{"id":305,"date":"2015-11-29T00:27:01","date_gmt":"2015-11-29T05:27:01","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/twitter-a-broken-operating-model-with-a-clueless-leadership-team\/"},"modified":"2015-11-29T11:31:40","modified_gmt":"2015-11-29T16:31:40","slug":"twitter-a-story-of-failure","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/twitter-a-story-of-failure\/","title":{"rendered":"#Twitter: A story of #failure"},"content":{"rendered":"<p class=\"p1\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter\" src=\"http:\/\/cdn2.business2community.com\/wp-content\/uploads\/2014\/11\/543c477e9547e.jpg.jpg\" alt=\"\" width=\"181\" height=\"181\" \/><\/p>\n<p class=\"p1\">Twitter, Inc. (NYSE: TWTR) is an example of a <strong>highly ineffective\u00a0<\/strong>model of driving alignment between its operating and business models.<\/p>\n<p class=\"p1\">TWTR is a well-known company ($18 Bn Market Cap), which serves as a platform for self-expression and conversations real-time. It lets\u00a0advertisers target its ~300 Mn monthly active users based on demographics, location, interests and makes money off &#8220;Promoted Products&#8221; (tweets, hashtags, follows, retweets, favourites, app-installs, polls, Moments, etc.).<\/p>\n<p class=\"p1\">Its <strong>operating model is heavily predicated on offering an exciting product experience to its user base, while being able to monetize their actions in intelligent ways<\/strong>. Here is a company that started with great promise and performed exceedingly well for the first few years after its launch, and somewhere in 2011-12, lost its way altogether. It had the potential to truly leverage its network effects, continue to build on the strong community it was famous for initially, and ultimately give advertisers a way to tap users based on their choices and how they\u00a0think, as opposed to the crude method\u00a0of targeting largely on demographics alone. <strong>The story of TWTR is the\u00a0story of missed opportunities<\/strong>, and therefore, in my very humble opinion, this makes for a very interesting case study on managing innovation.<\/p>\n<p class=\"p1\">Short list of (the many)\u00a0sources of misalignment between business model and operating model are as follows:<\/p>\n<ul>\n<li class=\"p1\"><strong>Product innovation:<\/strong>\n<ul>\n<li class=\"p1\"><strong>No fundamental product innovation since 2006<\/strong> (when the company was founded) when texting\/SMS&#8217;ing was the primary form of communication. It still has a 140 character limit for individual tweet with the option of embedding a maximum of\u00a04 images.<\/li>\n<li class=\"p1\">The initial hook of TWTR was people could follow their favourite celebrities (movie stars, sports stars, musicians, politicians etc.) and be able to reply to them and engage in conversation. They could also see trending topics around them and react to them. This was particularly potent during major news, sporting and political events. However, their main rival (Facebook) started launching one feature after the other (following celebrities through fan pages as well as &#8216;follow&#8217; button for individual accounts), without constraining content limits, and ultimately a far more &#8216;social&#8217; experience with recommendations from friends and others you trust. Nature of comments are far better (read: less abuse and name-calling) on Facebook since most people user their real names and images, instead of <strong>IamSuperKewl007 username with an image of an egg as their display picture<\/strong> they use on TWTR, this shield of anonymity tends to give people the sense that anything goes. Influencers, in part because of this relentless abuse and in part because of clunky product experience, have been migrating to Medium and Facebook, and &#8220;tweetstorms&#8221; are few and far apart now. Seriously &#8212; <strong>who wants to trim and break a zillion rules of grammar to fit every\u00a0good sentence in 140 characters,<\/strong> when you can write a coherent, crisp and compelling two paragraphs (or more) at one go at Facebook or Medium? Even on photo and video, competitors (e.g., Instagram, owned by Facebook) are lightyears ahead. Trivia: Instagram recently surpassed TWTR in both user numbers\u00a0and engagement. So it all comes down to &#8220;Why Twitter&#8221;!<\/li>\n<li class=\"p1\">TWTR has clearly struggled to keep up and has seen its <strong>engagement levels trending\u00a0down consistently and its user base has peaked (US has been at 66 Mn monthly active users\u00a0flat for the last 4 quarters!)<\/strong>. Facebook, its much larger rival (almost 5x the size), is growing users at 16%+ and has engagement levels of close to 75%+ in developed markets versus less than half of that for TWTR. This <strong>fall in engagement has massive implications on revenues and profits as TWTR is paid on per-activity (lesser engagement =&gt; lesser activity =&gt; lesser revenues)<\/strong> and has begun to send the company into a tail-spin. TWTR actively masks its engagement numbers for the fear that it will send the stock into a downward spiral, but if one does even rudimentary math over what is disclosed it becomes imminently clear where the company is headed on a per-user basis.<\/li>\n<li class=\"p1\">Users sign on out of curiosity, check out the product for a few days and then log off never to return again. Even the same user who is present on both platforms tends to spend as much as 4-5x time on Facebook as he\/she does on TWTR. <strong>Therefore cumulative time on Facebook is 16x that of TWTR, a mind-boggling statistic and TWTR has demonstrated no way to counter this.<\/strong> For a user who signed on but doesn&#8217;t want to return, what&#8217;s the compelling feature unique to TWTR that isn&#8217;t on Facebook? The short answer &#8212; nothing!<\/li>\n<li class=\"p1\">One of the <strong>first steps that the new CEO<\/strong> (also the co-founder, who went on a hiatus for 3 years but remained Chairman &#8212; long story; he basically checked out of the company for a few years to go build another broken product\u00a0called Square) took\u00a0is to <strong>fire 300 R&amp;D engineers<\/strong>, perhaps to give investors some short term juice by improving margins for a quarter or two. But investors are smarter, they didn&#8217;t reward TWTR&#8217;s share price\u00a0and in fact, punished them for this ham-handed move. <strong>Product innovation isn&#8217;t a &#8220;good to have&#8221; for TWTR, it is a &#8220;must have&#8221; at this stage<\/strong>, and TWTR chose to let go 300 of the some of the best engineers of Silicon Valley. Will the ones remaining\u00a0be all eager to build a world-beating product or will they be fearing whether they are on the chopping block next? What signals does this send?<\/li>\n<li class=\"p1\"><strong>TWTR has also failed to inspire the developer community who have been at the forefront of offering a slew of apps and add-on services in other social platforms with strong network effects.<\/strong> Where are the apps, games, and host\u00a0of other services that were supposed to have leveraged TWTR&#8217;s large and unique user base? They are all coming up on WeChat and Facebook, but TWTR? Naah! So where is the ecosystem and competitive moat, which often increases user-stickiness and thereby reduces chances of switching? There was a time TWTR was seen very responsive to user suggestions, with top management often individually responding to queries and comments, which was one of the many charms of TWTR. This has turned to be a one-sided broadcast platform, instead of a means for facilitating conversations and building engagement.<\/li>\n<li class=\"p1\"><strong>In the absence of a clear over-arching goal, and a well-defined process towards getting there, even the best R&amp;D engineers and developers will be found scrambling.<\/strong><\/li>\n<\/ul>\n<\/li>\n<li class=\"p1\"><strong>Management team:\u00a0<\/strong>\n<ul>\n<li class=\"p1\">TWTR needs a full time management team that has a clear action plan on how to fix the product (which is stuck in 2006), improve user experiences, offer compelling unique features that ensures users are hooked on, and find a way to give advertisers better ROI than competing platforms.<\/li>\n<li class=\"p1\">Instead, <strong>we see a part-time CEO who spends (more than?) half his time on another struggling company which recently IPO&#8217;d (Square)<\/strong>. Where and what are the priorities? Most CEOs fail to run one company well. Here we have Jack Dorsey claiming to run two floundering\u00a0public companies simultaneously? Let&#8217;s just say <strong>Jack Dorsey is no Elon Musk.<\/strong><\/li>\n<li class=\"p1\"><strong>CEO also perhaps suffers from cognitive dissonance.<\/strong> He recently said &#8220;We need to convey the value proposition of TWTR to the &#8216;mass market&#8217; better&#8221; &#8212; At 300+ Mn users, TWTR isn&#8217;t exactly a niche product, if he realizes what that means. His goal of &#8220;largest daily audience in the world&#8221; will forever be an unattainable goal, if he fails to engage with his team, take their candid feedback and work towards a strategy that puts users and advertisers at the core. Moreover, the social element of TWTR, which was one of the biggest hooks initially, seems to have disappeared, and management does not seem to have a clear path of action. This can be explained by daily active user numbers: 130 Mn on TWTR vs 970 Mn on Facebook i.e. on average only 15% of one&#8217;s active Facebook friend list is active on TWTR.<\/li>\n<li class=\"p1\">Shareholders who have been holding on to the stock (many bought it at <strong>~$70 a share, it&#8217;s now $25-27 a share<\/strong>) have been waiting for a turnaround, almost forever now. <strong>Praying to God is perhaps the only way out<\/strong>, since the CEO is either largely absent or wholly incapable of laying out and conveying a thoughtful strategy to turn things around.<\/li>\n<li class=\"p1\">Here is one thing the management can still potentially do &#8212; go back to the drawing board, do a <strong>good IDEO-esque brainstorming session<\/strong> and <strong>identify specific customer pain points, primary sources of disengagement and how best to give the best ROI to advertisers.<\/strong> Then launch a beta version with a renewed product experience for a limited set of &#8220;extreme users&#8221; and take feedback, then iterate with a slightly larger group of users before a full-fledged revamp is now ready to be launched. This is a cultural change we are talking about, a polar opposite of the one-man-at-the-top-knows-it-all culture that TWTR seemed to have begun with. This is a dynamic production environment which ought to have a relatively flattish hierarchy to foster innovation and creativity to truly take advantage of the network effects that a model of this kind brings in. Reward engineers for the most ingenious\u00a0ways of hooking users and advertisers, and see their creative potential be unleashed. <strong>As for developers, do a Threadless, encourage them to write newer apps that integrate well with TWTR and publicize their works, offer a few of them jobs with stock options and see how things evolve and energy levels go up<\/strong>.<\/li>\n<\/ul>\n<\/li>\n<li class=\"p1\"><strong>Capital allocation:<\/strong>\n<ul>\n<li class=\"p1\">TWTR has burnt\u00a0a ton of cash to acquire a whole host of small companies, but hasn&#8217;t figured out what to do with them. The outcomes (if any), therefore,\u00a0are questionable. Seriously, <strong>what did the $650 Mn spent on\u00a0MoPub, TapCommerce, NaMo Media and Gnip really\u00a0give them?<\/strong> The core product remains exactly the same, minus a few embellishments\u00a0which no one seems to care about (e.g., Moments launched with great fanfare two months ago that has disappeared from the public radar).<\/li>\n<li class=\"p1\">This unprofitable cash burning machine\u00a0is surviving solely on the largesse of some very hopeful investors (when all else fails, hope is the only choice\u00a0left!)\u00a0Management has failed to communicate a clear capital allocation plan &#8212; how much is it planning to invest in capex, M&amp;A\u00a0and\u00a0R&amp;D to improve the product experience, how much is it planning to spend on shareholder friendly moves (dividends, buybacks, recaps etc. &#8212; oops company doesn&#8217;t make\u00a0profits, hence dividends would be ill-advised). <strong>No tangible plan, except &#8220;hope&#8221;. Hope is not strategy!<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><strong>Bottom line<\/strong>: Aligning vision, business model and operating model are the very root of TWTR&#8217;s\u00a0problem.\u00a0If it\u00a0does not step forward, it may cease to exist!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Twitter: A broken operating model with a clueless leadership team #DoomedToFail<\/p>\n","protected":false},"author":457,"featured_media":307,"comment_status":"open","ping_status":"closed","template":"","categories":[77,76,79,78,75],"class_list":["post-305","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-disaster","category-failure","category-overvalued","category-short","category-twitter"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>#Twitter: A story of #failure - 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