Twitter Inc (TWTR)

[mick]

Is the Twitter Business Model Broken? (TWTR)
By Evan Tarver | Updated August 17, 2015 — 11:14 AM EDT

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Twitter Inc. (NYSE: TWTR) is an online social networking service that allows users to send and receive short, 140-character messages known as tweets. Twitter has become known as a microblogging service and has been used as a site to connect with people and to receive timely information.

With Twitter's volatile stock price since its initial public offering (IPO), and with the
firing of its CEO Dick Costolo in 2015,
investors and stakeholders are wondering if Twitter's business model is broken.

To determine whether its business model is indeed broken,
the desired results of the model first need to be defined.
It's then possible to analyze whether Twitter's business
model is effective in achieving those results or not.

User Growth
Similar to any social networking site, Twitter's user base and the engagement of those users is the lifeblood of the company.
When it comes to its business model, the overall goal for success
is to increase the amount of users on Twitter and continue to
keep those users engaged once they have signed up for the platform.

If user growth is slowing, stalled or declining,
it could be an indication that Twitter's business model is broken.

As of the first quarter of 2015, Twitter is experiencing slowing
user growth and has been unable to increase the number of active
users past the roughly 300 million it currently has. Twitter is
having problems acquiring new mobile users.
A lack of mobile user growth is a bleak sign for Twitter.

Twitter's users are so important to the company because they are the content creators. Without active and engaged users, Twitter has little to no value.

Revenue Growth and Revenue Streams
Since Twitter views its active users as its content producers,
it can't create a revenue model around showing these users highly relevant ads as Facebook (FB) has been successful in doing.
As far as Twitter is concerned, showing ads to its key content
producers will reduce the amount of content these users want to
produce, and therefore reduce the value of Twitter itself.



Read more: Is the Twitter Business Model Broken? (TWTR) | Investopedia http://www.investopedia.com/articles/active-trading/081215/twitter-business-model-broken.asp#ixzz49g1ftEWX
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Twitter reported revenue of $436 million in the first quarter of 2015, which is a lower figure than analyst estimates of $440 million to $450 million.

Twitter's low revenue is due in large part to the ineffectiveness of its direct response ads, which allow users to download mobile applications directly from their mobile phones.

While its direct response ads have underperformed, which supports its thinking that its content producers will not appreciate ads, there are no new publicly stated strategies to strengthen Twitter's ad product and increase its revenue. This also supports the idea that Twitter's business model is broken.

Twitter's Recent Acquisitions and Partnerships
Although not all of Twitter's business plan and business strategy is public, it seems from the outside that Twitter is trying to strengthen the company through acquisitions rather than internal user growth or internal revenue growth.

Twitter has partnered with Google's ad serving platform DoubleClick, which should help strengthen Twitter's ad serving capabilities. However, the company will need to share its ad revenue with Google, which could further decrease Twitter's revenue.

Twitter has recently acquired TellApart, a mobile technology company that provides companies with unique cross-device retargeting capabilities. Twitter can use this to advertise to non-users through retargeting, which sends advertisements to potential users who have visited the Twitter platform but have not yet made an active profile.

This is a huge signal that Twitter will continue to have problems monetizing its current active users. In addition, this means that Twitter is moving toward a business model that seeks to increase revenue through its non-users.

With a focus on non-users, Twitter runs the risk of cheapening its value and brand. It increasingly appears that Twitter's business model is broken, and it won't be fixed any time soon.



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