Twitter CEO Dick Costolo Steps Down – Big Changes Ahead

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Twitter has announced that CEO Dick Costolo will step down, with co-founder Jack Dorsey to step in as interim CEO from July 1. Costolo, who’d been under increasing pressure after weaker than expected Q1 numbers, will remain on Twitter’s Board of Directors.

In their official announcement, Twitter noted that they will use a ‘Search Committee’, which will include co-founder Evan Williams, to conduct a global search for their next CEO.

Trying Times

The move comes at an interesting time for the micro-blog giant. The company has struggled to capitalise on its potential in recent times, with audience growth and revenue both slowing more than anticipated, and while the purchase of apps like Periscope and a new deal with Google look to have the social network well placed to capitalise on future opportunities, many industry experts and investors have expressed their concerns and questioned whether Costolo is the right man to lead them to the next phase. Now we’ll find out whether new leadership can change that trajectory.

Via MSN 

Of most interest, from a user perspective, will be how this announcement will change the Twitter experience. Already we’ve seen recommendations from billionaire investor Chris Sacca on how to fix Twitter, with a range of ideas based around improving the new user experience and capitalising on Twitter’s position as a leader in real-time events. At least some of Sacca’s suggestions are likely already under consideration, and it’ll be interesting to see how the incoming CEO views such thoughts and whether the idea of Twitter, as we know it, changes. One of Sacca’s ideas, in particular, may not go down well with Twitter traditionalists – the suggestion that Twitter needs to move away from its traditional, reverse chronological timeline, as well as the assumptions that:

  1. Recent Tweets are always the best Tweets.
  2. Only the people we follow post the best Tweets.

If Twitter were to take this advice on board, it may move to a system that highlights tweets users are most likely to be interested in, which sounds more akin to a Facebook News Feed-type algorithm, showing you not everything, but what the system deems as most important. This has been the cause of much frustration at Facebook, restricting the reach of posts and picking and choosing who sees what and when – altering the functionality in a similar way on Twitter could have a significant impact on user experience.

Monetization Frustration

And then of course, there’s the monetization factor. While Twitter recorded a 74% increase on year-over-year revenue on their most recent report, the final figures still failed to reach their own guidance. One of the bigger recent issues has been the failure of the company’s Direct Response ad units – with these particular ad units not performing as well as expected, the company was forced to alter how they charged for them, which subsequently reduced the returns they were able to generate. Twitter has been working to improve the performance of these ads, launching a new guide this week to help advertisers improve overall performance, but really, the struggles of Direct Response ads are indicative of the company’s on-going struggles with ad related revenue – and those struggles relate back to slowing user growth.

Without user growth, Twitter’s potential as an advertising platform diminishes – already Instagram has passed Twitter in total audience, and Snapchat is coming up close behind.

The Google Question

Twitter’s recently announced deal with Google, bringing real-time tweets into Google search, is a big one and one which looks set to deliver good returns in future. But it also raised another question – would Google consider buying Twitter? Many investors see this as a good match, and it could be an avenue the company looks at under new leadership. If that were to happen, that would be a significant shift in the tech landscape – the second biggest acquisition in tech history. Buying Twitter would give Google an engaged social network, something they’ve not been able to build themselves, which would help them fend off growing competition from Facebook, particularly as more people refer to social for search queries.

On the Rise

As part of the Costolo announcement, the company also reaffirmed its outlook for the second quarter of 2015, with revenue expected to be in the range of $ 470 million to $ 485 million and adjusted EBITDA to be in the range of $ 97 million to $ 102 million. Twitter shares rose 7.4% in after hours trading on the back of the Costolo announcement, highlighting increased positivity surrounding the move.

And Twitter also highlighted its ongoing efforts to evolve, announcing they will remove the 140-character limit on DMs just hours after the news of Costolo’s departure. Above all else, it’s clear that we’re in for some major changes at Twitter HQ, changes that will have a major impact on the wider social landscape moving forward.

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The just maybe unsinkable Dick Costolo

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dick-costolo-twitterThe thing about investment conferences is that they’re staged events staged by people who have no business even trying. There are awkward moments aplenty, long pauses in Q&As, and – above all – unrehearsed statements intended to be clever but that fall flat. It’s improv done by people whose performative gifts die outside of the conference room.

In one such clumsy conference moment Wednesday, Goldman Sachs analyst Heath Terry was talking with Twitter CEO Dick Costolo, and the audience of analysts and investors fell into a disquieted hush while the first questioner wended his way around tables toward a mike. Costolo said to Terry, “You have a very soothing voice, by the way. You could do midnight radio.” “I might need to,” Terry shot back.

This rare moment of financial spontaneity was brought to us by Costolo, a veteran of comedy improv. His own performative instincts have, somewhat unexpectedly, been winning over Wall Street this month. As he talked at the Goldman conference, Twitter’s stock shot up 3.5 percent in after-hours trading. One week earlier, Twitter’s reported earnings and its stock tumbled 7 percent to $ 38. But after Costolo began talking on the conference call, the stock rebounded to $ 48 a share, largely on the CEO’s comments about the company’s future.

These recent rallies mark an abrupt reversal of what Twitter saw in 2014, when the stock fell 40 percent in a year when the Nasdaq Composite rose 15 percent. So far this year, Twitter is up 33 percent while the Nasdaq has remained flat. To some, that’s a sign that Twitter is, like Facebook was once, ready to take off after a less-than-impressive first year as a public company. Suddenly, there seems to be a renewed faith in Costolo’s ability to lead the company.

There may even be a once-bitten-twice-shy effect going on in the Twitter rally. Facebook’s stock slumped after its IPO amid investor concerns that it wasn’t going to be able to monetize mobile ads effectively. In that case, Facebook CEO Mark Zuckerberg said that the company was focused relentlessly on this goal, and once it became clear that its plans were working its stock shot up so quickly investors who blinked missed their chance to get in on the rally.

Twitter has been going through a similar dynamic. The question is whether it will be able to pull off such a nice hat trick. As Twitter’s stock slumped in the wake of its highly publicized IPO, Costolo worked to stabilize an unsteady management team and outline a plan to address the main concerns: sluggish user growth and wringing new revenue out of its service.

At the company’s analyst day in November, Costolo outlined several plans to boost user growth, engagement and revenue: make sponsored tweets 5 percent of user feeds, up from 1.3%; give new users an instant timeline to simplify the work needed to make Twitter useful; use Fabric and other initiatives to make Twitter an indispensable platform.

Investors shrugged. Twitter’s stock fell 17 percent in the month following its analyst day, culminating in predictions from SunTrust analyst Bob Peck and Harvard professor Bill George that Costolo would be fired. But sentiment seems to have shifted in the last two months. Maybe the skeptics are wrong. Maybe Costolo’s plans, which which will take a year or two to play out, are already showing signs of working. Maybe that ballsy chart CFO Anthony Noto showed about billion-dollar companies taking off wasn’t so crazy after all.

Since then, Costolo has stuck to the script laid down in November. But there are a few encouraging tweaks, outlined more clearly in the past week or so. Now that Twitter is courting, rather than disregarding, logged-out users, Google’s search engine becomes an invaluable partner. Vine, Costolo said at Goldman, will be a big part of its video strategy. And messaging on Twitter, which could never compete with private apps because of its public nature, has untapped potential as a CRM interface.

Beyond that, Costolo hasn’t been saying much that’s been new. And in a way that may be the most persuasive thing. He’s sticking to the plan. Twitter, the company that flailed its way into a successful business model and then for years spun away executives like a whirlwind, was sticking to a long-term strategy.

The big problem with Twitter – and it really is a big, big problem – is that it’s still printing red ink well into its second year as a public company. Forget the internal, Happyland accounting Twitter dishes up. By standard accounting measures, the company has been losing money for a long time. Also, the stock may be overvalued. It also doesn’t help Costolo’s case for long-term tenure that he and his family trusts have been shedding Twitter shares. Taken together, those factors are things bears will point to for a long time.

So which is it? Is Costolo the “consultant” that Harvard’s George dismissed him as, or is he what Twitter’s founders consider the best hope Twitter has of connecting its origins with its future – the mysterious element that made Twitter irreplaceable with the future that will be, finally, profitable? Is Costolo another blurred figure in the revolving door that has been Twitter’s management? Or is he the grounding element that gives the company the energy needed to move ahead?

If I had to guess, I’d go in favor of Costolo. After listening to him speak today, I thought about his PandoMonthly in December 2013. When the Q&A of that session began, the first question came from a skeptical investor who asked if he should “option out.” Costolo (around 1:47:30 in the video) allowed himself this infinitely short chuckle, performed the rare anti-eyeroll, put down his bottle of bottled water, and said,

Here’s the deal. We have – and I said this the morning of the IPO on CNBC – we have an enormous amount of work to do. We have an enormous amount of work to do. And the team understands that, you know, and I’ve told the team, we all know what we can and should become and we have an obligation and a responsibility our users san those who do not yet use Twitter to fulfill that responsibility. But we labor under no illusion that we don’t have anything less than an enormous amount of work to do to fulfill that potential. And that’s the way I would answer that question.

It’s a pretty good moment, worth watching in retrospect not just because of what Costolo said but because of the way he said it. He’s genuinely exasperated, and he retreats into the CEO gambits of power hand gesticulations and vocal confidence while his eyes retreat inward the way they do with someone who says what he really thinks. I remember watching it then and thinking – well, we’ll see if that’s true.

We still haven’t seen whether Twitter will attain those obligations. Yet everything Costolo’s done since then is consistent with the goal of meeting them. And the plans he’s been outlining recently are little steps toward that goal. Costolo may be a great improvisor, a skill that can serve a CEO quarter to quarter, but there’s this long-term thread running through his actions, as if the satisfying punchline is lying years down the line.

Not to belabor this comedy metaphor, but there was another moment in that PandoMonthly that has stayed with me. Costolo told a story about how he was invited to a benefit at the Lucile Packard Children’s Hospital, where Steve Carell was the speaker. Costolo and Carell had been members of the Second City comedy troupe in the 1980s but hadn’t talked in years.

“I brought one of the old reviews of our group in 1985, and he didn’t know what I was doing now,” Costolo recalled. “And I showed him the review, and he patted me on the back and said, ‘I’m really sorry it didn’t work out for you.’” And therein lies an uneasy punchline for those calling for Costolo’s head. There are few careers harder than comedy. The guy running Twitter has shown he can improvise. Who else do you want fulfilling the company’s potential?

[Illustration by Brad Jonas for Pando]

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