Twitter Continues to Improve Its Product: Heres Why It Matters

By Jamal

Source: FLICKR user Andreas Eldh.

If you've been following Twitter since its IPO, you're probably well aware of the company's struggles. While the company's top line has continued to grow, posting an increase of 67% in the first half of 2015 over last year's corresponding period, the company's stock has fallen 43% on a one-year basis. Concerns about user growth have persisted with the company recording a 12% year-on-year increase in monthly active users last quarter (ex-SMS Fast Followers).

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Compared to its larger social-media counterpart, Facebook , which grew its considerably larger top line 40%, but saw its stock appreciate 25% on the back of 13% year-on-year user growth last quarter amid strong, focused execution led by its native-video buildout, Twitter took 100 days before giving its interim CEO, Jack Dorsey, the permanent role.

For Twitter, however, the issue is simply bigger than the lack of user growth. For better or worse, the company has developed a reputation as the gang that could not shoot straight. The company's unnecessarily long CEO search -- after which it performed an about-face and give the job to acting CEO Jack Dorsey, did nothing to rebut this narrative.

Whether the description is apt or not is a matter of perception, but in the myopic eyes of Wall Street analysts, perception is reality. More recently, however, Dorsey appears to be turning around this narrative by focusing on the product with the introduction of polls, and changing favorites to likes. This is more important than it initially seems.

It's all about the product roadmap, stupidFor Twitter, a service considered too difficult to use by many, bringing products designed to increase the user experience and engagement should lead to more users. While polls may seem to be rather insignificant, it should encourage increased interaction as non-power users feel they have the ability to be heard.

For investors, however, it's hard to imagine polls alone becoming a large revenue or profit driver. Simply put, it's almost impossible for the site to directly monetize the inclusion of these polls. Instead, the company benefits in a secondary manner as engagement and time on the site should move higher.

For Twitter investors, the mere presence of polls is a powerful symbol that the company is expanding its product road map with an eye on being a more-inclusive platform. And that's not the only change Dorsey has spearheaded in an attempt to improve the end-user experience.

Hearts promote a more-inclusive experienceTwitter's biggest problem, as earlier discussed, is MAU growth. And there's more than one way to increase this figure. On one hand, Twitter can grow new users to the site; the problem with this, especially in the developed markets, is this becomes a harder endeavor as time goes on.

On the other hand, Twitter can accomplish this goal by bringing abandoned users back to the fold. During the third-quarter conference call, COO Adam Bain discussed Twitter's owned-and-operated audience at 700 million. And while Twitter's executive suite looks at this as an opportunity to monetize logged-off users, the bigger value is to bring some of these long-term logged-off users back into the fold.

Twitter has been faulted for being too hard to use, too hard for new users to develop a meaningful user base, and, at times, a reallyharsh and angry platform. Compare Twitter's experience to Facebook's picture-sharing site Instagram, and you can see how the latter has surpassed the former in terms of active users.

Anecdotally, Instagram promotes amore-inclusive and supportiveexperience than Twitter. This has the dual benefit of encouraging users to interact with the platform more often, and also seems to increase engagement with advertiser-paid content. Hearts is a small change, but it seems Twitter is following Instagram in terms of hearts in an attempt to present a better experience for all users.

Jack is getting things accomplishedUnlike Facebook, which reinvented its video-hosing format, Twitter has struggled to bring any new developments to its service. More recently, under new CEO Jack Dorsey, the product roadmap has accelerated -- first with Twitter's curated Moments feature, which distills the most-important events of the day into one feed, and then with user-engagement features like polls and hearts.

Recently, Dorsey laid off nearly 8%, or 336, employees. Unlike many large companies that cut jobs in order to trim expenses, Dorsey seemed to focus on streamlining the company, and trimming bureaucracyfor the reason for parting ways with some employees. With these engagement-oriented features, it seems the company is becoming more aggressive with its product roadmap. That's a positive for the company as it tries to grow its monthly active user figure.

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Jamal Carnette has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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