Pando

Help wanted: Twitter CEO. Requirements: Denial, fatalism.

By Kevin Kelleher , written on June 11, 2015

From The News Desk

Marlon Brando once complained that working on the set of a troubled film was like trying to do a crossword puzzle while falling down an elevator shaft. That description came to mind today because it fits perfectly a job in Silicon Valley that recently opened up: CEO of Twitter.

Dick Costolo was pulled from the elevator shaft that is Twitter before he could solve the puzzle. For now, Jack Dorsey is taking his place, which should be fun to watch because Dorsey is already in another elevator shaft trying to solve a Rubik's cube before time runs out and gravity has its way.

For longtime users and observers of Twitter, the company has always been something of a head-scratcher. How could a stream of 140-character messages become a place where news breaks? How could a company with such volatile turnover in its top ranks produce a service so compulsive to so many? How can they bring in more users without breaking the thing? And, most naggingly, why can't it be successful like its older sibling Facebook?

In a way, Facebook is the worst thing that has ever happened to Twitter. In a world where Facebook went the way of, say, Friendster, Twitter would be king. But one of the things that has become clear in 2015 is that, in social networking there are two kinds of companies. There are the ones named Facebook. And there is everyone else. It wasn't just Twitter, but LinkedIn, Yelp and others that saw their stocks tumble because of disappointing revenue last quarter.

There are, I believe, two basic reasons for this. One is that Facebook has always had a single CEO. The company's success also depends on others, notably Sheryl Sandberg, but only one person was tasked with creating and holding onto a vision, and everyone else lined up behind it. Twitter has always been more of a Game of Thrones-like free for all, a distraction from focused growth that Costolo was meant to solve.

Twitter investors had a choice with Costolo: Be patient and let him pursue the kind of focused vision Twitter has always needed, or replace him even if it means turning over the apple cart one more time. In the past, I've argued that keeping Costolo was the safest option (so much for that “unsinkable” idea), but that if his plan doesn't work then selling to a bigger company would make an acceptable Plan B.

Now Twitter employees are going to have to shift gears to accommodate another vision and, if Dorsey's appointment is indeed an interim one, yet another vision a few months down the line. And whoever becomes the long-term CEO (I use that phrase lightly) of Twitter will basically have the same three options that Costolo had:

-Continue on the strategy Costolo and Anthony Noto outlined at last fall's Analyst Day, tweaking – sorry, reiterating – the game plan as needed;

-Make drastic moves that will dumb down Twitter's best features and flood feeds with ads, but that will draw in more users and bump up revenue in the short term; or

- Sell the company.

To harp on an old and unpleasant theme, if Twitter were more like Facebook it would go for the first option. Facebook has always played the long game. It bought Instagram in April 2012, for example, and is only now starting to slide ads into the stream. There have been a couple of times when investors were seriously questioning Mark Zuckerberg's plans to monetize Facebook's network, but Zuckerberg had a vision, and so he was granted a year or so to deliver. Costolo has been afforded no such luxury.

(With some irony, Costolo departed Twitter on the day that Zuckerberg faced down shareholders who wanted a “one share, one vote” policy that would weaken Zuckerberg's voting rights. The irony, of course, is that most institutional investors can't be bothered to vote in proxy seasons, leaving the votes to be hijacked by activist investors.)

It's almost as if Costolo is being punished because he failed to treat Twitter's users as a natural resource to be exploited rather than preserved. And this gets at the second reason why Facebook has thrived while Twitter and others are struggling. And it also get to the challenge that Twitter's next CEO will face.

If I may speak for a moment about my own experience, there is a world of difference between using Twitter and using Facebook. On Facebook, half of my contacts have simply stopped posting or they've canceled their accounts while the rest have simply resigned themselves to the constraints of Facebook's interface and algorithms. Few if any of them are happy with the status quo. With Twitter, people gripe about certain things but their real outrage emerges only when there's talk about changing what's already working.

There is another, particularly devilish part of the Twitter puzzle: It was built around the behavior of its power users, yet because a billion accounts have been created then abandoned – as per Chris Sacca's viral data bite – Twitter needs to be overhauled to be more inclusive. (Side note: How many of those abandoned accounts were spam accounts? None, really?)

And how do you do that without alienating the core users who power the user-generated content? Sacca's suggestions are sensible enough. Basically, they are aimed at making Twitter the Instagram of text, with a healthy dash of Periscope tossed in. But reading them I kept running up against a couple of concerns.

For example: Twitter isn't simply a set of features, it's a system of features. In a system, you can't simply replace a feature without gumming up another feature, or a slew of them. And some of those affected features are so deeply connected with the experience of power users that they will let you know it loudly. One of the less-heralded accomplishments of Costolo is that when he changed Twitter, he changed understanding its systematic nature.

Facebook rarely took such a nuanced approach. Whenever unpopular changes were made, the unspoken response was, where else are you going to go to connect with your friends? Twitter's activist investors want Twitter to reach the scale of Facebook, and they want it to do so by using Facebook's manipulative tactics. What they don't understand is that you need the scale before you can apply the manipulation.

As valid as the debate over Twitter's user interface is, it distracts from the more important question: why isn't Twitter better at targeted ads? Twitter has long been a platform where companies can build brands and moved recently to offer the kinds of targeted ads that Facebook employs to drive up its cost per click rates. Last quarter, Facebook's average price per ad increased 285 percent even as total ad impressions declined 62 percent.

Yet Costolo had to admit in the latest earnings call that Twitter's targeted ad campaign needed more time in the oven. A deal with Google was aimed at improving this, but even so it's not a fair fight against Facebook. Facebook is killing in targeted ads because it's done everything and everything it could do for the past several years to hoover up data about what its users are doing online.

This imbalance is why the ultimate end-game for Twitter is to be bought out by a larger company, one that has a rich enough database on people who stray into its ecosystem. Facebook, maybe, only you'd have to wonder when a company finally has a monopoly on user data. There is a gaping void emerging between the data rich and the data poor. If you're a user you're on the impoverished side of the tracks. On the other side sits Facebook, the gleaming mansion on the hill.

I think Google is a likelier buyer. The company is quietly sunsetting its Google Plus social network (remember that?) yet has a treasure trove of data on anyone using Gmail and YouTube, not to mention search. That data could be brought to bring new precision to Twitter targeted ads. Or it could be Microsoft, admittedly a dark horse, but in the race simply because it has the cash and the will to buy.

I'm not saying a Twitter buyout would be a positive for Twitter users, only that it's the best option if Twitter ever expects to begin to compete with Facebook on ad rates. Which is what we're talking about once activist investors get their claws in a company. Reading the news of Costolo's departure, I had to wonder whether he saw a sale of the company as an inevitability and just decided to get out before it could be hung around his neck.

So whoever gets assigned the task to solve the Twitter crossword puzzle, know that there are plenty of solutions that look simple enough, but that are difficult to make work with all the other answers. I may be able to help out with one clue: See 2-down there? A four-letter word for exiting a stock position? I'm pretty sure the answer is “SELL.”