Can Twitter Be More Than Social Media’s Avis?

September 12, 2014
JON FRIEDMAN

Displayed with permission from Investor’s Business Daily

Twitter CEO Dick Costolo snaps a mobile-phone photo on the floor of the NYSE as he waits for his company’s IPO to trade on Nov. 7, 2013. View Enlarged Image

Twitter is widely regarded as the Avis to Facebook’s Hertz in the social-media ecosystem.

But merely trying harder won’t lift Twitter (NYSE:TWTR) out of the long shadow of Facebook (NASDAQ:FB), with its 1.3 billion users and enviable reputation as a Wall Street darling.
San Francisco-based Twitter’s appeal to advertisers would increase if it could shed itself of the Facebook association and stand apart, observers say.

When Wall Street analysts and media pundits discuss Twitter’s prospects, they introduce Facebook to the discussion as a measuring point. UBS analyst Eric Sheridan, for example, raised his Twitter investment rating on Sept. 10 but added that the company’s results would likely not be “as disruptive as (Facebook’s) Q2 ’13.”

To carve out more than a perpetual secondary niche in social media, analysts say that Twitter must strike gold in a three-pronged effort. It consists of achieving greater global strength, creating buzz-worthy new products (as well as streamlining recently adopted ones) and, crucially, receiving wider acceptance by advertisers.

Facebook and other platforms offer sophisticated dashboards with plenty of data and analytics about advertising campaigns, as well as screen shots of ads appearing on the site. Twitter must prove that it can keep pace with its rival to impress demanding advertisers.

For the second quarter of 2014, Twitter’s revenue was $312 million, in which advertising accounted for $277 million. Mobile advertising is a critical segment for the company, as it represents nearly 80% of total ad revenues, and mobile has become the watchword in the media and technology industries.

“Twitter’s greatest business challenge is around advertising,” said Karina Cherfas, a self-employed social media consultant to Morgan Stanley, UBS, the Federal Reserve Bank of New York and other organizations.

“While they have made some strides in terms what they can offer creatively, they lag behind Facebook in analytics and the other back-end tools advertisers need and expect to validate and measure the effectiveness of their ad spending,” Cherfas said of Twitter.

Some on Wall Street have been impressed by Twitter’s progress.

In a report upgrading Twitter’s stock on Sept. 10, UBS’ Sheridan noted that Twitter “is seeing positive momentum with objective-based campaigns/pay for performance campaign formats.” Sheridan is also encouraged by recent Promoted Video ad tests, Twitter’s recent introduction of a “Buy” button and Twitter’s commitment to global growth.

For Twitter CEO Dick Costolo and his team, one big challenge will be just how much Twitter wants to shake up its foundation in a bid to achieve greater growth.
“To make money and remain relevant, Twitter will always have to evolve and innovate,” said Steven Kotok, who recently resigned as CEO of The Week and Mental Floss magazines. “But Twitter’s management needs to worry first and foremost about not screwing up the user experience in the process. It’s a delicate balance.”

Primarily, Twitter must ensure that it always serves its audience — an endeavor in which Facebook has traditionally excelled. Facebook Nation may gripe about the site’s ever-changing user home page, and critics have accused Facebook of being inattentive to privacy concerns. But largely, Facebook focuses on its base.

“To remain vital,” Kotok said, “Twitter needs to be integral in delivering great content to its users. I think their sweet spot is as a master content aggregator. Facebook and Twitter have become valued content delivery services, something a MySpace or Friendster never achieved.”

Twitter is staking its claim in the social-media universe. Recently, the company received splashy coverage for its new buy button, although the button is now restricted to a small portion of U.S. users. Twitter must prove that this kind of innovation is enough to sustain public interest.

It isn’t enough to try to achieve growth at any cost. “It’s a complete joke” for a company to brag about raw numbers in some cases, said Jonathan Taplin, the director of the Innovation Lab at the University of Southern California’s Annenberg School for Communications and Journalism. After all, Taplin noted, “You can buy 100,000 followers on Google today.”

Clearly, Twitter finds itself at a crossroads, facing multiple tests. If the company can continue to build bridges to Madison Avenue, its prospects will be enhanced. It can also improve on its chances of long-term business durability.

Longevity alone is no small triumph in the turbulent, volatile tech/media world. A decade or so ago, it looked like MySpace and Friendster were carving out territory that would last for years. Where are MySpace and Friendster now? Answer: on the fringes of the social media map.

As one of the dominant players in the social media slugfest, Twitter can say that it has become an integral part of our lives. We learn about breaking news from the service. We glean valuable opinions and commentary from users’ posts every day. It also provides a form of escapism during the workday. And it’s all for free. What’s not to like?

Whither Twitter? Its greatest achievement, so far, may be surviving in the rough-and-tumble new-media industry. But to its credit, Twitter is gunning for an even greater victory: sustained growth. You might regard Twitter as an ambitious work in progress. Stay tuned.