It all began in a playground in San Francisco’s South Park in 2006.
Jack Dorsey was one of three programmers who were idling by the slide, taking a break from a hackathon underway at their company, Odeo. At the time, 30 year old Dorsey was something of a drifter. He had dropped out of two college courses and already had a string of jobs and career missteps behind him. Though he had always been a hacker at heart — his father bought him his first computer when he was eight years old — Dorsey had also flirted with massage therapy and fashion design, had worked as a live-in nanny and even studied botanical illustration.
At the beginning, Odeo did not give the appearance of breaking that vagrant cycle. Earlier that same year, Dorsey was sitting at a cafe in South Park when in walked Evan Williams. Williams was at that stage a well known internet entrepreneur; he had sold his blog publishing service Blogger to Google two years earlier. Williams’ new company, Odeo, facilitated the creation and sharing of podcasts. Afterwards, Dorsey would report that he wasn’t particularly interested in podcasts, but that he liked Williams’ style. Williams, for his part, wasn’t overly impressed with Dorsey’s fragmented CV, but he needed a programmer, so Jack was hired.
He didn’t have to put up with Podcasts long. Soon after Dorsey joined the company, Apple launched a version of iTunes which included a podcast store. There was no way a start-up could compete with a behemoth of the reach and resources of Apple, so the company decided that if it was to survive, it would have to quickly reinvent itself. This prompted a series of hackathons in the hope of finding a new direction, and it was on a break from one such that found Dorsey together with two other coders, Dom Sagolla and Florian Weber in the playground.
Dorsey had long been interested in how networks form, in cataloguing the ways in which people connect. He had once designed a programme that allowed people searching for the same thing on Google to communicate with each other. Another application he developed allowed strangers to exchange postcards. Called Postcard X, around 10,000 had signed up.
In South Park that day, Dorsey wondered aloud if the texting protocol SMS could be used to report what you were doing and to receive news of what everyone else was doing. It is hard to describe it as a eureka moment; the idea was vague, its applications then unknowable, but it appealed to Sagolla in particular, so much so that he and Dorsey decided to pitch it to Williams. Williams didn’t buy it. It wasn’t until another Odeo exec, Noah Glass spotted the potential in Dorsey’s ‘what if’ and pushed it with Williams that anything actually happened. With Glass supervising, Dorsey and Weber completed the coding work within two weeks. Now, everyone at the company began to see the potential in the prototype.
But what to call it? At the time, the founders’ thought processes remained fixed on text messages, so it’s not surprising that a name began to evolve from an attempt to capture the vibration when you receive a text; early versions included Jitter and Twitch. It is Noah Glass however who is credited with thumbing through the dictionary and coming on the word ‘Twitter’. His Twitter handle, @Noah still carries the tagline ‘I started this’.
It is a mark of the success of an idea that it can spawn a list of neologisms that seem to have been with us forever. Tweet. Retweet. Hashtag. Yet it’s only been seven years. Most of us have shirts that are older than the Twitter. Yet it has become pervasive; every other news medium references tweets throughout the day or solicits information, news and views via Twitter. It has become the means by which news is broken; the Boston police tweeted the news of the arrest of the marathon bombing suspect earlier this year. Twitter played an important role disseminating information during 2011 Egyptian revolution and during the Tunisian and Iranian election protests of 2010.
Here at home of course, Twitter changed the direction of the presidential election campaign last year when a tweet read out by Pat Kenny during the live TV debate fatally wounded Seán Gallagher’s campaign. The tweet, which Kenny attributed to an official Sinn Féin source, said that the party would reveal the man who allegedly gave a €5,000 cheque to Gallagher, then the front runner, the following day. A visibly flustered Gallagher subsequently lost his lead in the election, which he did not recover when it emerged later that the tweet was bogus.
This week Twitter was in the throes of the second-largest tech IPO in history. You can tell from the way in which Twitter’s IPO was handled that the ruins of Facebook’s disastrous offering were picked over obsessively. Just last month, the company amended its S-1 Filing with the Securities and Exchange Commission (SEC) to state that it would be listing on the New York Stock Exchange, and not the tech-heavy Nasdaq, a move that’s been interpreted widely as a response to the latter’s poor handling of the hype-driven catastrophe of Facebook’s IPO. The Nasdaq fell 1.6% on the news.
Facebook launched at $38 in May of last year, and though the stock rose in the first hours of trading, it quickly fell back to its opening price by close of business. In the months that followed, the company drew scorn from investors and media as the price slumped from one low to the next, bottoming out at $17.55 per share last September. It took more than a year for Facebook to regain its opening price, a fate Twitter was keen to avoid like the plague.
Hindsight being 20/20, investors had no trouble figuring out what Zuckerberg and Co had done wrong. The offer price was generally understood to be too high, but more particularly, Facebook increased the size of the offering by 85 million shares just days before the IPO. At a series of presentations to Wall Street execs, much was made of the fact that 28-year-old Zuckerberg eschewed the suit and tie in favour of his trademark hoodie. In the hype that presaged the IPO, this was read as no more than silicon valley swagger; here was the new kid with the new paradigm... Afterwards, as the price slid, everyone decided it was a lack of respect, a failure to realise on which side his bread was buttered.
Jeff Kagan is a technology industry analyst based in Atlanta Georgia. He says that while Twitter and Facebook are part of a new group of companies that capture the imagination and delight users, they haven’t really figured out how to make money yet. Investors, he points out, don’t care about retweeting quotes from your favourite guru or posting funny Vine videos of your toddler. They only care about making money.
“Before they went public we delighted in their success and continually wrote and talked about their ability to change the world. However, once they start the process of going public we must include another area, which is profitability and growth. Suddenly these high flying upstarts are like a three legged stool.”
“The offer price is one of the important pieces of the pie. Price it too high, and you have a Facebook disaster. Price it too low and you leave billions on the table. This is always the tough part. So choosing the right price is of the utmost importance, especially in the early days... They must have a growing source of earnings and they must do everything else the right way. Translation: No sweatshirts on the roadshow.”
As part of that SEC filing, Twitter sought to head off investor criticism by listing no less than 55 business risks to which the company is exposed. They include everything from earthquakes to blockages in foreign countries (there’s no Twitter in China), to the usual social networking bugbear, alienating users with advertising.
There’s another problem. While much has been made of Facebook’s botched IPO, it’s worth pointing out that the company was making profits in excess of $200 million a quarter just before it went to market. Twitter is still making losses. In that SEC filing, the company said that as of June 30, 2013, it had an accumulated deficit of $418.6 million. ‘Although our revenue has grown rapidly, increasing from $28.3m in 2010 to $316.9m in 2012, we expect that our revenue growth rate will slow in the future as a result of a variety of factors, including the gradual slow down in the growth rate of our user base.’
This admission is significant. The numbers of monthly active users, or MAUs as they’re known in the industry, may not be falling, but their rate of increase has declined significantly. Back in the second quarter of 2010, the number of Twitter users grew by a third to 40m. Then, from the last quarter of 2011 through to the first quarter of 2013, that rate of increase held steady at around 10%. For the last six months however, the number has declined to just over 6%. By contrast, Facebook had just over 600 million MAUs a year before IPO. On the eve of the offering, that figure had climbed to in excess of 900 million. As Twitter prepared itself for market, it had around a quarter of that number. No more than Facebook, there are also a lot of phantom accounts out there too. A recent Reuters/Ipsos poll reported that over a third of people who have joined Twitter say that they do not use it.
The problem is that pervasive as Twitter has become, most of us don’t use it. The consensus view is that the company has found all its early adaptors and to unlock real growth, it has to find a way into the mainstream. Roger Kay, an analyst with Endpoint Technologies Associates says that Twitter is simply less accessible than Facebook. “People have a hard time figuring out which end to grab it by. I predict that the slog to one billion users will take a long time, if it is ever achieved.”
These tech-savvy early adaptors love the free-form nature of Twitter, the way it allows users to find their own path through a forest of information. Those of us in the mainstream however have tended to get lost. What the company is trying to do is lay out better paths towards the information that is most important to us.
They also have to earn a few quid while they’re at it. The word that haunted every news report before, during and after Facebook’s IPO was ‘monetise’. Twitter is no different. Like Facebook, they don’t charge for the services they provide. So they advertise. According to documentation filed with the SEC this month, 85% of the company’s revenue was generated through ads last year. So now we arrive at the central conundrum for social networkers everywhere; provide advertisers with sufficient access to users without driving those users cracked with ads.
Rob Enderle of the Enderle Group is one of leading tech commentators in the world. He acknowledges the need to spread the Twitter gospel beyond the existing faithful. “They are either going to have to increase their depth and become more engaging or broaden their reach to attract more customers.”
Even assuming that can be done, marrying content to ads will provide an even stiffer challenge. “Their bigger problem is that ads do not yet seem to work that well on Twitter and that likely needs the highest priority. They are a unique property and desperately need a uniquely effective way to advertise or find another way to get people to pay for the service. Ads and instant messaging never worked that well either and Twitter is very close in delivery to instant messaging in that even on a PC, it is a small screen service.”
Twitter knows this of course and has been busy working the problem. Thus far, ‘advertising’ effectively means selling promoted tweets and trends, but a recent acquisition suggests a complementary route to market. The company bought MoPub for $350m in September. MoPub was basically a start-up that helped mobile publishers manage their digital advertising inventory. In the short-term, the acquisition will simply channel more advertisers onto Twitter, but over the longer term, it’s envisaged that MoPub will boost Twitter’s advertising muscle by using data gleaned from users’ Twitter activity to sell ads on other mobile applications. The advantage of the approach is that it delivers ads to customers without cluttering up their Twitter timeline. Whether or not it will work however remains to be seen. Facebook’s version of this product — called FBX — hasn’t set the world on fire.
One other thing that kept coming up in the months after Facebook’s IPO was mobile, more particularly the social network’s slow progress in transitioning to mobile platforms, which are seen to have vastly greater growth potential than PC ones. Twitter however doesn’t have this problem. Back again to that SEC filing, which reported that more than 65% of the company’s ad revenue came from mobile device users in the second quarter.
“Since it is a small screen service“, says Enderle, “if there is an ad path to a social network on mobile, Twitter has the higher need and should have the greater skill set to find it. While Facebook is a big screen service translating poorly to the small screen, Twitter is a small screen service to begin with and that focuses them more tightly on solving this problem.”
Moreover, that second mover advantage also kicks in here. Prior to the Facebook IPO, investors had little evidence to reassure them that meaningful revenue could be generated from mobile products. Facebook owes its stockmarket recovery in no small part to the fact that it has successfully migrated its advertising to smartphones and tablets. So it can be done, and as Enderle points out, Twitter is small screen and doesn’t have to suffer, as Facebook did, the pangs of rebirth.
Early indications suggest that ramping up advertising isn’t having a detrimental impact on customer experience. The company reports that one of its key stats in analysing business performance is ‘advertising revenue per timeline view’. This increased in the US from $2.58 in the third quarter from $2.17 in the second. A lesser improvement was registered in the rest of the world, where the company’s ad business is less developed. Luring advertisers with one hand and customers with the other may generate contradictory forces, but one area where there’s considerable ground to be made on both metrics is television.
Twitter’s TV strategy centres on becoming what’s known as the ‘default second screen’. The subtext of Twitter’s offensive here is that TV is no longer sufficiently entertaining on its own. No matter how engrossing the programme you’re watching, if you watch it with your Twitter open on your smartphone or tablet, that experience will be richer. As the action unfolds, you keep one eye on your Twitter feed to see what everyone else makes of the match, or The Voice, or Fair City — plus of course, you pitch in with your own two cents every so often as well.
This isn’t just wishful thinking on the part of Twitter. According to TV ratings company, Nielsen, 19 million Americans composed 263 million tweets about live TV in the second quarter of this year, which marks a 24% increase in authors and a 38% rise in tweet volume.
In response, the company launched Nielsen Twitter TV Ratings, which will give the networks more accurate information about just who is looking at TV related tweets. Their figures suggest that the Twitter audience is on average 50 times larger than the number of people tweeting. So if there are 1,000 people tweeting about it, 50,000 are reading those tweets as they watch live. This is powerful information for advertisers, and offers Twitter potential access to the $80 billion that advertisers spend annually on TV.
The company has two key products that will open up that path. The succinctly named ‘TV ad targeting’ allows advertisers to drop tweets in users’ feeds every time they tweet about a particular TV programme. The second product, ‘Amplify’, parcels video content with ads from broadcasters. These products come courtesy of another recent acquisition, BlueFin Labs. Their technology allows the company to scan tweets for particular keywords in real time. So suppose you’re at home on the couch watching Love/Hate and tweeting away about it. Twitter picks up those keywords, then hits you with an ad for a product you’ve already seen during the ad break, and one which could be themed around Love/Hate itself. A ski-mask, say.
Speaking at the Ad Age Digital Conference in San Francisco recently, VP of revenue products at Twitter, Kevin Weil, said that combining Twitter with TV was an area that the company had been focusing on in recent months. “Twitter makes TV better, and TV makes Twitter better.” Is he right? Or is the whole second screen thing irretrievably niche?
One other Twitter-TV tie in worth mentioning is called ‘See It’. This feature, the product of a joint initiative between Twitter and Comcast, effectively turns Twitter into a TV remote control. ‘See It’ creates a ‘Twitter Card’ for any show mentioned in a tweet, which then allows a user to simply click to view the programme.
TV is just one way into the mainstream. News is another. Right now, there is no faster way to disseminate information than Twitter. Those 140 characters may not give you in-depth analysis, but they give you speed. The systemic problem here is how to find what you want among the four million tweets that are sent every single day.
Magic Recs is a Twitter experiment that launched in March. It works by zoning in on popular accounts and tweets, alerting you when a group of people you follow all follow the same person, or retweet the same tweet. Then there’s Event Parrot, another just-launched experiment which monitors breaking news accounts like the BBC on Twitter and sends out alerts on major stories. Products like these change the dynamic. Twitter has been about establishing your own world within its vast network, picking and choosing who you follow and how you use it. Event Parrot removes the burden of choice, or at least simplifies it, by pushing the information down to you. In the same vein, Twitter is also road-testing a product which will allow you to discover tweets from people within a certain geographical radius.
Alongside all of these in-house strategies, there are a wide range of independent initiatives which harness Twitter to create something new. 61Fresh offers one conception of Twitter that could well seduce the mainstream. It’s a Boston site which aggregates all Boston-related news as tweeted by Boston residents. It draws from more than 500 news sources to create a kind of organic online local newspaper. According to Twitter’s media pages, the site’s design team created its own algorithms to determine where tweets were originating, and used filters to identify top stories. Rather than using traditional headlines, 61Fresh uses Tweets on its homepage to call out specific stories.
All of this may well be working. Twitter’s growth in the third quarter of the year didn’t slow nearly as much as it did in the second. The company’s US user count rose 7.11% in Q3 from 49.2m to 52.7m. This compares very favourably to the previous quarter which registered just 2.5% growth. All of these strategies might give the impression of being a little scattergun, and they are, but then Twitter isn’t like other tech platforms. Much of its functionality has emerged from users themselves. None of the founders created retweeting, hashtags or even the @-reply. Conversation wasn’t properly embedded in the service until late 2006 when a user hit the @ symbol to indicate what he was about to say was directed at a particular user.
A poster at tech entrepreneur forum Y Combinator once remarked that Twitter was more of a discovery than an invention. The Twitter vision has always been about keeping the reins loose to see what, if anything, emerges from the babble.
But as the company moves forward following what initially appears to have been a very successful flotation, the men who do not wear hoodies will be watching that babble for dollar signs. “Do it right and they put a crown on your head. Do it wrong, and they throw mud balls at you,” says technology industry analyst Jeff Kagan.