Twitter Strategic Assessment - Studied the business model, assessed the company's financial health analyzing EBITDA and other metrics, did a macroeconomic analysis using techniques like SWOT and PESTLE analysis, did a 2-year forecast of the company and made strategic recommendations

1. FSM Task 3 Report
November 24, 2017
External Analysis & Business Strategy Assessment of Twitter
Riah Sathe, Allen Chen, Lan Liu, Weizhi Zhang
Executive Summary
Twitter Inc. established itself as ‘pulse of the planet’ and pioneered the use of hashtags on
social media[29]. Despite starting out as an innovative company with a powerful platform in
2006, Twitter presently has a financially weak position and needs to strategically align itself in
order to survive in the Internet industry.
Internal factors such as instability due to high executive turnover as well as external
macroeconomic factors like fake news are continuing to make matters worse for the company.
Twitter Inc has several direct competitors such as Facebook, which are dominating the social
media industry, and indirect competitors which include news media companies.
Despite internal weaknesses, Twitter has a unique competitive advantage due to its real-time
data. Although Twitter and Facebook have similar revenue models and target nearly the same
market segments, they are fundamentally different in one significant way. Twitter operates on an
interest-based graph whereas Facebook operates on a social-based graph. This provides
Twitter Inc to differentiate itself from its competitors, if it realigns its’ strategy and adopts some
strategies of Chinese counterpart Weibo.
By leveraging its’ strengths and unique value proposition, Twitter Inc can improve its’ market
position in the social networking industry and establish itself as a leader in the news media
industry.
Market Analysis
Twitter Inc. entered the Internet industry with a powerful platform in 2006, a social networking
service that was created “To give everyone the power to create and share ideas and information
instantly, without barriers.”[1] Twitter has evolved from an interactive social network to a news
outlet where users get access to the latest updates due to the real-time nature of Twitter’s
messages known as ‘Tweets’[2].
Customers
Twitter has four primary market segments: social network users, advertisers, data partners and
developers:
• Social network users : Users share and receive real-time relevant content.
• Advertisers : Twitter provides advertisers “viral global reach, unique ad formats and real-time
connection with audience”. In 2017, Twitter started a paid subscription service for
advertisers[3].
• Data partners : 15% of Twitter’s revenue is data licensing.Twitter provides data partners the
ability to access, search and analyze data. Twitter also generates insights about customers
that help them monetize their own businesses. [4]
• Developers: Twitter Inc provides APIs to developers which contain access to a limited number
of core Twitter features.[4]
Competitors
Twitter ranks third amongst social networking websites in terms of popularity.[3] The company’s
most significant direct competitor is Facebook Inc. Other direct competitors include Snap and
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2. Alphabet. A Chinese counterpart to Twitter is Weibo. Although both companies operate in
different markets, they are competitors in terms of their value proposition as social networks that
follow interest-based social graphs and have an advertising-based revenue model.
Indirect competitors of Twitter include news media companies such as CNN, New York Times,
Fox News and the Wall Street Journal.[5]
Internal analysis - Strengths and Weaknesses
Twitter’s key strength is that it has a large global user base of over 328 million including a US
user base of 68 million users[6]. In the real-time sharing field, Twitter has a first-player
advantage and has a powerful brand image as the company that pioneered the use of hashtags.
[7] Twitter has a unique value proposition due to the real-time nature of Tweets. As a result, it
has successfully emerged as a leading news-platform. 79% of Twitter users claim that it is
easier to keep up with news now than it was 5 years ago & 71% use Twitter multiple times a
day[8].
Twitter Inc’s largest weakness is internal instability. The turnover rate of senior executive leaders
reached 40% which led to a plummet in Twitter’s stock price[9]
Twitter has been facing a large problem in its product in the form of an ineffective user
verification mechanism due to which over 23 million accounts on Twitter are bots.[10]
Twitter Inc does not have the ability to obtain comprehensive demographic data about its users
in the way its’ competitor, Facebook can.[11] This puts the company at a disadvantage since
part of its’ value proposition lies in data selling and targeted advertising.
External analysis - PESTLE
Several factors on a macroeconomic scale impact Twitter Inc. Key factors in various areas are
as follows:
1. Political
1.1. Political leaders are leading to an increase in user engagement on Twitter[12]: Indian
Prime Minister, Narendra Modi has 30 million followers on Twitter. He is the third-most
followed world leader[13]. In the 2016 US presidential elections, Donald Trump used
Twitter as his social media strategy which led to increased user engagement[14].
1.2.Due to the censorship of Twitter in countries like China, Iran and North Korea, Twitter
loses out on massive markets to other competitors like Sina Weibo [15].
2. Economic
2.1.In 2015, digital video ad revenue went up by 55% from 2014 in the US. Streaming video
is expected to account for 82% of all web traffic by 2020, which will lead to a massive
shift in advertising[16]. Since Twitter operates on an advertising-based revenue model,
this factor plays a major influence on the company.
3. Social
3.1.Japan has the highest Twitter penetration rate in the world. “The anonymous nature of
Twitter means that it is less invasive of the privacy that the Japanese culture values
highly (Farrall, 2012). In addition, the Japanese tend to use Twitter for spreading
information, especially during times of crisis (Thomson et al., 2012), and Japan’s
animation fans (otaku) enjoy sharing their favorite series, characters, or even their real-
time media consumption experiences by using their parody accounts (Nakahara &
Hamuro, 2013; Nishimura, 2012).”[17] The increasing value of Twitter in Japan has been
very significant for Twitter, with overseas revenue accounts for 35% of Twitter’s revenue
stream[18].
3.2.Twitter also serves as a platform for social change. Movements such as Emma Watson’s
Women’s and girls’ rights campaign and the ‘#mealforameal’ campaign for world hunger
have been instrumental in increasing user engagement due to their popularity[19].
4. Technological
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3. 4.1.A large number of users are shifting from the desktop to the mobile with the compound
annual growth rate expected to reach 53% by 2020. This has positively affected Twitter
Inc which has 82% mobile users.[20]
5. Legal
5.1.The censorship of Twitter in some countries affects Twitter[15]. Other legal factors that
impacts Twitter are defamation and free speech issues. They have led to changes in the
company policies, the most recent of which has been introduction of the Twitter
verification program.[21]
6. Environmental
6.1.Various environmental issues and movements affect Twitter when they trend on Twitter
with the use of hashtags. For example, President Trump’s tweets show his stance on
climate change.[22]. This leads to changes in user engagement and impacts the brand
image of Twitter as a platform of social and environmental change.[23]
External analysis - Opportunities and Threats
Macroeconomic factors that have put Twitter Inc in the limelight serve as both opportunities as
well as threats. Factors that have led to an increase in user engagement such as tweets by
political leaders like Trump and movements like the ‘#mealforameal’ campaign can affect
Twitter’s brand image either positively or negatively. This influences the number of daily active
users Twitter has. [25]
A massive threat for Twitter to combat is fake news. Through fake news, malicious users spread
misinformation. This is a threat to the brand image of Twitter as the company has been receiving
criticism for fake news. [26]
Twitter is the highest-used social media platform for diplomats and government officials. 92% of
the world leaders of UN member states connect on Twitter. This is an opportunity for Twitter to
monetize due to increasing user engagement.[27]
Mobile data will achieve compound annual growth at a rate of 53% by 2020, which is a massive
opportunity for Twitter Inc since 82% of its’ active users access it via mobile. [21]
Business Strategic Assessment
Revenue Model
Twitter Inc’s revenue model is primarily advertising-based. Almost 85% of Twitter’s revenue
comes from advertising sales. More than 65% of Twitter’s advertising revenue comes from
mobile devices. [3]
Data Licensing is another revenue source for the company. Due to the volume of data available,
Twitter has the ability to generate insights about users that businesses can use for
monetization[3]
In 2017, Twitter started a paid subscription service called Twitter promote to help advertisers
reach a larger audience. With a monthly subscription fee of 99$, Twitter can help businesses
manage advertising with an automated solution [28].
Competitive Advantage
Twitter’s main competitive advantage lies in its real-time data distribution. Twitter is regarded as
the ‘pulse of the planet’.[29] Due to this, Twitter has gained more popularity than other leading
news agencies as an online news platform.
Although Twitter and Facebook are direct competitors due to their advertising-based revenue
model, they have very different audiences. “Facebook is organized across “the social graph,”
which means most people follow people they’ve met. In contrast, Twitter is organized across
“the interest graph,” which means people follow accounts that provide valuable information”[30]
Additionally, Twitter’s feed is time-ordered so the latest content is prioritized higher. Due to these
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4. reasons, Twitter has a competitive advantage over Facebook, Snapchat, Google+, WhatsApp
and Instagram making it the best social network for breaking news over all its competitors[31].
Trends that indicate that Twitter needs to change
In the 2016 fiscal year, Twitter Inc had a net margin of -18.5% despite a net income of -457
million, Based on the 2016 fiscal year, Twitter ranked lower than 83% of the 369 Companies in
the Global industry[33]. Additionally, the company’s average revenue per share Growth Rate
has been 0.90% per year for the past three years[33]. The financial position of Twitter Inc has
been declining over the past 12 months and Twitter is presently enduring a worrisome
stagnation period. These trends show that Twitter is financially weak.
In terms of its revenue model, Twitter cannot be as successful as its’ direct competitors such as
Facebook, Google, snapchat, or Weibo[34]. This is because Twitter Inc lacks solid demographic
data although all these companies operate on advertising-based revenue models.
Additionally, Twitter has had a high executive turnover in the past two years, with a subsequent
fall in stock price[9].
All of these trends indicate that Twitter Inc needs to realign its’ strategy in order to resolve these
problems and retain its market position.
Strategic Recommendations
Twitter Inc can improve its financial position and improve by realigning its strategy. Some steps
the company can take are as follows:
1. Expansion in the news media industry
• After analyzing Twitter’s competitive advantages, it is not surprising that Twitter is the most-
accessed social network for breaking news. Twitter has a unique value proposition due to
the real-time nature of tweets.
• Twitter Inc. can categorize users that access Twitter for reading and sharing news as a
separate market segment and shift their strategy to increase user engagement of these
users.
2. Subscription-based model for journalists
• Since the Twitter social network graph is interest-based, several thought leaders are
followed based on the content they share. Since Twitter is used for following the news
already, Twitter can create subscription-based models targeted at journalists.
• This is beneficial to both Twitter as well as journalists who can gain credibility and reach a
larger audience.
3. Additional benefits for companies that use Twitter for social media marketing
• Over 65% of Businesses prioritize Twitter as a social media marketing tool[32]. Since most
of Twitter’s revenue is advertising-based, advertisers are a very important market segment
for the company
• Twitter started a subscription based service for advertisers in 2017, but it can expand this
service further by including add-on services. For example, Twitter can provide a service to
optimize the bio description for businesses. Companies that rely heavily on Twitter as a
marketing tool may prefer to pay higher to get the best possible twitter profile.
4. Overseas Expansion based on success in Japanese market
• In the Japanese market, Twitter is more popular than other competitors like Facebook. A
study on how Japanese culture influences the Twitter penetration in Japan provides useful
insights into what can make Twitter more attractive than Facebook as a social network[17].
• Twitter can focus on expansion overseas. At present, the overseas market accounts for 35%
revenue, but this figure can increase if the company tries to invest in overseas expansion
• Twitter can focus on Japan as a market segment and improve user engagement in a market
where they are already successful.
5. Twitter can follow monetization strategies similar to those of Weibo
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5. • Twitter operates on a social interest graph just like its’ competitor Weibo. Weibo has been
successful in improving its monetization capabilities[35] and Twitter can invest in refining its
social interest graph, to achieve improved monetization capabilities too.
• Twitter has recently expanded its capabilities to enhance video-streaming through its
subsidiary Periscope. However, there is still scope to improve through the use of virtual gifts.
This strategy “helped Weibo pull in net income of US$25.9 million in Q2, up from US$4.2
million the year prior.”[36]
• Twitter can add gamification features similar to Weibo, where users gain collectibles after
doing tasks. This can be very valuable to advertisers who can use this feature to improve the
number of retweets and subsequently fare higher according to Twitter’s algorithm on
trending tweets. This is an opportunity for Twitter to improve user engagement.
Conclusion
Twitter Inc has a unique product and an advantage in news and benefits for businesses which
can advertise on the platform due to its real time nature. Twitter Inc should shift its focus from its
traditional advertising model and expand its revenue model to be more subscription-based.
Additionally, Twitter can expand in areas where it retains its unique competitive advantage such
as the news media industry.
Macroeconomic factors continue to put Twitter in the limelight. As a result, Twitter has a powerful
brand image and continues to be attractive to investors.
Certain internal factors like high executive turnover may continue to remain a challenge so
Twitter needs to find leadership that will give it the right strategic direction despite the internal
instability. With the right direction, Twitter Inc can not only improve, but also dominate in certain
markets.
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