Twitter Has a New CEO; What About a New Business Model?
Courtesy of Ben Thompson, Stratechery, originally published on Nov. 30, 2021
From CNBC:
Twitter CEO Jack Dorsey is stepping down as chief of the social media company, effective immediately. Parag Agrawal, Twitter’s chief technology officer, will take over the helm, the company said Monday. Shares of Twitter closed down 2.74% on the day.
Dorsey, 45, was serving as both the CEO of Twitter and Square, his digital payments company. Dorsey will remain a member of the board until his term expires at the 2022 meeting of stockholders, the company said. Salesforce President and COO Bret Taylor will become the chairman of the board, succeeding Patrick Pichette, a former Google executive, who will remain on the board as chair of the audit committee.
“I’ve decided to leave Twitter because I believe the company is ready to move on from its founders,” Dorsey said in a statement, though he didn’t provide any additional detail on why he decided to resign.
On one hand, congratulations to Twitter for its first non-messy CEO transition in its history; on the other hand, this one was a bit weird in its own way: CNBC broke the news at 9:23am Eastern, just in time for the markets to open and the stock to shoot up around 10% as feverish speculation broke out about who the successor was; two hours and 25 minutes later Dorsey confirmed the news and announced Agrawal as his successor, and the sell-off commenced.
The missing context in Dorsey’s announcement was Elliott Management, the activist investor that took a stake in Twitter in early 2020 and demanded that Dorsey either focus on Twitter (instead of Square, where he is still CEO) or step down; Twitter gave Elliott and Silver Lake, who was working with Elliott, two seats on the board a month later. That agreement, though, came with the condition that Twitter grow its user base, speed up revenue growth, and gain digital ad market share.
Twitter has made progress: while the company’s monthly active users have been stagnant for years — which is probably why the company stopped reporting them in 2019 — its “monetizable daily active users” have increased from 166 million in Q1 2020 to 211 million last quarter, and its trailing twelve-month revenue has increased from $3.5 billion in Q1 2020 to $4.8 billion in Q3 2021. The rub is digital ad market share: Snap, for example, grew its TTM revenue from $1.9 billion to $4.0 billion over the same period, as the pandemic proved to be a massive boon for many ad-driven platforms.
That boon was driven by the surge in e-commerce, which is powered by direct response marketing, where there is a tight link between seeing an ad and making a purchase; Twitter, though, has struggled for years to build a direct response business, leaving it dependent on brand advertising for 85% of its ad revenue. That meant the company was not only not helped by the pandemic, but hurt worse than most (and, on the flip side, was less affected by Apple’s iOS 14 changes). If in fact Dorsey’s job depended on taking digital ad market share, he didn’t stand a chance.
That perhaps explains yesterday’s weird timing; Casey Newton speculated that the board may have leaked the news to ensure that Dorsey didn’t get cold feet. It also, I suspect, explains the market’s cool reaction to the appointment of an insider: Agrawal was there for all of those previously failed attempts to build a direct response marketing business, so it’s not entirely clear what is going to be different going forward.
Twitter’s Advertising Problem
The messiness I alluded to in Twitter’s previous CEO transitions is merely markers on a general run of mismanagement from the company’s earliest days. I’ve long contended that Twitter’s core problem is that the product was too perfect right off the bat; from 2014’s Twitter’s Marketing Problem:
One of the most common Silicon Valley phrases is “Product-Market Fit.” Back when he blogged on a blog, instead of through numbered tweets, Marc Andreessen wrote:
The only thing that matters is getting to product/market fit…I believe that the life of any startup can be divided into two parts: before product/market fit (call this “BPMF”) and after product/market fit (“APMF”).
When you are BPMF, focus obsessively on getting to product/market fit.
Do whatever is required to get to product/market fit. Including changing out people, rewriting your product, moving into a different market, telling customers no when you don’t want to, telling customers yes when you don’t want to, raising that fourth round of highly dilutive venture capital — whatever is required.
When you get right down to it, you can ignore almost everything else.
I think this actually gets to the problem with Twitter: the initial concept was so good, and so perfectly fit such a large market, that they never needed to go through the process of achieving product market fit. It just happened, and they’ve been riding that match for going on eight years.
The problem, though, was that by skipping over the wrenching process of finding a market, Twitter still has no idea what their market actually is, and how they might expand it. Twitter is the company-equivalent of a lottery winner who never actually learns how to make money, and now they are starting to pay the price.
Seven years on and Twitter has finally started to implement some of the proposals from that article, including leaning heavily into recommendations and topics; in theory the machine learning understandings driving those recommendations should translate into more effective advertising as well. That hasn’t really happened, though, and I’m not sure it ever will, for reasons that go beyond the effectiveness of Twitter’s management (or lack thereof).
Picture via Pixabay
