A Year After Its IPO, Twitter Is Still Struggling to Stem Its Losses. What Went Wrong with the Microblogging Model?

The company that once changed how information moves around the world, and stood for "the pulse of the planet," is now fighting for its own survival.

A hundred and forty characters won't fill even the most trivial newspaper item, and fall short of the minimum length for a primary-school composition exam. Yet today, a story that can't be told in 140 characters hardly counts as news.

For media organizations, companies and activists, 140 characters has become the basic battlefield. As early as 2009, Iran's Green Revolution used social networks as its main platform for communication. Users became war correspondents, delivering first-hand reports around the clock. A senior CNN editor could be fired over an ill-judged remark of fewer than 140 characters. Even when major events happen around us, the first report is often a 140-character snippet.

It all began nine years ago with an internet service called Twitter. A few Silicon Valley entrepreneurs capped every message at 140 characters to make reading easier. Twitter offered fast, fragmented writing and reading, and precisely because it took no effort, it awakened the urge to speak in hundreds of millions of people.

Because of the way protesters used Twitter, Iran's Green Revolution was also called the "Twitter Revolution." Out of these 140-character messages, Twitter built "the pulse of the planet."

In China, its imitator Sina Weibo became, for a time, the place where ordinary people pinned their hopes of being heard.

Only a few years later, though, Sina Weibo is sliding into decline, and Twitter, which invented the 140-character format, has hit a ceiling on growth.

Why couldn't Twitter, which once changed the world, hold on to its lead? A year after going public, can Twitter still innovate?

So how has Twitter actually done this past year?

Twitter was founded in 2006 and in nine years has never made a profit.

Weibo expects to break even for the first time in the fourth quarter of this year, and even Renren, China's Facebook imitator, turned a profit in 2011 and again in 2013.

Why is profit so hard to come by? The first answer is that Twitter still doesn't have enough users.

In the year since its listing, Twitter's user numbers have grown steadily, but more slowly than before. The slowdown is most marked in its main market, the United States. Facebook, by contrast, built around networks of people who already know each other, is called the social network for everyone and already reaches 74% of internet users. Twitter remains "niche": it reaches only 19%.

Facebook, the world's largest social network, has more than 1.1 billion active users; Twitter, in second place, has less than a quarter of that. Both rely mainly on advertising, and for both, more users means drawing in still more new users, reaching a wider audience with ads, and having fuller data to analyze.

The bad news also includes falling engagement. Although total views are rising, the number of tweets viewed per active user has fallen for the fourth year running. Twitter is a platform built around conversation: the more people talk, the more active they are, and falling activity sets off a vicious circle.

The second problem the user data reveals is lopsided global growth. Every thousand views bring Twitter $1.77 in revenue, but the figure is $4.28 in the United States and $0.84 everywhere else. Exchange rates are one factor; another is that Twitter has been neither aggressive enough nor attractive enough in overseas markets.

Wall Street's doubts about Twitter

Results like these cannot fully satisfy the funds and brokerages that rushed to back Twitter when it listed. Sell-side analysts' views of Twitter have swung up and down, and in the latest quarter settled at half "hold," half "buy."

Twitter has yet to show that it knows when and how it will make money, and some analysts have run out of patience. After its third-quarter 2014 results, a Canadian bank was the first to downgrade Twitter, and the US brokerage Stifel followed. Stifel analyst Scott Devitt rated the stock a "sell," citing “slow user growth and weak user engagement,” and added: "Twitter's user engagement is less than 5% of Facebook's, and we don't believe this trend will improve."

Such verdicts are common. Twitter has always been measured against Facebook, and has never matched its rival's results.

Twitter's third problem is that it had no choice but to go public, and now has little chance of escaping the pressure that listing brings from all its shareholders.

If selling ads still doesn't produce a profit, what next? Most startups that plan to build up users first and worry about a business model later have probably never asked themselves this.

Wall Street is not wholly impatient with losses; just look at Amazon, which has still not turned a profit yet whose share price remains far from low. A company's market value rests entirely on what investors expect of it. The picture Bezos has painted for Amazon is very concrete, and its thin margins serve the goal of becoming the largest player in e-commerce.

Twitter still doesn't know what it can do, and has no concrete plan. It gives investors nothing to look forward to, and that is the worst thing of all.

Its users are drifting away

What does a typical Twitter user look like? A Pew survey offers some clues. By these figures, Twitter is still a very young platform, with users concentrated mainly in the United States.

The survey gives no figures for teenagers, yet teenagers are Twitter's most important users, now and in the future. Every ad agency and brand lives in fear of suddenly becoming "yesterday's" product. They are all chasing these kids, who influence what their families buy and will become the core of the consumer market in a few years.

These are exactly the users Twitter is losing. Nine years on, its first teenage users have graduated from college. Twitter is no longer "cool," and no longer young.

To see how badly Twitter wants teenagers' attention, look at its short-video service, Vine. The platform is full of high-school students who got famous for mean-spirited jokes, and who now and then ask their fans to follow their Twitter accounts and join celebrity-style Q&A sessions.

Meanwhile, the photo-sharing network Instagram is becoming these kids' latest craze.

Just as Twitter's teenage users are drifting to Instagram, Twitter cannot stop these "stars" from plugging their Instagram accounts more and more often on Twitter itself.

Twitter's future users are moving ever faster to younger platforms. Those platforms will age in turn and be replaced by newer ones, but whatever comes next, it won't be Twitter.

Twitter's media ambitions have yet to pay off

Under its first CEO, Jack Dorsey, Twitter was more like a big chat room. After another co-founder, Evan Williams, took over in 2008, its strategy changed markedly. Twitter wanted to be a media outlet, and talk of Twitter as a new form of media began then.

In July 2009, minutes of Twitter's internal meetings leaked. In that document, the company declared that it wanted to become the "Pulse of Our Planet." The phrase came up again and again in the years when Twitter pushed hardest to present itself as media.

What stunned journalists at the time was that you no longer had to sit at your computer waiting for an Associated Press or Reuters alert: the news was simply there, and on Twitter it could go through its whole life cycle, from being spotted to taking shape to being debated. Unprecedented speed and a vast crowd of participants were Twitter's strengths, and they produced textbook cases for journalism schools such as Iran's Green Revolution and the Arab Spring.

Five years later, though, the speed advantage is fading. Today's journalists are fundamentally different from those of Twitter's early days. They understand how quickly Twitter can surface news, but they understand even better how to publish a story with context and causes fast, and how to use social networks to steer readers to their own sites. Twitter is still just a channel; it has not replaced long-form reporting, nor even much short-form news. Facebook, with its algorithmic ranking, is becoming the better source of clicks.

That vast crowd has not carried Twitter's media ambitions any further either. Tweets about news don't even make Twitter's top three topics, which, three years into the push to become media, is bound to raise fresh doubts.

This also has to do with Dick Costolo, the current CEO, who took over in 2010. Since then, the big news about Twitter has shifted from its transformation into media to advertising. In the past four years Twitter has bought nearly ten advertising-related companies.

For Costolo, a former consultant, whether Twitter is the future of media may not matter much. Analyzing existing user behavior as fast as possible and turning traffic into revenue is the strategy that will satisfy investors.

The opportunities Twitter missed

In the four years Twitter spent on advertising, the world of social networks changed. Twitter didn't do anything wrong; its mistake was that it did nothing at all.

Its rival Google experimented with two social networks, Buzz and Google+. Facebook introduced algorithmic ranking on its home feed to sell ads, planted "Like" buttons across all kinds of websites, and released Paper, a news-aggregation app.

The photo-sharing network Instagram took Twitter's place because images are becoming a more important way to express oneself. When Twitter was born in 2006, smartphones were not yet widespread and mobile internet had not reached the 3G era. Today bandwidth, storage and image quality are no longer constraints, and a picture can carry richer information and subtler context. Twitter, which only allowed images to be embedded on its own platform in 2011, missed this shift.

Flipboard built the news-aggregation feature Twitter could have tried itself, Facebook released a similar app in Paper, and Weibo, the imitator, introduced pinned posts and algorithmic ranking before Twitter did.

Reddit, a loose anonymous community, became the first choice for celebrity Q&As. After Twitter began verifying celebrity accounts in 2009, there was a brief fashion for celebrities chatting with and being interviewed by fans. But such exchanges generate a flood of messages and replies that are hard to manage, and Twitter has still not released a tool to help run them, so the celebrities who once did interviews on Twitter have gradually moved to friendlier, easier platforms.

On advertising, too, Twitter was slower than others. Facebook started selling ads a year after launch; Twitter waited a full four years.

The one time Twitter got there first looks more like luck. Vine, the app it bought, pioneered short video, but Instagram soon launched the same feature, then teamed up with brands for promotions and released a time-lapse app. Today the most popular content on Vine is crude jokes about race, gender and identity, while Instagram's videos range from fashion-label runway shows to personal travel diaries.

Twitter may have been born hoping to be a niche community, a place where friends and acquaintances posted updates and chatted. Had it stayed a small community of shared interests, it might truly have had no need to change.

But a company chasing profit cannot always be a step behind everyone else.

Twitter's past and future

Far too many things have held Twitter back over the past few years. A chaotic leadership may be the main reason it has so often hesitated and kept changing course.

Of Twitter's four founders, all except Noah Glass, who left early, held senior posts, and none of them stayed. The first CEO, Jack Dorsey, and the second, Evan Williams, look more like they were pushed out. There is a clear break in decision-making between them and the third CEO, Dick Costolo, and it was through the handovers between these three CEOs that Twitter's strategy moved from chat room to media to advertising.

Costolo took Twitter public, but friction with staff never stopped during his tenure. In 2014 alone, nine executives left Twitter, and the chief operating officer was confirmed to have left after clashing with Costolo. The steady stream of departures left the rest of Twitter's staff unsure where the company was going.

As frequent as the departures were Costolo's changes to the company's vision. According to a November 6 report in The Wall Street Journal, Twitter employees described Costolo as having "a new idea every minute" and said it was "hard to stick to one plan." That sounds like a plausible explanation for why Twitter has stood still in recent years.

Investors, too, are uneasy about such a slow, wavering strategy. Walter Price, a fund manager at Allianz Global, said: "I'm very frustrated. When you talk to them (management), I feel they understand what the problem is, but they're afraid of alienating (the people who tweet)."

Twitter does have a distinctive culture. It is open and free, and its format fostered good conversation from the start. You can use it as a diary, or to promote your personal brand. But this culture has tied its hands as it tries to make money, for fear that commercialization will drive users away.

When Twitter was born in 2006, it invented an entirely new model, without working out how that model would make money.

Sina Weibo, Twitter's imitator, started much earlier to try every route to turning traffic into revenue: algorithmic ranking, paid topic promotion, a membership program, credit cards. Features such as long-form posts, whatever their merits as a medium, did make Sina Weibo more like a media outlet. Twitter lacked the nerve to experiment.

Instagram, which seized on photo sharing and promotion, was far bolder than Twitter, and faster. Twitter let users embed images in tweets only eight months after the Instagram app launched; until then it had relied on third-party services for posting pictures. Instagram started out as a small platform that depended on Twitter, but today it has overtaken Twitter to become the "most important" social network for American teenagers.

At Twitter's analyst meeting on November 12, the new picture Costolo painted included three key strategies: strengthening the core user base, lowering the barrier to browsing, and new apps and services. Apart from the vague promise to "improve the user experience," strengthening the core user base was entirely about targeting ads more precisely. Lowering the barrier to browsing aims to draw in new users and logged-out visitors with better content and pages. The new apps and services include Vine, which has been running for nearly two years, and Fabric, a newly opened developer platform.

This was Twitter's first gesture of goodwill toward third-party developers in a long time. From 2011, Twitter tightened restrictions on its API to capture more revenue; after all, third-party clients don't show ads.

We won't have to wait long to learn whether this is just another idea Costolo "jumped to from the last one." Twitter's shares soared after the analyst meeting, then quickly fell back to where they started. The market, at least, didn't buy the story.

Nor can the young users in Twitter's plans wait for it: teenagers who have begun to find Instagram passé are turning to the self-destructing messaging app Snapchat.

But Twitter's story is not only about Twitter. It is also about an internet that is gradually closing up. The internet was born of one principle: everyone who can get online has an equal right to information. Soon, however, the closed structures and acquaintance-based networks of real life were copied onto the web.

Twitter is a semi-open platform: you can browse without signing up, and search is open to all. Facebook is more closed; most information is visible only once a friendship is confirmed, and search is very limited.

WeChat and many other mobile social apps have gone a step further: information on them is hard to find or discover, and hard to spread to other platforms. Snapchat, the self-destructing messaging app, simply ends a message's value at the moment it is passed on: once you've seen it, it's gone.

Twitter's decline is just one shadow cast by social platforms turning inward.

Cover image from WikiMedia