Paul Wallbank – Brilliant Communications

Tag: twitter

  • Fiddling with the feeds

    Fiddling with the feeds

    Finally Twitter have announced the changes they will be making in an effort to attract more users.

    The changes are risky, and controversial, as messing with people’s feed risks alienating loyal users. If the changes prove unpopular it may make Twitter’s problems worse.

    Whether the changes are enough to justify Twitter’s sky high stock market valuation and can attract the numbers of users the company needs to keep the faith of investors remains to be seen.

    Zuckerberg’s Curse is biting Twitter hard and the company needs to figure out whether frantically trying to entice uninterested users and meet high, and possibly impossible, benchmarks is the best course for the service’s future.

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  • Zuckerburg’s curse

    Zuckerburg’s curse

    Twitter yesterday released its third quarter 2014 results which saw the stock drop a stunning thirteen percent in the half hour after the announcement.

    For Twitter’s management and shareholders the worrying thing about the stock drop is the result was in line with analyst’s expectations, the shares fell because its clear the service isn’t getting the traction investors believe is necessary to succeed online.

    Investors however have only themselves to blame; as a business Twitter is simply not worth it’s thirty billion dollar stock market capitalisation; it may be worth five billion, it may be worth ten but it’s desperately overpriced at its current prices.

    Zuckerberg’s curse

    Almost all social media services, and many tech startups, are suffering the curse of Mark Zuckerburg — Facebook’s success has led investors to believe that all online businesses should be valued in the ten of billions.

    Making matters worse, Facebook’s billion dollar purchases of Instagram, Oculus VR and WhatsApp have baked the expectation of huge valuations into the startup community. Now every service with a modest user base believes it’s worth something similar to WhatsApp’s $19 billion.

    The worry is that companies like Twitter carry out dumb and ill advised things to emulate Facebook and maintain its overvalued stockprice which will damage both their brands and customer base.

    For many of these social media services it might be worthwhile admitting that they aren’t Facebook and accept they are a niche product.

    It may well be those niches are more profitable than being a mass market product and the idea that online success involves huge takeup is just another relic of the Twentieth Century broadcast model.

    Unfortunately while Facebook dominates the social media market and Google continues to draw most of its revenue from online advertising, the wild over valuations and flawed business models will continue.

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  • Social Media’s difficult adolescence

    Social Media’s difficult adolescence

    Like teenagers, social media platforms are struggling to understand their position in the world.

    For the last week I’ve been dipping into the Sydney sessions of Social Media Week and what’s quite clear from the panels and keynotes is the industry and the services themselves are struggling to find how they fit into society.

    Two weeks ago LinkedIn’s senior management were in Sydney describing their ambition to be a global publishing platform, something that’s at odds with the company’s success in becoming the dominant professional social network.

    Compounding the feeling of confusion about what LinkedIn is, CEO Jeff Weiner followed up with a discussion of how the service had an ethical crisis over its entry into the Chinese market.

    A conflict of interest

    During the Social Media Week sessions panellists and the audiences agonised over their struggles to engage audiences or how social media services, particularly Facebook, were limiting their reach.

    Facebook has a particular problem; its users want to know about their friends, families and interests while not really caring about brands but its advertisers – the people who pay the bills – desperately want to embed themselves into their followers’ lives.

    So Facebook has to throttle back the amount of brand content and marketing material to prevent users being irritated by excessive advertising. Understandably advertisers get upset with this, although its hard to feel much sympathy for businesses and agencies who thought they had a free broadcasting channel in the social media platforms.

    Twitter and every other social media platform is suffering similar problems, albeit without the revenues and stock market valuation.

    An even more stark illustration of social media’s immaturity is the industry’s reaction to privacy with, at best, a shrug about concerns over the handling of users’ information – this is something that will almost certainly damage the industry in coming years.

    One of the problems for the social media industry could be that its overvalued and overhyped; while there’s no doubt a valid role for the services in modern life most of the companies won’t turn out to be as valuable as they and their investors hope.

    Startstruck platforms

    Part of that quest to increase value results in probably the saddest adolescent aspect of social media: The need to be liked by the cool kids.

    Like a lonely teenager, social media platforms are often starstruck; LinkedIn has gone through its phase of being in the thrall of high profile influencers for its publishing function, Twitter desperately courts celebrities and Google Plus in its fawning towards music stars, all of whom seemed exempt from the  real name policies that caused so much grief for the company and its users a few years back.

    For the social media industry, adolescence is a tough time with many struggles about its own identity similar to those of its users. It will be interesting to see how it matures.

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  • Building better horseshoes

    Building better horseshoes

    Twitter is considering dropping hashtags and the @ symbol reports Business Insider.

    Such a move, which would enrage the services’ loyal user base, is aimed at trying to spark the interest of inactive users after the company reported a lower than expected active user number in last quarter’s earnings report.

    Twitter’s user number have stalled with sign ups being an anemic 4% and the vast bulk of its registered accounts are inactive — if the service is to have credibility as a competitor against Facebook then it’s going to have a lot stronger growth.

    Comparing the service though to Facebook may be a mistake though, the two platforms being very different making facile comparisons between them dangerous.

    There’s also the problem that Twitter seems to be locked into an older advertising industry model; the company is obsessed about piggy backing upon television and big sporting events.

    It’s akin to nineteenth Century blacksmiths deciding the motor car was nothing more than a good way to deliver horseshoes.

    There is always the possibility that the ways of advertising on social media isn’t as lucrative as the broadcast industry. If may be that Twitter just isn’t worth what the stockmarket thinks it is.

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  • Has the social media bubble popped?

    Has the social media bubble popped?

    Last week Facebook’s stock soared after the company reported better than expected earnings on its advertising services.

    It seemed that the social media sites had finally cracked the code on how to make money out of their billions of enthusiastic users.

    This week sees a different story as both Twitter and LinkedIn disappointed investors with missed revenues targets in their quarterly earnings reports.

    Twitter’s blues

    For Twitter the market reaction was merciless – the stock price dropped 24% – as a $500 million loss in it’s first quarter of trading on the stock market is not a good look.

    In Twitter’s defense, all of that loss was due to the cost of acquisitions being booked by the company. In 2013 the social media site spent over $500 million buying out various advertising, curation and and analytics services.

    The question now for Twitter is whether they can weld together a profitable platform from the collections of businesses they’ve acquired and start delivering a return to investors.

    A miss for LinkedIn

    LinkedIn has a similar bent towards acquisitions having announced its purchase of data analytics company Bright on the same day as its disappointing results, however the company’s undershooting expectations was because of lower than expected revenues.

    ‘Disappointing’ is an interesting word in the context of LinkedIn as revenues were up 47% over the previous year.

    What possibly should have been more concerning for analysts than the headline revenue number are Linkedin’s soaring costs of doing business – both sales & marketing and product development costs were up 50% year on year – which cut profits by over two thirds.

    The most worrying part of LinkedIn’s earnings miss is the company’s price to earnings ratio. Currently the stock trades at an eye-watering P/E of 1,000 which implies investors are expecting a lot more revenue into the business.

    Over-inflated expectations

    It’s hard to argue that social media stocks aren’t in a bubble with those multiples. Even Facebook trades a hefty one hundred times earnings despite its improved revenues.

    Perhaps the simple fact is we’re expecting too much from social media services; they are good businesses, but maybe they’ll never be the fantastic profit machines that Apple, Google or Microsoft have been.

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