Twitter has been buzzing over the last couple of days with news of layoffs at, ironically, Twitter.
Bloomberg is reporting that the company may cut up to 8% of its staff, or around 300 people. The blame is layed at the door of slow revenue growth, particularly when compared with rivals Facebook and Snapchat. Quarterly revenue in Q2 '16 was $ 602m, down on the $ 710m for Q4'15, but still representing 20% year-on-year growth. Investors can be a demanding lot.
There is irony too in the rumours that it is the sales team that is first in line for redundancy. Why, when the single biggest issue is the lack of revenue and user growth, Twitter would target the only part of the business that has the potential to remedy the situation is a mystery.
Either way, the company is having to slim down. There were reports earlier in the year that Salesforce and Disney were both considering bids, but the enthusiasm of both looks to have waned. This leaves the company having to find ways to put its house in order itself.
So, what can other tech businesses take from this?
Twitter has, since inception, based its value on the number of users. Investors have been happy to plough vast amounts of capital into supporting operating losses while global domination was pursued. Once the number of new users began to plateau, attention swiftly turned to revenue and questions started to be asked about the viability of the business model. While we should applaud the investors for giving Twitter the required runway, they can only make a return if the company is profitable or if another party sees a way to monetise the vast user base and is prepared to pay a premium for it. With the latter option seeming to fade, it has to be about the revenue - it should come as no surprise that the music is showing signs of slowing, if not stopping altogether.
The takeaway has to be in the dangers of relying on somebody else to work out your revenue model. Businesses should plan for independent profit and monitor progress towards it.
Another observation lies in the product. Aside from a few algorithm changes in the background and the launch of the Moments news feed, Twitter hasn't made any significant changes to the product for a long time. Essentially, it has stood still, while other platforms like Instagram and SnapChat have launched with new features that appeal more to the new audience. When it has sought to replicate some of the features of other platforms, for example the introduction of picture posts a few years ago, it has been accused of copying and being behind the curve.
Any business has to continually sense the market and maintain differentiation. There is limited value in a me-too business unless it is measurably better in its delivery.
Like many tech businesses, Twitter seems more concerned with maintaining the development team, than getting out there and commercialising the operation. By taking the axe to the sales team, it shows the sort of knee-jerk reaction to sales and marketing that is seen in many businesses when costs need to be cut. By all means change the sales team if it is not performing, but don't cut off yor lifeline.
Commercialisation might be a lot less fun than development, but ultimately, that's business.
Twitter is a long way from being a lost cause and remains one of the greatest success stories of the Millenium. To go from a standing start in 2006 to 310 million monthly active users and 6,000 tweets being sent every second is remarkable and has defined a generation. The challenges will be solved, but the lessons available to businesses with more humble ambitions are worth taking.
by Neil Edwards, 4 minute read
by Neal Dyer, 3 minute read