Microblogging website Twitter Inc (NYSE:TWTR) may have topped earnings and revenue estimates for its recently completed quarter, but as commentator Dan Burrows accurately explained, “better than expected” isn’t the same thing as “good.” The company is still taking GAAP losses, the organization still isn’t quite sure what it’s supposed to be, and Twitter stock is still losing more ground than it’s gaining.
The depth of its struggle was underscored — again — this past month when the company announced it was shutting down digital video venue Vine … a website that allows for the uploading and viewing of six-second clips.
Kudos to CEO Jack Dorsey for pulling the plug on something that just isn’t working, and can only work against the value of Twitter stock the longer it’s allowed to remain alive. Thing is, the fact that Vine was acquired in the first place and then allowed to flounder for four years is a microcosm of what’s ailing the company in a much bigger, fundamental way.
What’s Vine?
Vine has been a part of the Twitter family longer than TWTR stock has been publicly traded.
Back in 2012, right as stand-alone messaging platforms like Instagram, WhatsApp and Snapchat were starting to take shape, then-CEO Dick Costolo and co-founder (and current CEO) Jack Dorsey saw the budding Vine app as not only an entry into the instant-messaging war, but as a means of rising to the top of the heap. While everyone else was facilitating the sharing of mere words and pictures, Twitter would become the go-to platform for sharing video clips.
But why only six-second videos? Because, back in 2012, most smartphones were handcuffed by relatively stingy data limits. If the videos were capped, users could still enjoy them and not worry about running up a big data bill.
It was an immediate hit. Within just a few months of Twitter’s official launch of Vine in early 2013, 40 million subscribers had signed up for the service. Users/members loved it, as it was more than just a quirky, cute platform. They saw it (and Twitter touted it) as a community.
It wasn’t built to last, however.
Doomed From the Start
In the same sense that limiting tweets to 140 characters was spun as quirky and efficient, the six-second cap on Vine’s video clips was presented as some fun bubble gum for the brain. It had its fans, but when Instagram — owned by Facebook Inc (NASDAQ:FB) — opened up its platform to 15-second videos in mid-2013, it didn’t take long for users to realize how much more engaging a clip could be when it was nine seconds longer.
There’s also the not-so-small detail that so many more users were already using Instagram at the time … around 130 million. With a deep-pocketed Facebook backing it, though, Instagram was always better positioned to grow faster than Vine anyway.
Granted, Twitter had bigger issues to deal with at the time. The IPO of Twitter stock would be taking shape later that year, and while the company had created a buzz, it wasn’t even close to creating profits. Costolo had to spend more time and focus as well as resources getting Twitter’s flagship business going, and simply didn’t have a chance to work on Vine.
The situation got worse, as evidenced by Costolo’s exit (under pressure) in mid-2015.
He was succeeded by Twitter co-founder Jack Dorsey, who has arguably pushed Twitter closer to viability. Healthy GAAP profits remain a distant dream, however, and Vine isn’t a priority. It’s being shut down primarily as a means of cutting costs.
Bottom Line for Twitter Stock
On the surface, killing Vine now seems as if it could eventually boost the value of Twitter stock, in that it will make the bottom line bigger by culling expenses. And, maybe it will.
The Vine debacle, however, is also another indication of a bigger philosophical problem Twitter may never really get past. That is, it doesn’t build or buy things with a realistic revenue plan in mind. Ergo, it struggles to monetize its assets once they reach scale.
Don’t misunderstand. A list is the key asset in the new digital economy. A steady, growing stream of engaged users are potential subscribers to paid services, a list of buyers of physical products, or even just a means of producing web traffic that yields ad revenue. Facebook, LinkedIn Corp (NYSE:LNKD) and a whole slew of other outfits have been using that business model with success for quite some time.
Twitter is struggling to do so though — and struggled to do so with Vine — as it never really thought through a monetization plan when it was developing its platforms.
Killing Vine now could free up the company’s chiefs to fix what’s broken, but it’s still going to be tough. In many ways, it still has to go back to the beginning again.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
