October 7, 2013

A SWOT Analysis: Twitter

Twitter was co-founded in 2006 by Jack Dorsey (@jack), Evan Williams (founder of Blogger), Noah Glass, and Biz Stone. The current CEO is Dick Costolo, who took over the rudder from Evan Williams in 2010. It's free to use Twitter, and the basic idea behind the company is that you can write messages to friends/unknown people/companies. These messages (tweets) are only 140 characters long and you can include links, images, and videos in your message.

Twitter is now about to become a public company. The interest from people who would like to invest in the company appears to be huge. One example of that interest is how unaware investors have begun to buy shares in the company Tweeter Home Entertainment Group because they believe the two companies are the same. Tweeter has the ticker TWTRQ and Twitter has the ticker TWTR so they are easy to confuse with each other. A few days ago, Tweeter's stock increased by 2200 percent, but ended its gain with the more modest increase of just 684 percent. So who said the market was efficient? To learn a little bit more about Twitter, we are going to continue our hugely popular series of SWOT analysis. We have already covered Microsoft, Facebook, Tesla Motors, and SolarCity.

Twitter ($TWTR) Stock Chart

Strengths
  • Real-time search. This is a function I've used several times. If something has happened, such as a terrorist attack, the first site I visit is Twitter's search function. With it you can find the most popular tweets related to the event and it's easy to find out what has happened. Twitter handles 24 billion search queries a month - more than Yahoo (9.4 billion search queries) but less than Google (88 billion search queries).
  • With 500 million registered users from across the globe, Twitter is one of the world's most visited websites. 200 million users are active each month and they post 500 million tweets each day. Of the active users, 75 percent are using Twitter on handheld devices.  
  • It's easy to discuss topics with companies - McDonald's has 10 full-time employees to handle their Twitter account. For example, if you have a problem with your Tesla Motors car, send a tweet to @teslamotors and they will hopefully respond. Companies can also market themselves by answering questions asked in a tweet. It's possible to monitor these questions through Twitter's search function.
  • Strong increase in revenues. For the six months ended June 30, 2013, Twitter reported it had $253 million in revenue, about double its revenue compared to the same six months a year earlier. 90 percent of this revenue originates from ads.
  • As we move from laptops/desktops to smartphones/tablets, it's important to be able to generate revenues from these mobile devices. 71 percent of Twitter's revenues from ads originate from these mobile devices. 
  • You can follow stocks on Twitter, just search for the ticker symbol but add a dollar sign in front of it, like: $TSLA (Tesla Motors) or $MCD (McDonalds). You can also see if customers to a company write sad or happy tweets about the company - if they are happy, invest in the company. 
  • It's free to use Twitter and its easy to set up an account.
  • Twitter has together with Facebook become the tool to use when sharing content you have read in an online newspaper. Twitter's share-button is similar to Facebook's like-button.  
  • Twitter has improved the reliability of its service. It used to be common to see Twitter's now famous fail-whale that showed up each time the site stopped function because of the many users.
  • The value of twitter is not (per se) in its financial numbers, but in its strategic function as a competitor to other media outlets (like newspapers) and as a complement to others (like live TV commenting system). People like to comment what they watch on TV by tweeting, and sometimes it feels like they spend more time monitoring tweets about a TV show than watching the TV show itself.
  • Strong owners, such as the founder of Amazon Jeff Bezos (through Bezos Expeditions). 
Weaknesses
  • Spam. I've used Twitter for maybe three years, and the number one problem I've had is the amount of spam. It's not really a problem since you can block the spammers so they you can't see them anymore. But if you are searching for a popular topic with Twitter's search function, you will find a lot of spammers. These spammers write about the topic you are interested in, like the latest terrorist attack in Kenya, but they link to irrelevant spam. Twitter has its own algorithms that try to detect spam, but it's also up to the users to report spam accounts the algorithm hasn't found. 
  • Amount of tweets related to a company. If you have a popular brand, like McDonald's, it will be difficult to communicate with your customers because of the amount of tweets related to the brand. McDonald's customers will tweet after they ate at McDonald's but they are not tweeting that tweet because they want to contact the company. The company will now have a hard time to try to sort out the tweets that try to contact the company through Twitter.
  • Might be a waste of time. Research revealed this distribution between different types of tweets:
    • Pointless babble – 40%
    • Conversational – 38%
    • Pass-along value – 9%
    • Self-promotion – 6%
    • Spam – 4%
    • News – 4%
  • Not profitable. For the six months ended June 30, 2013, Twitter reported a loss of $70 million - an increase of 41 percent compared with the year before. Despite the losses, the valuation of Twitter could still be at least $20 billion when the trading begins. One the other hand, the reason why Twitter is not profitable is because they have a huge research budget. In 2010 the company generated $28.2 million in revenue, but spent $29.3 million on research alone.
  • Slower growth. Average monthly active user growth slowed to 44 percent in the three months to June 30, 2013, from 78 percent in the year before.
  • Weak ads algorithms. I don't speak a word of the language in this ad I got in my feed:

Opportunities
  • Anonymous. On Twitter you can be anonymous, and people on Internet prefer to be anonymous.
  • Twitter is a light-versions of Facebook, and may improve its social functions to be a true Facebook competitor.
  • The tweets are embeddable in a similar way as a YouTube-video, so Twitter can begin to let users upload videos to Twitter instead of YouTube, to steal market shares (and ad-revenues) from YouTube. 
  • The Big Data bandwagon. It has become popular to analyze large amounts of data, and since Twitter consists of a lot of data, companies have to pay Twitter to be able to analyze all data. It's impossible to access all of Twitter's data for free.  
    • It's known that traders have begun to use Twitter to predict stock market movements. One example is when the ship Costa Concordia began to sink and tweets from the ship arrived to Twitter before the ship owner's stock began to fall on the stock market. When a hedge fund manager tweeted a tweet on Apple, the valuation of Apple increased with $17 billion. 
    • The US military has recently set its eyes on Twitter as a possible source for the identities of terrorist factions by analyzing Twitter's data.
    • You can create interesting service like Geography of Hate and We Feel Fine
  • Twitter should improve the search engine and steal market shares from Google. Twitter is more real-time than Google.   
  • Since Google+ has failed, Twitter is the second largest social network, so Google might be interested in buying Twitter 
Threats
  • Social networks like Facebook. The Chinese version of Twitter, Weibo, could become available outside of China.
  • Instagram have stopped tweets from showing images from Instagram because they want their users to see the images on Instagram. Other companies may follow. You can see YouTube videos directly in a tweet, but YouTube may stop that in the future.  

Confused? If you are still confused, you might be interested in this article:

Source: Wikipedia, Bloomberg, AllThingsDigital, Inc, Bloomberg, The New York Times, Hacker News, Digital Trends, Consumerist, Telegraph, MarketWatch, UncrunchedTwitter's IPO Roadshow, Quora

If you thought this SWOT analysis was interesting, you will also like the following SWOT analysis: FacebookMicrosoftSolarCityTesla Motors

No comments:

Post a Comment