Twitter as we know it is over. While the early release of ugly revenue numbers sent the company’s stock spiraling Tuesday, the actual quarterly earnings report that followed that afternoon was even worse. Twitter is acquiring users more slowly, particularly on mobile. It is failing to monetize these users as well as expected. And it is tapping other companies like Google, with whom it will partner to take advantage of its DoubleClick ad-serving platform, for lifelines. As a consequence, the ultimate value of the social network’s nearly 300 million users is looking significantly lower than previously thought. Twitter is well aware of these factors. Its recent actions signal that it is trying to redefine its business, not as a service that monetizes its users, but as a crowdsourced media platform and advertising agency—a dangerous bet that is unlikely to pay off.
Twitter’s strength is being the pulse of the Internet, the place where news gets broken in 140-character messages, where important topics start trending the second they enter the collective hivemind, and where politicians and celebrities and thinkers of all stripes can make announcements without the bother of a press release or the filter of the media. Yet this has always made Twitter Janus-faced: Is it a real-time news aggregator or a social network? More importantly, how will it make money? The conventional wisdom was once that Twitter would monetize its users by showing them ads that are extremely relevant to them. It is now obvious that Twitter’s future does not lie in a Facebook-like model, but in something else entirely. Twitter sees its user base, whose growth is flattening, not as customers but as content producers. In which case, who are its customers?
On the earnings call, Twitter CEO Dick Costolo specifically attributed the quarter’s revenue shortfall ($436 million, short of a projected $440 million to $450 million) to the underperformance of some of Twitter’s new “direct response” advertising products that have not performed as well as expected. Examples include Twitter’s “mobile-app install” ads, which offer a direct link to install an advertiser’s app. While Twitter hasn’t mentioned any new direct-response strategies, Costolo said it hopes to boost its advertising revenue by acquiring TellApart, “a leading marketing technology company providing retailers and e-commerce advertisers with unique cross-device retargeting capabilities.” This is a bad omen. When Google bought DoubleClick, it was buying DoubleClick’s utter dominance in the advertising sector, not its technology. TellApart doesn’t have that kind of dominance; Twitter’s purchase will get it TellApart’s technology and consumer profiles. Neither merits a headline announcement in an earnings report.
But the acquisition of TellApart does tell us something: that Twitter is now trying to monetize nonusers, people who don’t have Twitter accounts but might read it anyway. That’s because Twitter is running up against the limitations of its interface, which makes monetizing active Tweeters difficult. For starters, Twitter can’t collect useful data about its users the way Facebook can; its 140-character limit hampers it. And because Twitter is public, people keep less of their lives on it. Tweets are less valuable as a key to profiling users than they are as an attractor of eyeballs. I’ve previously discussed the unique advantages and disadvantages of the public-private hybrid discourse produced on Twitter, but the flip side is what that unique hybrid amounts to in terms of monetization: It’s mostly a downside.
Only a significant monetization paradigm shift will suffice, and there are signs that Twitter is pursuing one with its new home page for logged-out visitors, its emphasis on attracting nonusers, and its abandonment of timeline views as a metric. (Both timeline views and monthly active users were suffering attenuated growth.) In light of this, the TellApart acquisition makes more sense, because Twitter is planning to try to advertise to non-Twitter users. Twitter users themselves will remain a source of content (for as long as they can stand the noisy and frequently hostile atmosphere), but Twitter is indeed abandoning the idea that Twitter accounts will be its wellspring of revenue. My colleague Will Oremus has described this shift positively, but I am far more pessimistic than he is. Twitter is making an exceptionally dangerous bet, situating it not as the next YouTube but somewhere between BuzzFeed and Reddit—but lacking the depth of content of either.
That brings us to the real motivation behind TellApart, in place of which Twitter could have easily rolled out its own tech. My hypothesis: Twitter bought TellApart for its consumer profile base and perhaps its clients as well. Meanwhile, by partnering with Google’s DoubleClick, Twitter will gain increased reach for its content while having to share that revenue with Google. These moves do not make sense if Twitter wants to use TellApart to advertise to its own users. Rather, Twitter is going to track and market to nonusers who view Twitter’s content, whether on Twitter’s new home page, via embedding elsewhere on the Web, or through other apps that take advantage of Twitter’s new “Fabric” mobile API. The problem is that this sort of customer profiling and microtargeting has not yet proven its worth; it is difficult to assess its success rates due to the sheer number of variables involved, and even the most optimistic predictions do not show this sort of targeting to be an order of magnitude better than existing models of site-based banner ads. For all their efforts, advertising companies have yet to stumble on new advertising markets on the order of what Google AdWords was in the 2000s, and I highly doubt TellApart has hit the jackpot. And Twitter is entering a very crowded field of Web content (albeit with highly valuable content). Google’s and Apple’s advertising platforms occupy key spaces in the advertising ecosystem and stand a good chance of significantly eating into Twitter’s profits, as the deal with DoubleClick indicates.
Twitter will continue to rely on the immediacy, breadth, and prestige of its users to draw an audience, but this depends on the company’s ability to retain high-quality, high-profile users. As long as Twitter remains the Web’s default bulletin board for up-to-the-minute news, Twitter’s content will be irreplaceable, but if something better comes along (and it always does), an exodus of users will immediately damage it. The medium matters: YouTube’s videos are far “stickier” and long-living than 140-character tweets. Twitter discourse is evanescent, and the close relevance horizon will make it very easy for communities to pack up shop and move elsewhere, leaving little behind. Equally significant, Twitter’s shift away from acquiring users will make it more susceptible to creative destruction. If important new voices come on the scene via some new platform and see no need for Twitter, Twitter’s decline will be assured. Contrary to what Adrienne LaFrance and Robinson Meyer wrote in the Atlantic last year, I don’t believe this transference has occurred yet. Twitter remains far more vital and important than LaFrance and Meyer claim, even if they capture its defects rather well. But Twitter’s position is incredibly precarious.
I am hardly the first to augur doom for Twitter. Snapchat CEO Evan Spiegel was notoriously bearish on the company in a 2013 memo that was revealed as part of the Sony Pictures hack: “VC dollars are being spent on user acquisition despite unknown LTV [long-term value] of users - a recipe for disaster. When the market for tech stocks cools ... feed-based advertising units will plummet in value (in the case of Twitter, advertising spend may not move beyond experimental dollars) similar to earlier devaluing of Internet display advertising.” Twitter’s latest results all point in the direction Spiegel identified, with very little in the way of sunshine. Yet in moving away from “feed-based advertising units” and building its user base, Twitter reveals that the rest of its hand is weak. Spiegel also predicted the decline of Facebook, but Facebook’s greater breadth and deeper knowledge about its users gives it more of an anchor as far as predicting future highs and lows. Twitter is embarking on an uncharted course in a very crowded sea, and unless it executes perfectly, it could sink quickly.
Whatever happens, the future of Twitter is being something other than what it is right now. The company isn’t dead but walking wounded, like the Earl of Gloucester, blind and lost, heading for the Dover cliffs.
This article is part of Future Tense, a collaboration among Arizona State University, New America, and Slate. Future Tense explores the ways emerging technologies affect society, policy, and culture. To read more, visit the Future Tense blog and the Future Tense home page. You can also follow us on Twitter.