Twitter Searches for a CEO and Growth Strategy After Costolo’s Exit

By Don Reisinger

Twitter’s loss of Costolo leaves a rather interesting vacuum at the top. While Jack Dorsey will be heading up the company for the time being, he’s also chief executive at mobile-payments company Square. Considering that firm is growing rapidly, he has previously said he is not interested in a day-to-day role at Twitter, and so the social media company needs replace Costolo with a permanent replacement as soon as possible.

Although Twitter’s stock price jumped in the 24 hours after Costolo announced that he’s leaving the company, the social network’s shares have long been a concern for investors and analysts. Since October, Twitter’s shares have been down 35 percent as shareholders have grown increasingly concerned about the company’s position in the crowded social networking market. While Twitter’s shares were up 7 percent on the news of Costolo’s department, it’s unclear how the company will find a business formula for sustainable growth. The day after the announcement, Twitter’s stock was stagnant. As a public company, Twitter needs to boost its stock price. The next CEO will need to make that happen.

Twitter has grown its business each quarter since it started, but that rate has slowed to a near crawl. In 2012, Twitter was nearly doubling its users each quarter, but as of its last-reported quarter, its growth has leveled off to around 18 percent. What’s worse, Costolo said in April that his company was “off to a slow start” that month without saying how difficult a month it was for user growth. Granted, growth is a good thing. But at 302 million users, Twitter is about the same size as Facebook’s Instagram and less than half the size of Facebook Messenger and WhatsApp. Facebook alone has 1.4 billion users. That’s a major issue for Twitter if it plans to compete for advertising dollars.

Twitter’s recent decision to boost the character count on direct messages from 140 characters to 10,000 is telling. The company wants to get into the messaging business. As noted, Facebook Messenger and WhatsApp are wildly popular around the world, with 700 million and 800 million users, respectively. They offer a messaging platform ideal for people on the go. At the 140-character limit, Twitter has hobbled a potentially major growth driver for the company. Upping its character count on direct messages turns Twitter into a messaging app and puts it in a better position to compete against the likes of Facebook, WeChat and others.

Twitter recently launched a new product it’s calling Periscope that allows users to stream video live from their mobile devices to their Twitter followers. The idea is a good one and has already attracted some attention among celebrities and presidential candidates. But the company is facing off with Meerkat, which provides support for more platforms and integrates with Facebook. Periscope needs to extend its reach to be as popular as Twitter wants it to be.

Digital ad revenue is a crucial component in Twitter’s business, but the company has largely failed to attract as many marketers as it should. In 2014, Twitter could only nab 3.6 percent of the U.S. Internet ad market. That market accounted for $19.2 billion in revenue and was dominated by Google and Facebook, which held 37 percent and 18.5 percent of the market, respectively. Again, Twitter’s story is not all bad; revenue is still up year-over-year. But when it’s getting the scraps left by competitors and showing no signs of changing that, it’s a problem.

To his credit, Dick Costolo made attempts to soften China’s stance on his company’s service. He never talked freely about his discussions with China’s officials, but it always seemed clear that he was trying to persuade them to lift the ban on Twitter. China is a massive market that presents a huge revenue opportunity for Twitter. The trouble is censorship and until Twitter can find a way around it, the Chinese market will be out of Twitter’s reach

Some reports have suggested that Twitter’s best move is to get bought out by a larger company. Surely, Twitter knew that Costolo would need to be relieved of duty long ago and that Dorsey wouldn’t want to run the company indefinitely, those reports say. They argue that Dorsey is simply a placeholder while Twitter considers buyouts from companies like Google. It’s a plausible notion and one that, at face value, may make some sense for Twitter. But whether Google would want to pay the more than $23 billion it would cost to acquire Twitter remains to be seen.

Even during a conference call with investors after Costolo’s ouster, all Twitter could do was talk about its “potential.” The company argued that a new chief executive would breathe some new life into Twitter and help it take on a bigger role on the Web. But that’s the same refrain investors have been hearing for months, even as the company reported quarter after quarter of disappointing results. Twitter needs to stop talking about potential and outline a real strategy that will carry the company to success.

Twitter has long been a destination for news. In fact, news about the U.S. raid that resulted in the death of Osama a bin Laden first circulated on Twitter. Twitter has since tried to expand its relevance in news media. The trouble is the company is now facing competition from Apple, Facebook and even Snapchat. All of those companies have seen value in news and the ad revenue that goes with it. Twitter may find itself the outsider in that field, wishing it had capitalized on news media more aggressively.