Thursday, November 13, 2014

Is Twitter For the Birds?

I recently read Biz Stone's book, "Things a Little Bird Told Me: Confessions of a Creative Mind." As a rule, I avoid business books because of their short half-lives, and in other cases their blustery tones from self-absorbed authors.  This book is relatively short, easy to read, and Stone co-founded Twitter whose market capitalization is $26 billion today.  Stone's personal story is interesting and different from that of the traditional, elitist Silicon Valley entrepreneur.  There are some interesting observations about start-up dynamics, personalities, and product development. I enjoyed the read, and wanted to catch up on Twitter today.

Among my network, there are lots of people who like Twitter for a variety of reasons.  I signed up without a smart phone, found it a bit hard to understand, and I am a member of the inactive users metric category.  Any way you cut it, Twitters valuations are off the charts, and today's junk credit rating from Standard and Poor's isn't encouraging.

In Biz Stone's book, he points out that Twitter's early user base helped define the platform's best features, like the hashtags and retweeting.  At the same time, he notes that the company's developer platform, today called "Fabric," was badly constructed and led to so many system crashes that users went to a site ""

Twitter had created something different, and its 140 character limit, which people loved or hated, turned out to be a real asset.  Users looked beyond the system issues and really became emotionally engaged with the company itself. Twitter goes public, and today it is close to where it started and the sentiment is decidedly negative.

I invested some time listening to a couple of presentations from their recent Analyst Day webcast.

The Public Company

Looking at the board of the company, two of the three (or four) co-founders remain on the board of directors, Evan Williams and Jack Dorsey.  So, in a sense, there should be continuity with the values and commitment to customer engagement which Stone writes about in his book.  

The board of directors seems okay for now.  There are two directors with venture capital and financial experience.  

It seems clear from the capital expenditures for the past two years that the company had been underinvested for some time, which is somewhat consistent with the crashes and continuous fire fighting recounted in the book.  Stock compensation expense is off the charts, but it's also clear that Twitter has built out a real management team befitting a valuable tech company, with the kind of experience it needs to go forward and innovate around its platform.  

The CEO and CFO presentations reflect the CEO's career at Anderson Consulting and they are cogent and pretty self-explanatory.  

The most interesting presentation for me was that of Adam Bain, President of Global Revenue and Partnerships. Given his prior corporate experience, he understands first-hand how advertisers work, think and buy media; he is a board member of the Ad Council.  If monetization is one of his main charters, this is the kind of profile he needs.

Having served as an officer of an NYSE direct marketer and with my analyst bent, I fully understand the importance of metrics.  This is where the bears are feeding on the Twitter story.  But, I also know from being a NASDAQ med device CFO that analysts can fixate on metrics that are important to them but that are not required for profit growth and success.

Some of My Bullet Point Notes

  • Twitter has to become easier to use, for the novice user and for the discouraged, inactive user.
    • Biz Stone noted this from his days at the company.
    • Company acknowledged this under objectives "Strengthening the Core," and "Reducing Barriers to Use."
  • Twitter connects users to their world and to the world, which are different.  The first is served by their current chronological stream of updates, while the latter will be served by tailored or curated products like "While You Were Away" under development. 
  • Their approach to rolling out new products will be to do lots of testing before launch. This was spoken like a real, engineering driven company under some strict development protocols. This can be good and bad; I've experienced the bad, and I suspect Twitter has also.
    • The last observation is based on executive comments about Engineering and Product teams being on the same page, with everyone having visibility into the timelines and to who is accountable.  This can be a real nasty problem, and it sounds like they've taken care of it going forward.  This can be a big deal.
  • An analyst put forward his own metric on minutes spent on Facebook per user log-in versus minutes spent on Twitter; his score card was 40 minutes per user for Facebook and 3 minutes per user for Twitter.  
    • There was a good response about looking at frequency, velocity and distance between visits at Twitter.
    • The best response was "No advertiser buys on the basis of time spent on the site," which is paraphrasing Adam Bain, I think, since the speaker didn't identify himself. 'nuff said.
  • Twitter commissioned interesting neuropsychological research from a British firm
    • Twitter's emotional engagement with its sample users was 75% higher than the baseline sample population for similar brand and social network companies. This difference was the highest in the firm's experience.  Similarly, Twitter users' sense of relevance to their feeds were 51% higher than the baseline norm. Both of these translate into higher level memory retention, or "top of mind" which means more likely action.
    • All of this is very consistent with the stories in Biz Stone's book.  (Look for the story about the tweet "Did you get the pizzas?" )
  • Twitter has 672 million tweets sent out during the World Cup, the most watched sporting event in the world. I think that seems low, since the Cup usually has 900 million+ viewers: they can do better.
    • But, when Luis Suarez of Uruguay bit Italy's Giorgio Chiellini, Twitter users got so emotionally engaged, it triggered a wave of targeted advertising by some of the biggest global advertisers for brands like Adidas, Snickers, McDonald's, and Cinnamon Toast Crunch.  
    • It reinforced the immediacy of Twitter with both its users and the big advertisers who covet the ability to make multiple, direct connections to customers.
  • 70% of their users are outside of the U.S., and the platform will be designed to work even in "low connectivity" environments which means for the emerging and frontier markets. 
  • Analysts worried about their ability to get "free content" from big partners like the NFL.
    • An executive gave a very cogent explanation why a rational mega-player who looked at their ROI would not immediately turn to a strategy of making Twiiter pay for highlights.
  • Great example of a campaign for HP's "bendable laptop."
  • Strong executive endorsements from T-Mobile, Pepsi and General Electric.
    • Quite a spread of industries and customer types.
There's no hurry on this stock and although it appears priced for perfection, it may finally be on its way to becoming a company that creates shareholder value. 

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