Advertising

The task facing Twitter's next boss: How its new CEO can shake up its ad business for brands

By Seb Joseph | News editor

June 12, 2015 | 7 min read

Twitter’s interim chief executive Jack Dorsey says its strategy won’t change in the wake of Dick Costolo’s resignation but his replacement will need to ring in changes to the brand and ad business if it is to remain relevant to advertisers in the long term.

Twitter Money

The micro-blogging site promises to vet both internal and external candidates during its chief executive hunt and says it wants someone who “uses and loves the product in every single way”. And they will need all the passion they can muster to kickstart a business that many analysts have deemed more valuable to its users than to its shareholders.

Become relevant to the masses

Despite building a significant ad business that eMarketer has tipped to grab 8.8 per cent of global social media spend in 2015 – up from 7.1 per cent last year – Twitter has struggled to grow its user base. That’s bad for Twitter’s growth, because if people aren’t logging in to see what their friends are posting then they’re less likely to notice any of the paid advertising it runs.

And while revenues jumped from $169m in the third quarter of 2013 – its last before going public – to $436m in its most recent quarter – an increase of 160 per cent – so have its costs. The business lost an eyewatering $162m in the preiod, greatly dampening any hope of profitability in 2015.

With an advertising business at a crossroads amid growing competition for mobile and video budgets, Twitter’s new boss will need to work out how best to sell in its ability for real-time information to marketers, particularly from small businesses and startups.

Interestingly, several industry experts The Drum interviewed for this article highlighted that many advertisers don’t realise that Twitter’s ad platform is now much more reasonably priced and they still think it costs thousands of pounds to promote ads.

Has Twitter lost touch with marketers?

Twitter seems to "have lost its touch with marketers”, claimed Nate Elliott, principal analyst at Forrester. It's easy to forget it was Twitter, not Facebook, that figured out how to insert brand messages into a social feed, he continued. “But it's been Facebook, not Twitter, that's innovated new forms of ad targeting within social.

“Today, not only are marketers much more likely to buy ads on Facebook than on Twitter, but they tell us their money is significantly better spent on Facebook as well."

Innovative thinking has never been Twitter’s Achilles heel in its quest for new users and ultimately profits. A failed music service, fledgling social commerce offering and a popular short-form video player are emblematic of the breadth of ideas whirling around the company. The issue has always been its struggle to channel that influx of ideas and mature the business into a product that keeps audiences engaged beyond a single 140-character tweet.

Marc Nohr, chief executive of Fold7, said it all amounts to a “big job” ahead for Twitter’s next boss that begins with crafting a tighter proposition for brands and consumers.

Channeling an innovative spirit

Twitter has worked hard to attract brands by expanding its advertising products, sharing more audience data and launching new capabilities to reach users, such as pinned tweets and Vines. These moves have been important for advertisers, who might otherwise fear their ads could be drowned out by the sheer volume of noise on the platform – over 9,000 tweets are posted every second.

Nohr said: “There’s no denying Twitter continues to be a ground-breaking product, the platform needs to grow from being more than just a playground for brands to broadcast short-lived content and solidify itself into a channel that has a true purpose for brands. Which is where a clearly defined proposition would come in.”

It is an issue the company has made one of its key priorities for 2015. Twitter’s board wants to elevate the importance of marketing as a key component of everything the company does, an objective that was called into question last month with the revelation that its chief financial officer Anthony Noto was running the marketing department.

Whether the new boss sticks with Noto or opts for a bona fide marketer, they will need to move quickly to carve out a brand proposition it can express clearly to both marketers and people.

A more compelling advertising product

Imminent IPOs for both Snapchat and Buzzfeed will see them emerge as threats to Twitter's ad business, even more so if it fails to nail what the brand means in time.

A clear brand might go some way to kickstarting the high proportion of inactive Twitter accounts that the business has previously acknowledged and failed to curb. This has also impacted the metrics Twitter has shown off to its stakeholders.

In its heyday, the social network was quick to talk up user growth but then once it got harder to attract new people it quickly switched to the less clear “audience” term. The wording allows it to include both active users and those who have logged-out in the hope that something other than user numbers would drive up its share price and profits.

According to the media experts The Drum interviewed, Twitter needs to find a way of being deeply personal for most of its users. They criticised how the micro-bogging portal has become the least social of the social networks and pointed to how new users tend to find themselves following celebrities and brands rather than their friends.

Hannah Rainford, senior social manager at Jellyfish, said: “[Twitter] has a high proportion of inactive Twitter accounts, which potentially indicates a usability or ineffectiveness issue with new users who are enticed to initially sign up. Without the user base – those looking to spend money on the Twitter Ads platform may be discouraged or may look to take their spend to Facebook, which has the same targeting abilities but has a larger user base.”

Her views echo some of those expressed by Twitter investor Chris Sacca. In a lengthy letter he outlined ways to improve the business and suggested that direct response advertising had not been as effective as both its executives and Wall Street had hoped.

Costolo’s exit sent its share price up by 4 per cent. However, steady revenue growth since 2013 suggests Twitter’s problems don’t solely lie in its management but moreso in its business model given its profitability woes. Whoever the board names as chief executive will need to come up with an effective long-term plan capable of paving the way to a brighter future for both its brand and advertisers.

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