Bristlemouth

A Value Investing Blog

Posted on 06 Apr 2017 by Gareth Brown

Twitter No Comprende

Twitter No Comprende

 

Jack Dorsey is a busy man. Ill-advisably running both Twitter and Square, with prêt-à-porter aspirations on the side. At Twitter at least, he’s not doing a great job.

The company has a lot to learn about advertising.

Twitter knows that I post in English, mainly follow people who also post in English, that my main interest in the platform revolves around investment, that I live in Vienna but also spend a lot of time in Sydney and travelling around Europe.

Last week, I met with Kevin and Steve in Madrid. In between hunting for bargains, company visits and an investing conference, I occasionally checked my twitter feed. Surprisingly, the advertisements I got were nearly all in Spanish, for products targeted at locals. There were ads for telcos, for IBM cloud services, even an ad in Spanish for English lessons.

This is idiotic. Their advertising algorithms are either:

  1. Stupid, or
  2. Run with no concern as to effectiveness for advertisers but rather to grab all the cash possible in the short run, in which case see point 1.

They should know I’m most likely in town for either business or holidays. How about an ad for the Museo del Prado? Or an English ad for a pre-paid mobile card? A tapas restaurant? What about an ad for Chocolateria San Gines, where each plate of churros and bowl of liquid chocolate should come with a side of insulin? It was less than 50 metres from our apartment and Twitter sure knew that.

Failing that sort of localised content, they’d be better off serving up advertisements for big global consumer brands like Coca-Cola, in English. Someone trying to sell cloud services to Spaniards should be irate that they’ve paid good money to get in front of my irrelevant eyeballs.

This is not just an issue for travelling twitterers (twits?), but rather more broadly indicative of a company hopeless at what the internet does best – targeted advertising. When I’m at home in Vienna or Sydney, the ads they serve me rarely hold much relevance.

Twitter has a lot to learn. That is a fact. It is also an opportunity for the company and its investors.

Takeover the logical end game

I’m convinced the platform would be more valuable to a bigger entity like Facebook or Google.

For one, Facebook and Google have relationships with a far greater number of relevant local advertisers. Such advertisements are more likely to lead to an immediate transaction and thus advertisers are prepared to pay higher prices per click/view. Either behemoth could divert localised advertising to the Twitter platform more easily than a standalone Twitter can built that infrastructure from scratch.

Furthermore, the bigger players’ knowledge base goes much deeper. Twitter had no idea my wife and kids were also in Madrid. Facebook knew. Google too. And while I was working, my family was out and about spending. A well-placed ad on Twitter for the dinosaur museum, amusement park or cable car would have been much more likely to generate a transaction for advertisers than any of the rubbish they actually served on my feed. A subsumed Twitter would be better placed to know what to serve up.

And of course acquiring Twitter would add, incrementally at least, to Facebook’s or Google’s knowledge of its own customers that also use Twitter.

During the week, I checked Twitter a few times, Facebook once at most. The 140-character-limited platform still attracts valuable eyeballs and, importantly, often different eyeballs to those glued to Facebook. On average, I’d guess, a good bit wealthier too. But Twitter needs to get much smarter at the revenue generating part of its business, or partner with someone who’ll do it for them.

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18 thoughts on “Twitter No Comprende

  1. Oh Twitter, where do you start with this mess?
    I agree with your comments Gareth. I use a third party app to access Twitter and as a result avoid getting served all the irrelevant advertising.
    What I’d like to know is what do their 3,500+ staff in 35+ offices actually do, other than burn cash? When they changed the egg avatar recently it just shows they have no idea where their priorities should be.
    NB – I love Twitter – it’s the only social media platform I use, so I’d love to see it thrive. Twitter don’t need to change everything – just fix the crappier elements of the product (that are already widely discussed) and I’d be very happy.

    • I don’t think they’ve got time to do anything other than burn cash – given the rate they get through it. See John Hempton’s posts a few months’ back for some interesting thoughts on the cost-management side of the business.

  2. Having never used Twitter until a few weeks ago, I’m surprised how frequently I’m checking it and have come across some great content that I doubt I would ever see on another social media platform.

    Gareth what’s your thoughts from a valuation perspective?

    • Good question. Twitter is tough, but interesting.
      It loses money, after expensing a large and ineffective R&D spend. There’s a lot it can do on costs, John Hempton has published some good posts on this. They really have been spending an inordinate amount of money for no significant improvement in the product. I think there’s also a lot they can do to grow revenue, this post being the main example. So good things can happen. I think the ecosystem is a unique one.
      Stock trades at a little over 3 times revenue (enterprise value to revenue). IF they can ever get the sort of margins that I think they’re capable of, that will prove cheap. If you know the answer to that big ‘if’, please let me know.

  3. I hope they aren’t bought by Facebook, would prefer it staying independent. As a crazy idea, I’d love to see it go private again, maybe in the Wikipedia model. What does Twitter have, 300 million active users per month? If each of those chipped in $50 you could do a User Buyout. As you say there are some pretty easy fixes to it, that aren’t being done, I guess because they are focussing on growth still instead of accepting what they are.

    Interesting suggestion of the net worth of their average user, I would agree with that. One of the reasons I love it so much is the ability to converse with people a lot smarter than myself and just how accessible they can be.

    • For me too Glenn. My Facebook feed is dominated by whatever it is the wife of some old school mate is grumpy about today. My Twitter feed is about whatever Nassim Taleb is thinking about today. Quite a difference.

    • I’d hate for Facebook to take them over, too.
      A user buyout would be interesting, but how many of the +300mil active users are fake accounts, spam or bots? They can start by cleaning these accounts up. That would improve the user experience.

  4. Agree with spirit of the post, but you should probably steady on calling there algos stupid. I’m pretty sure you couldn’t write an algo … making you stupid…er??

    • True Hamish, true. Then again, my ignorance isn’t costing Twitter shareholders a gazillion each year in cash wages and performance option dilution.

      I have also been known to criticise highly talented athletes from time to time from the safety of my armchair.

  5. It’s not just their advertising algorithms that are broken.

    Since they moved away from chronological content display, I keep getting served up time sensitive content as the first post, but >24 hours out of date, so completely useless info.

    I am actually long for the good old days of chronological content.

    • Try a third party app to access your account. Not sure if all will do it, but the app I use (Twicca – free – Android) has no advertising and presents everything chronologically. The app isn’t perfect either, but suits me.

    • Nothing specific Sam. I meant it here in the sense of a biological metaphor, not realising there was a more technical programming-based use of the word. I am a recovering writer, we never use just one descriptive when three will do.

      I do think an evolutionary framework is often a good way to think about some business, hence a tendency to slip in biological language unprompted.

  6. I use a 3rd party app for Twitter now specifically for that reason. Well the other reason is Twitter app bans Instagram images in the feed. You have to click the link. Annoying.

  7. They should look at poaching the right person/persons from Google/Facebook, to get the advertising done right. Could prove very valuable.

  8. I have dipped the toe in at the current price. Surely the board is at least aware of the public perception around dorsey’s ludicrous dual roles. I’m no fan and I hope he is on a short leash. Would love to see him go and solely focus on ruining square.

    With the problems so obvious, they should just be able to get on with it. An activist investor would be quite handy in this regard. The fact there is a cheap/free option in the potential to be acquired helps too.

    I think you said it best Gareth, the content you get on twitter is much higher quality than fb or linked in. I can’t believe I get responses from half the people I @.

  9. Hi Garreth.

    I’ve never advertised on Twitter. That said, on these type of platforms it’s the advertiser’s job to set up the targeting, not Twitter’s. It’s his job to determiner whether he wants to advertise to people in Spain or to people who speak Spanish. So what you described seems to me to be a failure of that specific advertiser. Related anecdote: I speak English and live in London, but I once was displayed a Ukrainian ad (through the AdSense network). Was that a failure of Google? No, some Ukrainian advertiser just fat-fingered something.

    However, I still agree with your conclusion that Twitter would do better in the hands of other advertising experts (Google or Facebook).

  10. I use Twitter however it bugs me how it sends notifications to my phone about information that is 24 hours old. Facebook seems to be able to tell me about live notifications. Not sure if thats something i did or not…

    Facebook also has the power of ‘groups’ where you can join a community within facebook on a specific topic such as ASX investing, 4×4 devotees Brisbane, Road cyclists Sydney etc which is quite useful and powerful data for advertisers. Facebook buy/swap/sell groups are killing gumtree and ebay as there is no listing cost and it integrates into peoples lives better.

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