Good at social, never at media: after 10 years of agonizing, Twitter is finally selling itself

Once cast as Facebook's rival, and the biggest company to go public in 2013, Twitter now has to sell.

Last Friday, the week's final trading day on the New York Stock Exchange, Twitter's share price jumped 22%, adding nearly US$3 billion in market value out of nowhere. Why? Because people believe the company is about to be sold.

CNBC reported that day that several technology and media companies, Google among them, are in talks to buy Twitter.

The tech site Recode reported that Twitter's board wants to sell for as much as US$30 billion. The company is currently worth US$16 billion.

Ten years after it started, Twitter is seriously thinking about selling itself.

Its investors think a sale beats going it alone, and they bought heavily. That day Twitter was the most-traded stock in America, with three times the volume of the runner-up.

Twitter, the global social giant once named in the same breath as Facebook, was the largest listing of 2013, and the largest Silicon Valley company to go public after Facebook.

Why has it stopped believing it can stand on its own? And what happens to Weibo, which copied it?

Why is Twitter selling?

As a public company, Twitter has to keep revenue and profit growing to reward shareholders. It hasn't.

Twitter's growth started slowing in the second quarter of 2014. In the last two quarters it has nearly stopped.

Revenue is not the only problem. Twitter's user numbers have barely moved either. More than 1 billion people now use Facebook every day.

Data Bloomberg gathered from several research firms puts the number of people who open Twitter daily at no more than 140 million — below Snapchat, the newer video social app. Two-thirds of Snapchat's users send something every day; most Twitter users only read.

Twitter, plainly, has little room left to grow.

That is why its shares have fallen for a year and a half. Even after last week's jump, the stock is worth half what it was at the 2013 listing.

A weak share price brings other trouble. Executives holding large blocks of stock have left in batches. In the first eight months of 2016 alone, seven people from Twitter's core management walked out, covering product, engineering, business and human resources. Vine, its short-video service, lost several key people as well.

Executives are not the only shareholders. About a third of the annual pay of a Twitter engineer comes from stock. A falling share price cuts their income directly, and a good engineer in Silicon Valley never lacks for a next employer.

So Twitter has reduced the share of stock in its pay packages and made up the difference in cash bonuses. That has slowed the departures for now, but it also costs the company more to operate.

The same threat lay behind LinkedIn's sudden decision to sell itself earlier this year: a falling share price was undermining the company, and none of the leadership reshuffles reversed it. Twitter's case is much the same.

In 2010, Twitter had users but no money. It named Dick Costolo — a former Google executive, at that point Twitter's own chief operating officer — as chief executive and told him to build an advertising business.

By 2015 Twitter was selling ads but bleeding users. It brought back Jack Dorsey, its first chief executive and the man who invented Twitter, to run the company again.

Since last July, Dorsey has pushed through one product change after another: loosening the 140-character limit, adding a feature that bundles related posts together, launching livestreams.

Twitter now looks more and more like Weibo. Yet after a year of these changes, daily users still have not grown, and ad revenue growth dropped sharply in the most recent quarter.

Unable to stop the slide, unable to keep its people, Twitter has few options left.

So who could buy Twitter?

Rumors that Google might acquire Twitter go back years. The people CNBC spoke to this time also name Google as one of the likeliest buyers.

Google has plenty of reasons to want it:

• Google is still interested in social networks; Google+ has never been fully shut down;
• Twitter is the world's most important channel for real-time information, and sits on enormous amounts of data;
• Google is short of places to show ads on phones. Twitter has them.

Owning Twitter would let Google sell ads more effectively and keep trying at social.

The catch is that Twitter already opened its data to Google in 2015 in exchange for traffic, and its ad inventory is already plugged into Google's ad system.

Those deals mean Google gets the data and the ad slots without buying anything. Which leaves it with rather less reason to buy.

The other possible buyer is Salesforce. Salesforce is an enterprise software platform where outside developers build tools for businesses. Twitter faces consumers. The two barely touch.

Salesforce's chief digital evangelist, Vala Afshar, listed a few reasons he personally thinks his company should buy Twitter: a personal learning network, the best real-time news, democratized data, a marketing channel. Only the last has much to do with Salesforce.

Salesforce did try to outbid Microsoft for LinkedIn, offering US$26 billion — against its own market value of under US$50 billion. That does not mean it would pay as much for Twitter. LinkedIn is a real-name network built around work, which helps sell enterprise software directly. Twitter does not ask for real names, and loses far more money than LinkedIn did.

Of the other big technology companies, Microsoft has already bought LinkedIn and Apple has little interest in social. Amazon has little interest either, and limited cash on hand. Facebook has already beaten Twitter and has no reason to pay a premium for it.

Media groups have no good reason to buy Twitter either. Then again, Verizon had no good reason to buy Yahoo, so anything could happen.

The largest American internet company to go public since Facebook not only has to sell — it is not likely to sell well.

Twitter's media role is no longer unique, and the social half that is left cannot drive enough growth

This is Twitter's tenth year.

In 2006, before the iPhone existed, Twitter invented a way of showing information built for a phone screen: one queue, newest first, scrolling down, no new pages to open and no swiping left or right. Almost every app today arranges information the same way.

Twitter and the mobile internet made information travel faster and lowered the barrier to sending it. A bystander who photographed the plane that landed on the Hudson River broke the news ahead of every news organization. Fast, public broadcasting also gave the people in the Arab Spring and other popular movements a way to push back against their governments.

For a while the world thought Twitter would become a new kind of news organization — one that carried and produced information on top of a social network. Twitter thought so too, and wrote on its official blog in 2010 that it would become "the pulse of the world."

In the end it did not change the news. It became a channel for it.

A 2010 study of 40 million tweets found that most of what spread widest on the platform came from a handful of accounts with huge followings.

And as a plain channel, Twitter can no longer match Facebook.

Facebook began as a place for people you knew. Then its algorithm mixed news in with the things happening around you, so users saw the news they were likeliest to care about alongside word from friends and family, without choosing or configuring anything. Facebook became an all-purpose information channel, and an easier one to use.

According to an earlier Pew report, in 2013 more people read news through Twitter. By 2015, the share getting news through Facebook had caught up.

And Weibo?

Facebook has gradually closed Twitter's lead as a news channel. Twitter has no network of people you know, and it keeps getting more niche: fewer than a seventh as many people open it each day as open Facebook.

When users stop growing and ads stop selling, staying independent becomes a question.

Weibo has not escaped the same problem.

Weibo today is mostly a clearing house for entertainment. Open its "hot posts" and nearly everything with more than 10,000 comments concerns a celebrity. Entertainment posts typically draw hundreds of times as much response as everything else.

The only event Weibo held this year was an influencer festival — in effect, an awards ceremony for the platform's most entertaining posters.

Wang Gaofei, Weibo's chief executive, has admitted as much: where the platform was once attacked for being full of fake news, the problem now is that even the fake news is entertainment.

Weibo's recent work all circles entertainment too — the two products it invested in and wired into itself, Miaopai (short video) and Yizhibo (livestreaming), and the new product it launched, Weibo Headlines.

It may have had no choice. Timely news gets collected into Toutiao or the Tencent and NetEase news apps.

The daily business of friends and family — the content users make themselves — was locked up long ago by WeChat Moments, along with the "self-media" writers who publish through official accounts.

The slice of information Weibo holds is now narrower than Twitter's. Twitter at least remains a clearing house for breaking events. Weibo, hemmed in by its surroundings, can no longer offer the same.

Weibo's financial numbers are still going up. Second-quarter revenue reached US$127.2 million, 45% more than a year earlier, and daily users rose 36% in the same quarter.

The question is whether that lasts.

Before this year, at least a third of Weibo's ad revenue came from one company: Alibaba.

Weibo is, whatever else, China's third-largest social network, with 100 million people using it daily. That a single advertiser accounted for so much of its revenue says only that its ad sales used to be immature and are finally working properly.

Twitter kept up the same fast growth for two years after it built its own ad business.

Twitter now earns US$1.92 per active user per quarter, and it has hit the ceiling. Weibo's figure has barely moved over the past two years either.

With the money per user flat, Weibo's revenue can only grow by adding users.

And it added users by moving them to the phone. Twitter was born on SMS and the mobile internet; Weibo had to carry its users over from the desktop.

To speed that along, Weibo has spent this year pushing you to log in to the desktop site by scanning a code with the app. It also makes you log in again every time — it no longer keeps a session open. All of it forces users off the web and into the mobile client.

Moving from a computer to a phone that never leaves your hand, people use it more often. The question is whether a Weibo with an ever-narrower range of content can keep growing once that migration is done.

Weibo has not yet found a way around the ceiling Twitter has already hit.

It is luckier than Twitter in one respect: its likeliest buyer, Alibaba, is short of social in the way Google is. This month Alibaba put another US$300 million into Weibo, raising its stake to 31.5%.

And Alibaba cares far more than Google does about a social network that holds 100 million people's attention every day.

With search and Android in hand, Google reaches more than 2 billion people a day. Alibaba badly needs traffic. Much of what it has done this year follows from that: original dramas on Taobao, a news feed inside Alipay. UC, which it invested in, has turned its browser into something close to Toutiao.

This past April, asked whether Weibo would be sold to Alibaba, Charles Chao, chief executive of Sina, Weibo's largest shareholder, said this:

"I don't see anything substantive at the moment. But whether there's a spark between the two sides — that's finally for Alibaba to judge."