How Twitter learnt to spread its wings

FT.com
September 13, 2013 7:27 pm

By Tim Bradshaw, Hannah Kuchler and April Dembosky

Twitter employees got their first hint that the company was preparing to go public at “tea time”. Every Friday afternoon, the messaging service holds an all-hands meeting in the large, high-ceilinged canteen on the top floor of its San Francisco office building, known as “the nest”. Executives such as Twitter chief Dick Costolo typically give short presentations or answer questions from the “flock”.

One Friday in early summer this year, the discussion was about an analysis Twitter execs had done of other internet companies that had recently listed, such as Facebook and LinkedIn. Twitter employees were told how their own productivity and efficiency metrics compared with the companies against which, they were warned, they would soon be judged.

Months later, Twitter announced what Wall Street had been speculating about for the best part of a year – that it had indeed filed for an IPO. Though the announcement that it had secretly filed the regulatory documents necessary to begin going public took many by surprise – both inside and outside the company – Twitter has undergone a transformation over the past two years from scrappy start-up to an indispensable part of the media landscape.There was no explicit mention of an initial public offering but those in attendance saw the deep thinking that had gone into the analysis and understood the implications: it’s time to get ready for public scrutiny.

Mr Costolo, whose career has encompassed stints at Google, running start-ups and as a stand-up comedian, became chief executive in October 2010, just a year after joining the company as chief operating officer, as the board tried to contain infighting between Twitter’s founders. At the time, despite being four years old, Twitter was still largely seen as a compelling product with an idealistic outlook and serious problems: unstable infrastructure, no obvious revenue streams and amateurish management.

During 2010, the company had hired Ali Rowghani from Pixar to become its finance chief, now in charge of operations, and Adam Bain from News Corp to become its advertising chief.

Under this new leadership, Twitter gently introduced advertising, first among search results and the “trending topics” that appear on the side of its page, before adding “promoted tweets” to users’ main stream of updates. To begin with, these were shown infrequently and selected advertisers had to work closely with Twitter, which was determined not to scare off users with too many ads, as MySpace had. Now advertisers are charged for promoted tweets only when a user interacts with them, such as retweeting, clicking a link or replying.

Last year, it introduced advertising to smartphone apps, stealing an early march on Facebook, and touted its origins as a mobile service to win mindshare among marketers suddenly desperate to reach consumers on their phones.

“The way they developed their core product ultimately is a huge factor in why the advertising business has grown so quickly compared to its competitors,” said Clark Fredericksen, an analyst at research firm eMarketer. “They put mobile first, had sms integration at the outset and maintained this single column, mobile-friendly user format.”

Twitter has always said it will not increase the number of ads its users see, leaving three principal ways to boost revenues – grow the number of people using the service; boost the price of its ads; or by using the data it has collected on users’ interests to sell targeted advertising across other websites and apps.

After years of a softly-softly approach to advertising, the past 12 months have seen a marked acceleration of Twitter’s efforts to boost ad yields.

The company has been investing heavily in hiring prominent sales people from the ad industry, says Brian Wieser, analyst at Pivotal Research. It now has staff focused on each of the big agency holding companies, such as Omnicom and WPP, and their unique media-buying systems. It has teams with expertise selling to particular marketing verticals, such as entertainment, and people focused on selling directly to individual companies.

“They’re at the same stage as Facebook was in 2009 or 2010, in terms of sales effort,” he says. “Twitter is quickly establishing itself as a dominant player in mobile advertising.”

They’re at the same stage as Facebook was in 2009 or 2010, in terms of sales effort. Twitter is quickly establishing itself as a dominant player in mobile advertising

- Brian Wieser, Pivotal Research analyst

Last summer, it followed the example set by Facebook in allowing advertisers to target ads based on what Twitter calls the “interest graph”. To capitalise on its popularity as a “second screen” for people watching sports and live TV shows, it struck partnerships with Nielsen, the TV ratings company, and with traditional media companies to create Amplify, which uses replays and clips from broadcasts to sell extra ads on Twitter.

Some of its most significant acquisitions, including Bluefin and Trendrr, have also aimed to boost this combination of Twitter and TV, but its biggest deal came just this week with MoPub. MoPub operates an advertising network across a range of mobile apps that will give Twitter access to eyeballs beyond its own users, while also providing a new way to buy real time ads on Twitter.

Some are struggling to keep up with Twitter’s rapid advertising innovation. Nate Elliott, analyst at Forrester Research, said 60 per cent of marketers use Twitter but a majority said they were unsatisfied with the platform in a recent survey. He said some had just focused on collecting Twitter followers and not realised they needed to be more creative to make advertising on social media work.

Mr Elliott said Twitter should not rely on being the best place for real time advertising, saying the focus on advertising during events like the Super Bowl was “overblown”.

“This isn’t about real time marketing, advertisers need to see it work in a predictable, reliable and ongoing way,” he said.

On Monday, before Twitter’s IPO filing had been made public but likely weeks after he had signed the paperwork, Mr Costolo gave a short talk about leadership at the TechCrunch Disrupt conference in San Francisco – an event attended by many of Silicon Valley’s top investors, rivals such as Facebook’s Mark Zuckerberg and a press pack hungry for a hint of the coming IPO.

He gave nothing away about the frantic activity within Twitter’s office, a former furniture store in a rundown neighbourhood of San Francisco, and its satellites around the world. But in a speech perhaps intended to rally the Twitter troops as well as recruit more, he urged the assembled entrepreneurs to “find your individual superpower”.

As Twitter prepares for the intense scrutiny of Wall Street, Mr Costolo will soon find out if his heroics in trying to transform Twitter have made it strong enough to fly the nest.