mentioned barriers to entry in the industry (Dance 2010). An analysis of the industry demand, as an offshoot of the rivalry in the industry, is complex because the social media industry is fragmented and not clearly defined (Economides & Joacim 2009). For example, though this report focuses on the social media industry, some features of social media networks, such as privacy settings, actually make them ‘antisocial’.

That said, the number of people buying smartphones around the world continues to sustain the number of users who sign up to social media networking sites such as Twitter and Facebook (Reynolds 2006). In fact, Duana and Gub (2008) believe that the growth of social media users in the industry offsets the potential for rivalry in the industry. The cost conditions underlying social networking companies such as Twitter and Facebook are such that there is a relatively fixed cost for operations (Carson 2008).

Each additional user adds a negligible capacity load to the company’s servers. Therefore, Twitter gains cost advantages by having a large number of users because the fixed costs are nearly the same, regardless of the total number of users (Economides & Joacim 2009). Comparatively, new entrants that would want to enter the same space are likely to suffer from high per-user costs. Therefore, they may not be as profitable as Twitter would be under the same circumstances. All of these factors make the risk of competitive rivalry for Twitter low.

Bargaining Power of Buyers

In the context of Twitter’s business strategy, the bargaining power of buyers hinges on the company’s number of clients. Twitter has worked with more than 160,000 advertisers (Lacy 2011). By most standards, this number is high. Therefore, the customers’ bargaining power is strong because the clients could switch to other social networking sites, such as Facebook, if they are unsatisfied with the company (Lacy 2011). In this regard, the suppliers have a strong bargaining power because if they are unsatisfied with the company’s products, or services, they could switch to other companies.

Bargaining Power of Suppliers

Twitter’s suppliers are its customer base (its users). They could easily switch to other social media networking sites, but such an action could come at a huge ‘social cost’ because they would lose their loyal followers and past tweets (McFedries 2010). In this regard, Twitter is mostly dependent on its users for content and impressions, which are the lifeblood of the organisation because it depends on these factors to increase its revenues through advertisements (Clow & Baack 2011). Therefore, the bargaining power of suppliers is strong and poses a high risk to the company’s marketing model.

Strength of Substitute Products

According to many observers, the number of substitute products in the social media industry is high (Weatherization Assistance Program Technical Assistance Centre 2016). Facebook, Whatsapp, Instagram, Snapchat, Foursquare and other social networking sites compete for the same market share and offer similar products as Twitter (Ryan 2009).

For example, Facebook allows its users to post status updates the same way Twitter does. The most important factor in this analysis is the limited time that users have to give to social media sites, thereby making the threat of substitute products high for Twitter, which offers the same services as other social media sites (Price 2012). This outcome emphasises the need for the company to distinguish itself from its competitors. The table below shows an overall assessment of the influence of Porter’s five-force analysis in Twitter.

Table 1: Twitter’s Porter’s Five-Force Analysis

Porter’s Force Strength
Barriers to Entry by Potential Competitors Low
Rivalry among Competitors Low
Bargaining Power of Buyers High
Bargaining Power of Suppliers High
Strength of Substitute Products High

Analysis of Twitter’s Internal Environment

To get a clear picture of Twitter’s internal environment, this section of the paper uses a SWOT analysis to review the company’s strengths, weaknesses, opportunities and threats.

Strengths

Twitter’s unique social media messaging model is one of the company’s strengths because it is difficult to replicate and no other social media company has the same messaging platform as it does (Funk 2014). The company adopts a streamlined and minimalist approach to social media messaging like no other. In less than 140 characters, users can let the world know about their thoughts or tell the world what they are doing (O’Reilly & Milstein 2011). As observers attest, it would be difficult for any other company to introduce the same 140-word format as Twitter. This unique messaging model should ensure the company’s continued growth in the near future. Since this messaging model attracts many users, the company should figure out how to increase its monetary potential in the long term.

Messages sent across Twitter have the potential to go viral, thereby having the opportunity to influence many people and reach a wide audience. The real-time nature of such messages also helps increase the impact of such messages to their intended audiences and increases the probability of receiving strong feedback (Regan 2015). Unlike Facebook and other social media platforms, the reach of messages sent across Twitter is wider, as they are not only limited to a user’s friends. In this regard, a user’s engagement with other users is high on Twitter.

The speedy and concise nature of messages also makes it attractive to companies and celebrities who prefer to use this social media platform as opposed to others. Therefore, Twitter is mostly applicable for business and publicity purposes. The same attributes also increase the appeal of Twitter because there are a high number of available influencers for each topic.

Twitter also integrates well with other virtual platforms, thereby enhancing user experience. Lastly, unlike other social media sites that engage in similar messaging services, Twitter allows its users to push out messages without unnecessary back-and-forth messaging. For example, since the company also allows its users to retweet messages verbatim, messages are able to spread beyond the confines of the primary audience (Parmelee & Bichard 2012). In summary, these unique dynamics demonstrate that the platform’s particular method of broadcasting messages is a key competence.

Weaknesses

On the other hand, the limited nature of social media messaging associated with Twitter’s 140-character word limit can also be a weakness, as it may be too restrictive for some users. The current platform for social messaging that is synonymous with Twitter often gives little room for improvement and changes that could possibly promote growth. Advertisers are also often restricted to a small number of users who have not activated the ‘stop ads’ option (Karacapilidis 2014). Lastly, the lack of a reliable revenue model is another one of Twitter’s potential sources of undoing because the company is currently unable to sustain its future growth.

Opportunities

The messaging model for Twitter users, which limits the number of characters to 140, is unique to any social media messaging platform and has the potential to become the dominant way for businesses to communicate with their customers (Schaefer 2012). The Twitter messaging platform also has the potential to invite more celebrities and businesses to create credible accounts as a way of interacting with their customers or followers. Twitter also has an opportunity to integrate linearly with other companies in the same industry (e.g., telecommunications operators) and increase its service offerings.

Threats

One major threat to Twitter is the infiltration of rogue users who create fake accounts and thus erode the credibility of information sent through social media (Parker & Van Alstyne 2005). Similarly, paid influencers may actually damage brand image and discourage advertisers from using the Twitter platform. This threat also relates to the high number of harassment incidents and privacy infringements that have dogged the company over the years (Parker & Van Alstyne 2005).

Indeed, some users have claimed that they have been harassed or bullied by anonymous people on Twitter and have thus opted out of the social media platform altogether (Karacapilidis 2014). The threat of duplication of usability features by the company’s rivals may also erode the uniqueness of the value offered by Twitter to its customers. Nonetheless, Twitter still has a long way to go to reach the same levels of success that Facebook and other social media companies have. The table below summarises the strengths, weaknesses, opportunities and threats of Twitter.

Table 2: SWOT Analysis

Strengths
  • Twitter messages are real time.
  • Twitter’s messaging model is hard to replicate.
  • It is easy to integrate Twitter’s messaging platform with others.
  • Twitter allows users to send speedy and concise messages.
  • Twitter messages have a high potential to go viral.
  • Twitter allows for message broadcasts.
Weaknesses
  • Twitter has a 140-word character limit, which may be restrictive for some people.
  • The platform for social messaging gives little room for improvement.
  • Advertisers may be limited to a small group of people who have not activated the stop ads control.
  • Twitter has a lack of a reliable revenue model.
Opportunities
  • The 140-word limit feature has the potential to become the new standard model for business communication.
  • Twitter could linearly integrate with other companies.
  • More celebrities could use the platform and increase its prominence.
Threats
  • The creation of fake accounts could erode the credibility of messages.
  • Paid bloggers could damage a brand’s image.
  • The threat of duplication is real.

Twitter’s Financial Performance Analysis

An analysis of Twitter’s financial performance is based on the examination of different indices of financial performance, including profits, financial ratios and share price performance from 2010 to 2015.

Analysis of Share Price Performance

Twitter filed for an IPO in the fall of 2013 (Weatherization Assistance Program Technical Assistance Centre 2016). With the price set at $26 per share, the company made more than $1.8 billion through share sales (Kelly & Williams 2015). The first week of trading saw the share price increase to $44.90. At the end of 2013, the share price increased further to $73 (Kelly & Williams 2015).

This share price increase was good for the company, but it also increased the expectations of its investors who wanted the company to do more to enhance its monetization strategy (Weatherization Assistance Program Technical Assistance Centre 2016). This expectation only increased after the failure of the company to reach profitability during the IPO (Griffith 2015; Guynn 2016). Furthermore, many investors were becoming worried about the company’s tendency to rely on advertisements alone as its sole business strategy (Griffith 2015; Guynn 2016). The pressure on management to come up with other revenue-generating models increased at this point.

Guynn (2016) notes that Twitter’s current share price is falling below the estimates of many analysts, especially after recent projections were at an all-time low. This poor financial fortune also appears in the recent reduction of the company’s overall value, which fell to $10 billion in 2015 from a high of $40 billion in 2013 (Guynn 2016). This estimate shows that smaller tech companies, such as Pinterest and Snapchat, have actually become more valuable than Twitter, with overall values of $11 million and $16 billion, respectively (Guynn 2016).

Analysis of Key Ratios

An analysis of Twitter’s key financial ratios shows that the company has reported a significant decline in net income, despite registering increased revenue figures throughout the last five years (Morningstar 2016). As shown in Appendix 1, the company’s revenue increased from $28 million in 2010 to $2.2 billion in 2015. However, the company experienced significantly increased losses during the same period: $67 million in 2010 and $521 million in 2013 (Morningstar 2016).

However, an analysis of the company’s earnings before taxes from 2010 to 2016 shows that the company has made tremendous efforts to reduce its losses from $238 million in 2010 to $24 million in 2015 (Morningstar 2016). The same trend emerges from an analysis of the company’s return on assets, which was -22.7% in 2010 and -8.67% in 2015 (Morningstar 2016). The company’s return on investment and return on equity also followed the same pattern, with a return on investment of -42.82% in 2013 and -7.59% in 2015. The return on equity also decreased from a low of -47.7% to -13.3% (Morningstar 2016). Appendix 2 broadly represents these figures.

Generally, Twitter’s financial performance has been poor from 2010 to 2015. The fact that the company has lost more than $2 billion in company value since its first IPO backs this statement (Russon 2016). Part of the problem stems from managerial incompetency. For example, management’s decision to award stock-based compensation to employees during the 2014-2015 financial year caused a cumulated deficit of $2.09 billion (Guynn 2016). Relative to this fact, Russon (2016) says the company’s future profitability remains grim.

Twitter’s management has alluded to this fact in a recent report, admitting, ‘We have incurred significant operating losses in the past, and we may not be able to achieve, or subsequently maintain, profitability’ (Smith & Popper 2016, p. 4). Although this financial analysis report shows that Twitter’s revenue increased from 2010 to 2015, the company’s revenue growth is likely to decline in the future due to its decline in user base (Sinclair 2012). Indeed, according to the graph below, the company has recently reported declining revenues.

Twitter’s User Growth
Figure 1: Twitter’s User Growth. (Source: Smith & Popper 2016)

Based on the graph above, the company has a low probability of increasing its profitability in the future because of the negative growth in user numbers. The fact that the number of active Twitter users has slowly declined within the period under analysis has further compounded this fact (Smith & Popper 2016). The graph below shows the most recent data surrounding this issue.

 

Twitter’s Active User Numbers.
Figure 2: Twitter’s Active User Numbers . (Source: Guynn 2016)

To add to Twitter’s disappointing financial fortunes, most of the company’s financial indices have fallen short of the projected figures. An analysis of the sales outlook has affirmed this fact; in the recently concluded second quarter of 2016, the company’s quarterly revenue ranged from $590 million to $610 million, while Wall Street had forecasted this figure to be $677 million or more (Guynn 2016). Nonetheless, the company’s greatest challenge is its inability to realise profitability. This outcome has frustrated many investors who have put pressure on the company’s management to improve the company’s financial fortunes (Smith & Popper 2016).

Implication for Twitter’s Business Strategy in Relation to People Management and Operational Process Management

People Management

Some of Twitter’s most notable strategy problems stem from its poor management plan. For example, disagreements among company executives have mostly dominated headlines. To demonstrate the magnitude of this problem, in February 2016, six executives left the company. Today, only five of the 13 executives who were in the company in 2014 still work for Twitter (Smith & Popper 2016). Against the advice of most experts, Twitter’s management also increased its workforce to more than 4,000 employees (Smith & Popper 2016). Comparatively, Facebook has 9,000 employees, yet it dwarfs Twitter in terms of its user base and revenue (Weatherization Assistance Program Technical Assistance Centre 2016).

To put this analysis in perspective, Facebook’s profit potential is nearly 20 times that of Twitter and yet its number of employees is only twice the number of Twitter’s. Despite these management problems, analysts estimate that Twitter could make more than $2 billion in profit in 2016 (Weatherization Assistance Program Technical Assistance Centre 2016).

Recently, the reinstatement of Twitter’s CEO brought some of the company’s key inefficiency areas into focus. One of them is a bloated staff. During the first month of reinstatement, the company’s CEO claimed that he was going to reduce its number of employees by 8%, a promise that indeed came to fruition with employee cuts in 2015 (Guynn 2016).

The only element of Twitter’s business strategy that affects people management is the choice to make the organisation leaner. The decision to reduce the workforce is most dominant in this analysis because it is bound to affect the organisation’s operational processes (Evans 2012). The decision to lay off workers mostly affected the product and engineering teams, but pundits believe that making the team leaner could significantly improve the efficiency of the engineering process, which is in turn vital to the organisation’s process (Kruse 2012; Diaz-Ortiz 2011). Nonetheless, such a strategic direction is bound to increase the productivity of existing employees because the company’s management has demonstrated that it will not hesitate to trim the workforce if the need arises. Therefore, existing employees have to demonstrate their value to the company to avoid dismissal.

Process Management

Twitter’s operational management process is the product of several different aspects of the company’s business strategy. For example, its decision to lay off workers will undoubtedly have an effect on ongoing projects and company plans (Gillin 2008). This disruptive effect could cause some departments to fail to meet their deadlines or could even inhibit others from going on with their business. Such changes often represent borrowed strategies from other companies, which have appointed directly responsible individuals to oversee production processes. Part of the same strategy also involves including all product development personnel in the early stages of development (Gillin 2008).

Twitter’s managers have given designers a high priority in this regard. The company’s then-CEO also highlighted the need to focus on long-term organisational metrics, as opposed to short-term metrics, as a way of enhancing the company’s long-term business strategy (Weatherization Assistance Program Technical Assistance Centre 2016). Indeed, for a long time, the company had been focusing many resources on improving short-term metrics that do not necessarily add a lot of value to the company’s long-term business plan (Kruse 2012). For example, the ‘follow’ button that appeared on individual tweets did not add a lot of value to the overall user experience, which the company was striving to improve (Weatherization Assistance Program Technical Assistance Centre 2016). The company has made deliberate changes to some of these key areas of concern.

Nonetheless, many analysts say Twitter is at crossroads regarding the development of its business strategy (Smith & Popper 2016; Russon 2016). Recently, the company announced that it would start offering an algorithm-based model to sort feeds as a means of improving the relevance of its content to its users (Schaefer 2015). While many observers see this strategic direction as a mere emulation of what Facebook does, others see it as a response to the growing pressure from investors to improve the company’s financial performance and increase its number of active users (Schaefer 2015).

However, one major complaint that most people have voiced about the social networking site is its complexity (Levinson 2010). They say that most of Twitter’s active followers find the new unfiltered stream of the social media site to be overwhelming (Schaefer 2015). However, the feed is ultimately a matter of preference, and some people view the unfiltered news feed as one of Twitter’s most appealing attributes. Considering these two extremes, it is important to understand that the company has been grappling with a significant dilemma: alienating its passionate users by appeasing its investors and making the service more appealing to the masses or staying true to its core competency and ignoring its investors and Wall Street (Brown 2012).

Worldwide, users have given negative views regarding the proposed move by Twitter to use algorithms to filter its news feed because they believe the company would be losing its core competency (Weatherization Assistance Program Technical Assistance Centre 2016). For example, if an earthquake were to hit Washington DC, a resident of the same locality, using the current Twitter feed structure, would probably learn about the news before she even felt the tremor. However, with the company’s proposed new algorithm, the same news would possibly register in New York first and trend before the Washington–based resident learned about it (Janée 2015). In this regard, the proposed company strategy would decrease the responsiveness of Twitter in delivering news to its followers.

From an analytical standpoint, it is crucial to point out that passionate users often tend to be overly dramatic about even the slightest changes in a company’s business model or strategy (Evans 2010). Undoubtedly, such has been the case with Twitter. However, the greatest takeaway from what Twitter is doing is the increased speed at which the company is willing to innovate or tweak its existing business strategy. In the past, management would disagree about the slightest product changes.

However, with the recent management changes, it has been easy for the company to make quick decisions regarding its operational processes. Nonetheless, with financial problems still dogging the company, Twitter needs to make more changes to its operational and people management processes to more effectively compete with its rivals. The following section of this paper highlights some recommendations that the company should consider for its future strategies.

Recommendations for Twitter to Enhance its Current and Future Business Success

The recommendations highlighted in this section of the paper strive to address some of the weaknesses cited in Twitter’s business strategy and exploit some of the company’s untapped market opportunities. For example, the company needs to exploit the market opportunity that exists in the fact that many of its users give their views about different products or services voluntarily. In this regard, Twitter needs to realise the commercial viability of giving companies access to honest feedback from its users; in most cases, these companies would have paid for such information if they used a survey, or a similar study, to get the same type of information.

In a related sphere of analysis, a recent study cited in Curran and O’Hara (2011) explored the role of Twitter in boosting word-of-mouth communication among users of brands. Word-of-mouth communication is perhaps the most effective form of marketing (Richins & Root-Shaffer 1988). The study suggested that Twitter has introduced an electronic word-of-mouth communication in which people would talk about a brand in the same way they would in a real-life setting. The same study showed that 19% of tweets mentioned a brand name (Curran & O’Hara 2011).

Most of these tweets mentioned some feeling or reaction regarding a specific brand. Half of such sentiments were positive views about a brand, while 33% were critical (Curran & O’Hara 2011). The fact that Twitter users mentioned a brand in 19% of their posts reveals that Twitter is an effective viral marketing platform (Zhang & Jansen 2011). It also reveals the company’s potential to influence customer relationship management and promote electronic word-of-mouth interactions. Similarly, since some of these posts express sentiments about different brands, Twitter demonstrates that it could influence brand awareness.

Therefore, companies can work with Twitter to increase their brand exposure over time. As mentioned in the section of this paper explaining the value of Twitter to businesses and its users, businesses can easily monitor discussions about their brands through engagements on Twitter. Overall, there is an opportunity for businesses to seek information about their own products and services and comment on them through Twitter. The company needs to find a model that would allow it to earn revenue if and when customers comment about businesses and brands (Curran & O’Hara 2011).

Nonetheless, the company first needs to figure out how it could incorporate targeted advertising into its service. More importantly, it needs to understand how this process could affect Twitter usage. By commercialising the interaction between users and businesses, Twitter could add more value to its clients and get more revenue from doing so (Curran & O’Hara 2011).

The high number of followers using Twitter also presents a unique business opportunity for Twitter to make a profit and for advertisers to enhance their brands. Unlike other social media platforms, Twitter is in the prime position of affecting a wider pool of people because some of the best-known and most influential people in society prefer using its platform, as opposed to Facebook and other social media sites (Experian 2009). Since many people already discuss celebrities’ tweets on other media outlets (besides social media), the potential reach that such influential people could have outside the Twitter space is huge. This analogy aligns with the views of Koh (2014), who says:

It is important however that business realise that it is not simply follower numbers that brings success, but the influence which they wield. Indeed, it is more difficult for people to get influence as opposed to followers because influence comes from people having quality stuff and actively taking part in discussions that would have a strong impact on people. (p. 5)

In an unrelated sphere of analysis, this paper has shown that Twitter’s financial performance from 2010 to 2015 has not been impressive. Most of its corporate management plans hinge on attracting more advertisers through its ‘shaky’ business model. While this model has been effective and has been responsible for most of the company’s business success thus far, it will not drive most of the company’s growth in the next decade because the company has not sustained a strong financial position in the past few years (Zarrella 2009).

However, this statement does not mean that Twitter’s management should engage in some game-changing venture to remedy the situation. Instead, it should focus on tweaking some aspects of its business model to realise maximum revenues (Jones 2008). Similarly, it should tweak some of its products and processes to achieve the same goal.

For example, the company needs to protect its advertisers from the negative market exposure that often occurs when users click on promoted trends and then view negative content about advertised products (Weatherization Assistance Program Technical Assistance Centre 2016). This negative market exposure may discourage some advertisers from using Twitter, especially because they pay a lot of money to advertise on the platform. No investor wants to get negative returns for their investment. Nonetheless, Twitter could simply sort this issue out by correcting some of these weaknesses and increase its revenue stream as a result.

This paper has also identified the ballooning employee number in Twitter as a management problem that has constantly affected the company’s profit potential by increasing its expenses. It has also compared the company’s employee numbers with that of Facebook to prove that Twitter has a bloated workforce. In the future, Twitter should lay off more of its workers to keep the company’s processes lean. The company’s management has already let 8% of its employees go, but this number is not enough.

Comparatively, Facebook is able to maintain lean production processes while dwarfing Twitter in terms of profitability, with an even lower workforce relative to user numbers and company size. Therefore, Twitter should cut down its workforce by more than three-quarters because the comparative analysis of Facebook’s workforce and profit potential shows that it has twice as many operational processes as Twitter and only twice the number of employees. Moreover, Facebook makes 20 times the profit that Twitter makes (Weatherization Assistance Program Technical Assistance Centre 2016).

Comprehensively, it is important to understand the financial position of Twitter from a holistic analysis of its stock price movements because such movements depict the overall perception and market expectations of the company. Experts expect Twitter’s stock price to adjust sideways as its investors continue to experience fluctuating returns (Weatherization Assistance Program Technical Assistance Centre 2016). Though Twitter’s stocks are still valuable, they should be bought and stored, left to age like fine wine, because the company has a significant opportunity to improve its performance. Adopting some of the recommendations highlighted in this paper is one way of doing so.

Summary

This report began by investigating Twitter’s business strategy and evaluating its financial performance with the aim of having a proper understanding of the company’s financial position and performance. An analysis of the company’s business strategy shows that it has mostly relied on advertising as its main revenue model. However, this strategy has proved to be unsustainable because the company’s financial performance has been poor throughout the period under analysis (2010-2015).

The company’s poor stock market performance and dwindling profitability both highlight this fact. The decline in user growth (as highlighted in Figure 2) has worsened the situation because it has made experts, pundits and investors cynical about the company’s potential for improving its financial fortunes. Moreover, since the company went public in 2013, it has lost most of its market value—by up to $2 billion. Moreover, new social media companies such as Snapchat and Instagram are also towering over Twitter in terms of user numbers, market share and company value.

Facebook is another social media company that continuously dominates Twitter and yet has the same market experience as the latter because it entered the technology market almost at the same time as Twitter did. This market comparison shows that Twitter’s corporate strategy is unsuccessful and ineffective, and it explains why most of the company’s shareholders are worried that their investments are not in safe hands. Such concerns also explain why they have been adamant that management figure out a workable corporate strategy that would improve the company’s financial performance.

However, Twitter’s management has not risen to the challenge, with constant management disputes dominating mainstream media. In light of such concerns, this paper has shown that some members of the company’s management team have exited the company for different reasons (mostly disagreements among colleagues). Such disagreements are bound to strain any company. As a result, the company’s decision-making process slowed down, and several key poor management decisions were made, such as increasing the workforce without attracting more sales or establishing a better corporate strategy.

Nonetheless, an analysis of the company’s external and internal environments shows that Twitter is still in a position to salvage its once-dominant market position. For example, the external market analysis and the competitive evaluation both indicate that Twitter is still in a dominant position to crush any competition. The external environmental analysis also showed that there are high barriers to entry in the social media industry that would not allow new entrants to dethrone Twitter from its position as one of the most dominant social media giants in the world.

The analysis of the company’s internal environment also affirms the same position because it shows that the company has many strong competencies that distinguish it from other major competitors in the market. For example, it is easy to integrate Twitter’s social media platform with other technology platforms in the industry. Another important competency is the fact that Twitter allows for message broadcasts in real time. Furthermore, the introduction of hashtags to communicate trending events is one key feature in Twitter’s communication strategy that sets it apart from its competition.

Although other social media companies such as Facebook have duplicated the same strategy, Twitter still has the innovative potential to redefine how we communicate. In this regard, the SWOT analysis also demonstrated that Twitter’s messaging model is unique and difficult to replicate in the sense that its users can send speedy and concise messages through the 140-character limit.

This feature presents an opportunity for Twitter to redefine how people and businesses communicate in the 21st century. Indeed, it is not surprising that some of the tweets sent through the platform have gone viral and have possibly changed different aspects of our social, political or economic outlooks. It is also not surprising that many different influential people in society have flocked to Twitter to reach their core audiences and have refrained from using other social media platforms, such as Facebook, Whatsapp and Instagram.

Going forward, Twitter needs to recognise the challenges that precede its success. The threats and weaknesses described in the company’s SWOT analysis highlight some of these challenges. The Porter’s five-force analysis also highlights the same issues, pointing out, for example, that the company faces strong supplier bargaining power, buyer bargaining power and strength of substitute products. Recognising these challenges, this paper has recommended several strategies that the company could adopt to overcome these challenges.

Tweaking its product and process strategies is one strategy. Exploiting untapped market opportunities is another type of strategy that this paper identifies. Particularly, this paper has drawn attention to the failure of Twitter to commercialise the engagement of users and brands through its platform as one of its greatest missed opportunities. From a people management perspective, this paper has also drawn attention to the company’s failure to manage its workforce effectively, with a bloated employee number that is increasing its expenses and doing little to improve its profitability numbers.

Extensive comparisons with Facebook affirm the fact that Twitter needs to downsize its employee numbers for maximum efficiency. Nonetheless, the adoption of these strategies depends on the quest by management to recognise the ‘rot’ that characterises the company’s strategy, as well as the potential that Twitter has to reclaim its position as one of the world’s most dominant social media companies. Adopting some of the recommendations highlighted in this paper is one way for the company’s management to start making positive steps towards reclaiming its dominance in today’s fast-paced technology industry.

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