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The Real Reason Twitter/X is Struggling To Grow

The seeds of Twitter's stagnation were planted the day Dick Costolo decided that Twitter was in the advertising business.

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Twitter (now X) managed to create a legitimately transformative product.

It did this despite the odds against any company that sets out to change the world, and pulled through early technical challenges that would have likely destroyed less determined teams.

For better or worse, X’s one-to-many broadcasting mechanic and the free-form chaos of unrestricted communication offered by its “@” symbol and open direct messages radically transformed the way politicians communicate with their constituencies.

It’s given celebrities new and strange ways to connect with their fans and haters alike. It has shaped and altered the way people hear about and share breaking news. And through all of this, Twitter has changed how hundreds of millions of human beings perceive what’s happening in their world.

And yet despite X’s transformative impact, its products and the business X built around them are struggling. Compared to the growth seen by its direct competitors (Facebook, Instagram, and TikTok), Twitter’s revenue is anemic and trending down.

Key executives kept churning while the product stagnated, leading to a situation where Elon Musk stepped in to acquire the company.

While it’s too soon to tell if Musk’s ownership will alter X’s trajectory and revitalize both the product and its business models, there are some long-standing challenges embedded in X’s history that make its strategic position a giant question mark

Commonly cited reasons for Twitter’s long term stagnation

Historically, they’ve range from a lack of clear vision coming from the top to the rampant, flagrant, unchecked abuse unleashed on prominent minorities, women, and political activists by various bands of anonymous trolls, open misogynists, and proud Neo-Nazis.

The most insightful analysis I’ve seen on the subject came in a single paragraph in a big essay about consumer internet products by Arjun Sethi, an entrepreneur-turned-venture-capitalist who is now a partner at Social + Capital.

Sethi argues that every consumer internet product must go through three phases to become a lasting success: Want, need, and utility. Or, as Sethi puts it: “first you want it, then you need it, then everyone can’t live without it.”

In Sethi’s view, Twitter was on its way to becoming an essential utility and then cut itself off at the knees when it smothered its developer ecosystem by imposing severe restrictions on third party access to its APIs:

Unlike Facebook, Twitter didn’t quite make it to the utility phase of their product. Progress through the need phase was going great. The developer platform bloomed early. Developers started to use the Twitter API, building new clients and social media analytics tools. The steady decline became a reality in December 2012 after Twitter started to cut off API access to third party apps in August.

Facebook’s strategy of becoming an integral part of other company’s products was key to them becoming a utility. Twitter was on that same path prior to their limiting developer API access. The likely cause of the product not becoming a utility is the negative sentiment caused by these limits and historical lack of urgency in evolving the product for consumers.

Just for a quick refresher on the context here: In Twitter’s early days, its APIs offered third party developers nearly unmitigated access to the product’s core features.

A large number of developers used that access to build and monetize their own Twitter apps, search engines, and aggregators. Some of these products ended up becoming more compelling than Twitter’s own.

But then, in August of 2012, Twitter changed the rules.

It placed a hard cap on the total number of users any third party Twitter client could have. It also added strict requirements to the functionality these apps included. And as Twitter added new features to its own web and mobile apps over the next few years, it generally did not include access to them in its APIs.

In Sethi’s view, Twitter’s decision to stifle its developer ecosystem was likely its fatal mistake, and its  eventual stagnation was sealed right there.

While Sethi’s excellent essay gets closer to the foundation of Twitter’s problems than any other I’ve seen, he and all the rest of the commentators are mistaking the many manifestations of Twitter’s struggles for their root cause.

These are symptoms. The root cause:

The roots of Twitter/X’s decline were established in the Summer of 2010–on the day the company’s board pushed Evan Williams out as CEO and replaced him with Dick Costolo.

While the details of the events that led to that moment are fascinating and involve enough infighting, backstabbing, and subterfuge to make a Byzantine emperor proud, they aren’t relevant to this essay.

The abridged version: between February and July of 2009, Twitter’s then-CEO Evan Williams was contemplating a massive future for Twitter, which involved growing to a billion users and becoming “the pulse of the planet.”

But just over a year later, the board pushed Williams out and replaced him with Costolo. The new CEO’s agenda was pragmatic yet far less visionary than his predecessor’s: put an end Twitter’s recurring downtime issues and start monetizing the product, stat.

Costolo had joined Twitter from Google a few years after Google acquired the media and advertising technology company he’d co-founded. It’s not surprising that when he looked at Twitter in 2010, he saw a media and advertising business.

What happens when a company chooses a sub-optimal narrative

Perhaps more than any other single factor (including the tumultuous transition of ownership to Elon Musk) the narrative that Twitter was a media company in the advertising business is responsible for all of the struggles with revenue growth and profitability X has historically experienced and continues to experience today.

Because once the narrative says that you’re in the media and advertising business, your entire strategy–across product development, hiring, marketing, and sales–revolves around harvesting your users’ attention, maximizing their engagement, and selling pieces of that attention and engagement to advertisers.

Once harvesting attention, maximizing engagement, and selling both to advertisers become your objectives, you have tremendous incentives to consolidate your users on your own properties.

It was THESE incentives above all that led Twitter to clamp down on third-party access to its APIs: when your main source of revenue comes from monetizing attention on your own properties, any successful third party client becomes an instant threat.

Of course, while consolidating your users on your own website and apps seems necessary if you’re creating a walled garden ad business, it defeats the point if they’re not coming back again and again. So you also must keep them engaged…very, very engaged.

For many business models built around a direct correlation between engagement and revenue, “keeping your customers engaged” often means finding ways to exploit the stuxnet-like virus in human consciousness to make your products more addicting.

In other cases, it simply means not doing anything that alienates your most engaged users.

And while there are lots of complicated considerations concerning free speech behind Twitter’s near-complete failure to curtail the abuse on its platform, it’s also true that some of the angriest, most bombastic people create a lot of engagement.

In the online ad game, any media and advertising business that wants venture-worthy returns must successfully sell the attention of its engaged users to advertisers at massive scale.

But there’s the rub, and it’s a huge one.

X’s inevitably problematic position in the ad game

While it’s true that the people who buy advertising will pay for the attention of engaged users, that attention by itself is NOT enough to keep those advertisers coming back for more.

On network and cable TV? Maybe a bit.

But on the internet, where these things seem easier to measure, the people who buy advertising also want reliable, measurable returns on that investment. And while the biggest brands don’t necessarily demand that those returns come back immediately in cash, they do demand returns in the other metrics they care about: reach, awareness, and brand lift.

They also REALLY don’t want their ads running next to content that damages the brand image they’ve invested so much in cultivating.

In satiating advertisers’ unending thirst for demonstrable return on investment WITHOUT placing their ads next to high-risk content, Twitter would always be at a fundamental disadvantage to Facebook, Google, LinkedIn, and Amazon.

Because even if Twitter managed to solve its user growth problems and find its way to a billion users, Facebook would still have a massive edge in targeting ads, because Facebook’s product is inherently more conducive to gathering the kind of data that makes precision ad targeting possible at scale.

Among the “walled gardens” in online advertising, a lot of the rest of the game belongs Google, Amazon, LinkedIn, and TikTok…because when it comes to reaching people who are ready to buy something right now, it’s tough to beat Google Search and Amazon. For granularly-targeted B2B audiences, LinkedIn has a lot of the cards.

And if an advertiser wants to reach highly engaged viewers among their ideal audiences with the currently “richest” form of media (video) TikTok, Instagram, and YouTube are way, way ahead of X.

The pulse of the planet that never started beating.

So now we arrive at the sad part: Evan Williams envisioned a future for Twitter as the pulse of the planet. The pursuit of this vision would almost definitely have taken Twitter down a very different path than the one it ended up taking.

Because if you’re setting out to become the pulse of the planet, your north star metric is NOT the number of active users on properties you control. It’s not about harvesting your users attention, maximizing their engagement, and monetizing both with ads.

No, if you want to be the pulse of the planet, your goal is to collect, standardize, and analyze as much data as you possibly can about anything and everything that’s happening in the world in real time.

When harvesting real time data and turning it into useful information is your goal, every successful third party app that feeds you that data is your friend. You don’t care if someone else builds a more compelling way to publish or read tweets, as long as those tweets flow into your database.

You might not even care if someone else does a better job hosting your users photos and videos or shortening their links, as long as your terms of service ensure you get privileged, free, and unrestricted access to any data they collect through your platform.

When you’re the pulse of the planet, don’t have to play the game of triggering dopamine releases in your users’ brains in order to harvest and monetize their attention…you’re in the business of selling access to your unique data and the extremely valuable insights contained within it.

This is what Elon Musk may have overlooked when he cracked down on the most popular third-party clients: IF X could set up systems to ensure third party clients are not extracting and storing X’s data or being abused to flood X with SPAM…well-designed third party apps that increase the amount of data flowing into your database (and increasing the information available to X’s AI) are friends, not threats.

And as Foursquare recently discovered after a long and tortuous journey trying and failing to build mainstream consumer app, the data and insights business is a healthy one if you’ve got data people with money want and no one else has.

The saddest part: When Twitter’s board ejected Evan Williams from Twitter’s CEO chair and installed a COO with a media and digital advertising background in his place, they almost definitely believed they were doing what was necessary to protect their interests.

Of course, it’s possible they were right, and Twitter’s technical issues and monetization challenges were near-term existential threats to the company.

But when the board pushed Williams out, they also erased Twitter’s most compelling vision of itself. They took Twitter’s opportunity to evolve into the pulse of the planet and flatlined it. In making this choice, Twitter’s board thought they were righting the ship. Instead, they set it on a course to run aground.

Given what Twitter might have become, that is straight up heartbreaking.

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