Twitter is currently in a financial crisis because of years spent losing money and experiencing a diminishing growth rate in users. Despite its consistent and promising presence in stock market listings, the social media giant has failed to turn its popularity as a social media platform into consistent and effective revenue. It is common for a start-up business to accrue a lot of debt in the first years of its existence and gradually pay it off as it gains popularity. This is the logic of the stock market, and explains how it can be trading so high despite showing revenue in the red ever since its inception a decade ago. However, Twitter’s debt is listed to be over 2 billion dollars and threatens to cripple the company if drastic changes are not made.
Given this urgent need to gain some profitability, what are some of key areas for Twitter to focus on? One key area is in user and advertisement engagement, which has been a thorn in Twitter’s side for years. In the first place, there is increased competition from big brand advertisers that have risen up in popularity in the past few years. Instagram and Snapchat are two gargantuan competitors of Twitter that have been gradually taking a larger percentage of Twitter customers.
Why is Twitter losing out to Instagram and Snapchat? Well, part of the reason is because these are the new exciting businesses on the block, and consumers are always attracted to new and different platforms - especially with such visual mediums like photography and video. Twitter has to adapt to the new reality of a three-way race for competition. They no longer enjoy domination of the market, and that means changing the price of advertisements to stay competitive. This is the root of the problem that Twitter faces, however, because their ads are still the most expensive in the industry. Twitter uses an engagement metric to calculate use that charges per click or retweet, which is proving too expensive for many companies to buy into. The key question is the value of the advertisements, because if Twitter could prove that their advertisement space is more lucrative than Instagram or Snapchat then their advertisement metrics would make sense. Since they have yet to show this, they are in trouble.
The second issue in advertisement for Twitter has to do with mobile use. Over three-quarters of Twitters ad-revenue comes from mobile use, which is a notoriously difficult medium to gauge the value of in terms of actual sales. Every e-commerce site is struggling with this issue, but Twitter is feeling it all the more because they lack the investment capital to develop software to produce this kind of data on actual sales. This is the crux Twitter is caught between, and a major reason why they see plummeting ad revenue growth since the second quarter of 2014.
The future is bleak for Twitter as long as they keep charging a premium for advertisement space. Ad revenue will continue to plummet until this change is made - but will it be too little, too late?