Twitter's existential dilemma: Why the super-popular social network is in trouble

The media world can't live without tweeting. But for everyone else, it's a take-it-or-leave-it shrug

By Andrew Leonard
Published April 30, 2014 12:30PM (EDT)

Is Twitter in trouble? The company reported first quarter earnings on Tuesday, and Wall Street immediately reacted with a big thumbs down. In just half an hour, Twitter's stock price fell 9 percent, nearing its all-time post-IPO low.

The reasons why aren't immediately clear. The overall numbers were mostly in line with analyst expectations, so much so that CEO Dick Costolo kicked off the company's earnings call by declaring that "we had a great first quarter." Twitter did register a net loss of $132 million for the quarter, which is a hefty chunk of change. But no one was expecting the company to turn a profit this quarter, and overall revenue doubled compared to last year's first quarter, to $250 million.

The most obvious warning sign is the continuing weakness in user numbers. Twitter added 14 million new users in the first quarter. That's an improvement over the previous quarter's 9 million, but still down from the comparable quarter a year ago, which notched 19 million new users.

When your growth in user numbers starts to slow before you are anywhere near sniffing a profit, investors get worried. Even worse, the growth in "timeline views" -- the number of times Twitter users check into Twitter to see what people are saying -- is lagging the growth in user numbers. In 2014, total activity still hasn't matched its 2013 peak.

So there does seem to be some evidence that the social media juggernaut is slowing. The sluggish numbers also come at a time when Twitter has been getting some harsh reviews from prominent voices in the media landscape. Adam Wurtzle, NBCUniversal's head of research, told the Financial Times earlier this week that Twitter had made little impact on NBC's Winter Olympics ratings.

NBCU had expected social media to have a dominating effect on viewership for the Games. However, during the 18-day period of coverage, just 19 per cent of Olympic viewers posted about the games on social media, the broadcaster found. Mr Wurtzel said that a show’s ratings are more likely to drive activity on social media rather than vice versa.

“A lot of people want to show that they are on the cutting edge. One of the things that is on the cutting edge is social media,” Mr Wurtzel said. “Why wouldn’t I want to say to you, ‘We have a potent new way in which we can drive ratings?’

But “it just isn’t true”, he added. “I am saying the emperor wears no clothes. It is what it is. These are the numbers.”

(During the Twitter earnings call, Costolo shrugged off NBC's critique and cited the company's access to data purporting to prove that Twitter was driving engagement with television.)

I'm not sure how seriously we should take NBC's pooh-poohing of social media's effect on Olympics ratings. The Winter Olympics were tape-delayed in the U.S. market. Twitter and TV merge most synergistically when audiences are reacting to a live event in real time. The kind of people who might be expected to be active Twitter users are the kind of news junkies who likely were digesting Olympics results as they actually happened.

But there's no question: Twitter occupies an odd niche in the media universe. If you are a journalist or P.R. professional, Twitter is essential, both as a source of breaking news and as a broadcast medium. This has the obvious effect of magnifying Twitter's perceived importance to the very people most responsible for shaping and reporting the news. But for the rest of the world, Twitter is hardly essential.

On the contrary, Twitter is easy to live without. Unlike Facebook, which laces us into an iron social media maiden with its stream of cute pictures of our friends' children, Twitter has no lock-in power -- or, as Business Insider's Jim Edwards put it, it has a limited ability to exert "benevolent coercion."

This puts Twitter in a vulnerable position. As Twitter ramps up the number of advertisements necessary to properly "monetize" its users, it gives those users less and less of a reason to stick around, while at the same time it has no stick to make people stay.

So is Twitter in trouble? It's worth remembering that Facebook suffered through a couple of years of horrible press after its IPO before it became clear that the company had turned its mobile app into an advertising gold mine. If Twitter's advertising revenue continues to rise, investors won't care about the user numbers. It's too early to start kicking dirt onto Twitter's grave.

But it is probably safe to say that the honeymoon is over.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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