Over the past few years, the competition in the social networking and digital advertising space has escalated and the emergence of new players does not seem to stop. For every company in this space, data has become the playground for scoring advertising dollars. Twitter (TWTR, Financial) is also an active participant in this race and as the battle worsens, the company is attempting hard to revive the exponential growth in its user base. Twitter Inc.’s monthly active user (MAU) growth was quite unimpressive last year and only managed to increase from 271 million to 284 million. In a bid to revive growth in its user base, Twitter is adopting measures like simplifying the login procedure. Let us analyse if these moves can make Twitter, a valuable pick in the industry.
Efforts in vain?
Even though Twitter has not been able to grow its user base at a pace similar to Facebook (FB, Financial), its revenue growth over the past quarters has been solid. As a matter of fact, the third-quarter revenue for Twitter came in at $361 million, up 114 percent over the previous year. In spite of a strong topline growth, Twitter’s loss widened to $175.5 million, or 29 cents a share, from $64.6 million, or 48 cents, a year earlier, compared with analysts’ average projection for a loss of 29 cents. To give you some data on Twitter’s user base, active users on the social network rose 23 percent to 284 million, as compared with 24 percent growth in the prior period. Twitter CEO Dick Costolo replaced executives and introduced new products this year as he sought to reassure investors that Twitter, which went public in November, has room to grow.
However, the aggressive efforts put in by Costolo have only yielded comparisons with the biggest social network, Facebook. As a matter of fact, the comparisons have not been limited to Facebook but have extended to Instagram and other social media apps. Owing to these frequent comparisons, Twitter’s user base has appeared to be miniscule. For instance, Instagram has grown its user base to 300 million-plus, a growth of about 50 percent Y-o-Y and comfortably surpassed Twitter’s number. As I mentioned at the onset, Twitter is employing several measures and has come out with innovations that should spur the user growth. However, it will take time for these initiatives to yield expected surge in user base and there is also a possibility that these changes could prove to be futile attempts.
The silver lining
Amid loud and discerning cries over Twitter’s user base, there is a silver lining to be had in its product portfolio. Twitter is developing a new video ad unit to support its soon-to-launch native video tool, according to marketing executives briefed on the initiative.
While details are still being hammered out, Twitter is apparently leaning toward a “pay-for-play” cost structure. It would include a six-second preview video that automatically plays in user feed and the option to click to view the entire video. This is an idea that has already been adopted by the likes of Facebook and Google and truth be told, advertisers love Facebook's autoplaying video ads as well as YouTube's pay-for-plays ones. For long, Twitter lacked video-based ads, which enjoy favorable demand from advertisers. Basically, video ads give brands a better chance of attracting people's attention and allows them to implement better creativity. The ad avenue becomes all the more attractive by charging advertisers only if people click to watch the video could qualify those views, ensuring that advertisers are only paying for the people who really wanted to watch their ads.
Besides launching the video ad unit, Twitter is also investing in improving the overall user experience in order to attract more users to the website. As per data, Twitter spent around $905 million on research in 2014 and $119 million in 2012 to introduce new tools and features, which would help the company become more user-friendly and provide a better user experience. Twitter’s software development kit is also a positive step by Twitter. With the help of the kit, a developer would now be able to easily use the data, gathered by Twitter, for manufacturing apps.
Takeaway
It is no stranger that Twitter’s user base hasn’t grown as expected and perhaps, the growth will keep dull in the coming quarters as well. However, the company is putting aggressive efforts in order to attract more users and expand its user base. Quite honestly, there is not much of a difference in the ad avenues provided by various social networks, but the data base is the key to attract advertisers. For now, Twitter’s user growth is dwarfed by other social networks and hence, it is wise to watch Twitter’s initiatives take shape, from the side-lines. A quarter or two down the line will be sufficient to gauge the impact of these initiatives on Twitter’s growth story, and that would be a better day to invest.
