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Twitter’s New Plan: Reorganize and Reset Expectations


There’s a sarcastic saying in the management world: If all else fails, reorganize. Maybe the cynical nuance is lost on Twitter (NYSE:TWTR) chief executive Dick Costolo.

Known for being mercurial, Costolo has kept the microblogging site in a nearly constant state of organizational chaos. And now he’s once again shaken up Twitter’s management team and lost chief operating officer Ali Rowghani in the process.

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Ironically, the long-time former CFO (at Twitter and previously Pixar) probably never should have been promoted to COO in the first place, but there’s no way to walk that back. And now a very smart and capable executive is gone.

The problem plaguing Twitter is that, for all its media popularity, the San Francisco-based company simply hasn’t achieved mainstream adoption. Costolo has set a high bar for user growth but, instead of the 400 million monthly active users the CEO targeted for the end of 2013, Twitter now has just 255 million MAUs. That’s a pretty big gap.

By contrast, Facebook (NASDAQ:FB) has 1.2 billion MAUs, WhatsApp has 500 million, Instagram is coming on strong with over 200 million, and Pinterest is actually more popular than Twitter among American women.

Twitter has done an effective job of monetizing its popularity – growing ad revenue essentially from zero to a $1 billion annual run-rate in just a few years. But if it can’t find a way to attract users at a faster rate, keep them on the site longer, and reduce its relatively high churn rate, that will very likely be a short-lived trend.

Rowghani has solved some big problems since joining Twitter in 2010 – earning him the title of Mr. Fix-It in media circles – but he hasn’t been able to fix the big one. The reason probably lies in his expertise in finance, analytics, and business strategy. At this point, the solution to Twitter’s problems appears to be on the product side and that simply wasn’t the former CFO’s thing.

To its credit, Twitter has stepped up product innovation and made some interesting changes to the site in recent months. But the product side of the house, which has also been in a state of flux, now rests in the hands of two nascent leaders: newly hired VP of consumer product Daniel Graf (formerly a director of Google maps) and Jeremy Gordon, who was recently promoted to VP of product engineering.

Somehow, those guys have to find a way to make Twitter more attractive and engaging to the average user. As a small business owner I personally don’t see the value in spending a lot of time on Twitter. As a member of the media, I’ve been tweeting and engaging readers there since 2008, but over the years I’ve found that Facebook and LinkedIn (NYSE:LNKD) drive page views far more than Twitter does.

And, as I recently noted, big company CEOs and business leaders are far more likely to engage on LinkedIn than on any other social network site. According to a recent study, just 5.6% of Fortune 500 CEOs have Twitter accounts and just 3.8% have tweeted in the past 100 days.

In terms of fundamentals, revenues are growing nicely and the company doesn’t appear to be the slightest bit interested in turning a profit anytime soon. Besides, nobody really pays attention to that sort of thing anymore. The only reason the stock took a post-IPO cliff dive is because of the disappointing user growth numbers.

At this point, in addition to reorganizing and sparking product innovation, I expect the second prong of Twitter’s strategy will be what every high-flying Internet company does when the metric it uses to demonstrate growth and ad clout fails to deliver: reset expectations and change the metric.

While Twitter’s deep connection with the TV, media, and entertainment world has helped ad sales, it hasn’t led to a commensurate increase in user growth, engagement, or retention. As long as that connection remains elusive, I expect Costolo and company will continue to search for creative ways to promote the platform’s value to advertisers.

In the meantime, online and mobile ad spending continues to grow, although competition for those advertising dollars will also increase as high-tech companies find creative new ways for users to occupy their time and attention. In other words, Twitter needs to find the key to mainstream adoption sooner rather than later.

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