The Lesson Of Twitter’s Palace Coup: What After Dick Costolo's Exit?

  • Twitter Dick Costolo's exit is unlikely to help Twitter in the near term.
  • There's clearly a more basic reason why Twitter can't scale, at least in its current form.
  • Next up, for Wall Street, is an auction on the franchise.
  • Unless someone can make Twitter truly useful for a mass audience, the next move is down, and down hard.

The resignation of Dick Costolo as CEO of Twitter (NYSE:TWTR), after months of public table-pounding by New York investors, is not going to change anything for the company, because something more basic is happening that neither the people in America’s media or tech capital can quite comprehend.

We don’t care about you:

Media’s share of the economic pie, and journalism’s piece of the media pie, continues to decline. Twitter is emblematic of the decline, but the real reasons lie in the nature of the Internet itself and Google’s business model.

The Internet makes every story immediately accessible, meaning it costs less to simply recycle stories than pursue new ones. Reporters are thus swallowing their own tails. The biggest media successes of the past decade – Buzzfeed, Vox, the Huffington Post, Vice – are all based on this recycling idea.

Google makes this the new model for two reasons:

First, because links make everything more accessible. A story that “breaks” in one publication can be quickly linked-to dozens of times. The site that “wins” the story is almost never the one that did the work to get it.

Second, Google (NASDAQ:GOOGL) makes it cheaper for advertisers to buy “intrinsic targeting” – flooding the members of the chosen market – than “extrinsic” targeting – paying a premium to the publisher who can capture a specific demographic. In fact, the heart of the business model is to eliminate such premiums for defined audiences.

The result favors the general over the specific. Sites compete for mass audiences rather than doing what journalism had always done in the print media – gather together markets built on a place, an interest, or an industry. The general result is that newsgathering has begun to disappear. Most stories aren’t reported on at all unless the people involved specifically go after publicity. Other stories are over-reported because they have wide interest and are readily-commented upon. The story of Rachel Dorazel might easily have been just a local, one-day story had it not exploded into the general consciousness through constant repetition and comment.

Twitter feeds this general need to be heard above and within the din. It is primarily a marketing tool for journalists, who “tweet their tweets” upon publishing and judge the value of a story based on how readily it fits the 140-character format.

But there is a limited market for such a resource. Outside the major news capitals – New York for finance, Washington for politics, Los Angeles for entertainment and San Francisco for tech – Twitter isn’t of enormous interest. Why should a farmer near Des Moines bother tweeting? To most people, Twitter is something that is passively consumed, and the heart of the model is that people contribute to it.

The replacement of Dick Costolo with co-founder Jack Dorsey exposes this all to the world. Dorsey is great at coming up with ideas, but he has limits on the execution side. Square has done well with its niche of small businesses, but has yet to break out despite the investment by Starbucks (NASDAQ:SBUX). Twitter is cut from the same cloth. Great for a niche, but not for the mass market beyond it.

Also see: Square IPO, An e-pay service turning to data analytics.

Next up, for Wall Street, is an auction on the franchise. Google and Facebook (NASDAQ:FB) are both expected to step into the frame. The problem is that the elite niche is not worth the present $22 billion valuation, or anything near it. More telling was a wave of insider selling notifications (from Twitter) that accompanied Dorsey’s coup  d’etat, including co-founder Evan Williams, who offloaded 372,000 shares as the barbarians stormed the gates.

Speculators and traders may convince some greater fool company like Google or Facebook to consider buying Twitter, but what would they do with it?  Unless someone can make Twitter truly useful for a mass audience, the next move is down, and down hard.

Also see: Amigobulls' Twitter stock analysis video for a quick look at Twitter's key financials.

Cover Image Licensed From - Copyright: dolphfyn / 123RF Stock Photo

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Comments on this article and TWTR stock

user profile picture
Shaun Attwood
bullish
"Twitter is primarily a marketing tool for journalists" what absolute nonsense, its the biggest conversation in the world on every subject ranging from the stock market to the Middle East, my teenager is never off it and she doesn't give a hoot about journalism
1 reply
stocksman
bearish
Yet another twitter fan ignoring the facts. Yes twitter has its fans, but they are a niche community which has stopped growing for a while now. That is precisely the reason the CEO got the boot. Let's see what Jack Dorsey does.
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