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Yesterday Twitter unveiled its latest feature, and it was a real disappointment. Instead of addressing core issues like softening up the painful on-boarding process for new users or focusing on getting more eyeballs on the platform, Twitter gave us a mute button. In a nutshell, the mute button allows a user to follow someone else without seeing any tweets or notifications from the muted party.
Instead of spending time and money on a completely useless feature, Twitter should be throwing all of its resources on figuring out a way to increase profitability. When you need to post a much better quarter than expected just to break even, things aren't going so well and Twitter probably shouldn't be bothering with a mute button at this point in time. If a user doesn't want to hear what someone else has to say, he or she can always unfollow them. It's not rocket science.
Twitter has been a publically traded company for just over 6 months, but the company has struggled with profitability. Earnings per share have only been positive once in the past two years. One of the challenges Twitter is facing however is that even delivering stronger than expected “earnings” results doesn’t necessarily translate to a positive bounce in the stock price.
For one reason or another the financial media has zeroed in on the monthly active users (MUA) number as the be all end all metric to look for in Twitter’s earnings reports. A great blog post from Fred Wilson of Union Square Ventures back in 2011 sums up why that probably shouldn't be the case.
The penultimate paragraph wraps things up in a rather tidy way. Here’s what he wrote two and a half years ago.
“Let's remember one of the cardinal rules of social media. Out of 100 people, 1% will create the content, 10% will curate the content, and the other 90% will simply consume it. That plays out on this blog, that plays out in Twitter, and that plays out in most of the services we are invested in.”
One of the primary use cases of Twitter is to advertise and share content as well as ideas. The 140 character tweet often contains a short descriptor (or horrendously misleading click bait) and a external link which allows the viewer to see and consume a piece of content, whether it's a picture of someone's cat, a viral video on YouTube, or a blog post.
As Fred Wilson pointed out, there can be a huge disparity between the number of consumers viewing tweets and advertisements on Twitter and the number of monthly active users reported. A casual Twitter user may not always log in or ever create an account in the first place.
After all one doesn’t need an account to look up the Twitter page of his or her favorite athlete, celebrity, politician, or hero to scroll through that person’s twitter page and see what he or she thinks is worth sharing. To drive the point home, back in 2011 Fred Wilson’s blog post contained 2 reported figures from Dick Costolo’s ‘state of Twitter’ press conference.
Back then Twitter reportedly had 100 million active users, while Twitter.com had over 400 million unique visitors each month.
Instead of creating a mute button that is unusable to perhaps the majority of people viewing Twitter today and useless to most official MAUs, Twitter should be focused on features and innovations that drive earnings. There is a lot of myopia surrounding Twitter. Everyone wants them to be like Facebook with over a billion users pulling in $2.5 billion in quarterly sales and showing fierce earnings growth.
The way is stands, that very well may never be the case. Twitter can be a top tier platform on the web to view and consume content, but for the moment, only a small cohort of power users get the interactive experience that the public has come to expect from the likes of the Facebook. And Facebook has made strides to translate its mobile user engagement into growing advertising dollars. There may be multiple ways to track Twitter's core metrics, but the only thing that really matters here is how many people are actually clicking on the ads and how much profit Twitter can delivery to shareholders.
Market sentiment around Twitter was bullish back in December but 2014 has been nothing but downhill. As the graph above from ChartIQ Visual Earnings shows, even 2 better than expected quarters in terms of both earnings and revenue have done nothing to reverse the slide. There are countless strategic directions that Twitter can go in from here to either like trying to boost engagement among casual users, or providing a more friendly new user experience to on-board more MAUs, but at the end of the day only 1 thing really matters to investors. The question is, how much profit can Twitter produce?
So Twitter, instead of spending time, money and engineer hours on building a useless mute button, next time try something that might have a positive effect on the bottom line. It doesn’t matter which metric we look at, MAUs, unique visitors, or even the total sales figure. First thing’s first here, Twitter needs to figure out a way to get profitable.
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