Stocks

Twitter Should Adopt A YouTube-Like Strategy

Twitter shares plunged on Thursday after the company failed to prove the rumors true and announce co-founder Jack Dorsey as the new permanent CEO. It had been reported that the announcement would come on Thursday. However, Wall Street is apparently over it already, as shares climbed more than 7% today to $26.47 per share.

Twitter DM

Analysts from multiple firms are weighing in, and one has a very interesting idea about the type of business model Twitter could adopt in order to reaccelerate user growth.

New CEO means a potential fix for Twitter’s CEO

In a report dated Oct. 1, Wedbush Securities analyst Michael Pachter and his team said they have assumed cover of Twitter with a Neutral rating and $30 per share price target. They see an opportunity here for significant changes to be made that would alter Twitter’s course forever. They also see the basic pieces a new CEO could build upon in order to make Twitter into something that would please investors.

For example, the Wedbush team noted that Twitter does have a very solid base of users who are very avid. The problem Twitter has faced since it went public is growing that strong user base, but it seems as if the micro-blogging platform is off to a strong start—if it can convince others to use it. Pachter believes everything could change if the company’s next CEO makes the changes that are necessary to reaccelerate growth.

Indeed, we’ve seen a real lack of innovation at Twitter in terms of changing its product. Just lifting the 140-character limit really isn’t very exciting and certainly isn’t innovative.

Can Twitter capitalize on its strengths?

They also see Twitter as having a first mover advantage they believe “will be nearly impossible to overcome.” The company specializes in real-time information on pretty much any topic anyone could possibly think of. However, people just don’t understand how to use it, so its reach remains quite limited.

The Wedbush analysts believe the problem is that Twitter hasn’t educated non-users about the benefits of its platform. The company also hasn’t convinced them that they should use it. If Twitter can make a compelling case for why people should use its platform, they expect time spent per user on the platform can increase quite dramatically.

Twitter could rival Facebook, but…

The analysts even think Twitter could become a strong rival for Facebook in terms of reach, although they admit that the company needs a big change in strategy, which they hope the next CEO will bring. They describe two different classes of Twitter users they see: “voyeurs and exhibitionists.”

One goal must be to convince non-users that Twitter can be used for real-time information on any topic. Of course these would be the voyeurs, or the people who watch and consume the information, giving advertisers a reason to allocate some ad spend to the platform.

The other goal must be to convince users to post information in real time as events are happening. Of course these would be the exhibitionists. After all, if no one is actually posting real-time information, then there’s nothing of interest for the voyeurs.

Rewards for Twitter users?

Pachter presents an interesting idea here as he suggests that Twitter should adopt a model that rewards its exhibitionist users for posting content that attracts an audience. He didn’t mention YouTube, but certainly this is a method that has worked for the video sharing platform.  People with successful YouTube channels make money off them and become stars.

Certainly things wouldn’t be exactly the same way with Twitter because YouTube allows content providers to have their own channel, as if they have their own dedicated TV channel, except of course it’s on YouTube instead of on TV. Twitter is obviously a different kind of platform because it is not inherently video-focused, but perhaps its business model could become sort of a cross between publishing and YouTube.

In other words, Twitter could put in place some sort of revenue-sharing strategy for avid users who post real-time content and attract an audience. You’d have the print aspect of publishing combined with the live aspect we associate with TV news.

Evidence needed

Pachter and team say they want to see evidence that Twitter is able to reaccelerate user growth, however, before they get up off the bench on the company’s stock. They note that there’s a huge void at Twitter right now and that there has been no progress in making the platform easier to use. Advertisers don’t see much value in the platform either, as a little over 100,000 advertisers are spending money on it compared to Facebook’s more than 2 million advertisers.

So basically they say everything boils down to who Twitter’s next CEO will be and whether that person has a strategy that will actually work to add users fast. They said after the next CEO is named, they might become “more constructive” on Twitter.