Twitter’s value problem is destroying its performance

Twitter is one of the best known social media services, but it is suffering from its inability to provide sufficient value to consumers, advertisers, and investors.

The firm has 316 million users, a respectable figure—but 80% smaller than Facebook. Its share price has dropped below the level set when it became a publicly traded company in 2013. The company has lost about $30 billion in market value in the past two years and is now valued at $15 billion. It continues to experience negative operating and profit margins and negative return on assets, despite about $2 billion in revenue.

Twitter is suffering from two fundamental business problems. First, the lack of an effective value proposition that makes it attractive to larger numbers of users. Second, lack of vision and direction. The latter led to the departure of its CEO in June 2015 and he has still not been replaced.

A significant value problem for Twitter has been that it is primarily configured for short, one-way communication. It is a great way for the Kardashians to share their latest selfies with fans and media and for journalists and media outlets to promote their latest material. Unfortunately, that configuration it is not as well suited for conversation as the configurations of other social media services.  The 140 character limitation also reduces its value to many potential users.

Twitter also lacks distinction for doing something superlative and creating a niche for itself.  It does not lead a clear niche such as that of LinkedIn, which is the primary networking social media among professionals, or the photo and video sharing niche orientations of Pinterest and Instagram—whose growth rates have trounced Twitter’s growth in recent years.

The company has been working to improve the effectiveness of advertising placement and it is changing it advertising platform so it can reach apps other than Twitter on mobile platforms and is hoping that will improve its attractiveness to advertisers.

The challenges facing Twitter reveal the fundamental needs of all companies to get their business models right. They have to have a value proposition and value configuration that works for customers. They have to be able identify the customer wants and needs they are fulfilling, find ways to surpass the value customers expect, and make the company’s products and services unique in providing that value. Only when Twitter effectively addresses those issues can it hope to improve on its poor performance.

1 comment:

George said...

Twitter's problem is that it's primarily a text-based medium. It really has no competition outside of China in its niche of one-line quasi-broadcast remarks.

Twitter has reached saturation in literate markets, and can't grow into the much larger less-literate global markets, it has to grow with their growing literacy. This is intolerably slow for the silicon valley mindset, where maturity equals death. It will be interesting to see how its photo and video counterparts like Vine fare when they reach saturation in their own niches.