As It Resizes, Twitter Tries To Measure Its Potential

We love them as services but as a business proposition, they seem to bring out the skeptic in us.

Them and they are social media companies going public, especially right now, Twitter. They just cant seem to catch a break.

So they are doing what any smart enterprise does in those circumstances: they are trying to change the conversation by reframing it. To do so, they are introducing new metrics purporting to show the 'real' story. That the company itself developed these measures is, naturally, the source of some caviling by unbelievers. The problem is that there are too many to be accused of not getting it - tech's cardinal sin.

They also have the unfortunate example of their predecessors' experience - particularly Facebook - with which to contend. The reality is probably that the best thing this or any enterprise can do is work to improve the numbers that underpin raw growth. Almost anything, including belief, can flow from that. JL

Yoree Koh reports in the Wall Street Journal:

"There are only two metrics that matter: how many people use it and how they use it."

After a troubling start as a public company, Twitter Inc,

when it reports second-quarter earnings on July 29, the San Francisco company is expected to unveil as many as four new metrics that it hopes will illustrate its reach beyond the 255 million users that log in at least once a month, according to people familiar with the matter. The aim: to show Twitter isn't just a diminutive Facebook Inc. FB in Your Value Your Change Short position

The new metrics will measure the breadth of the audience that is exposed to Twitter's content but not logged in, the people said. Executives hope to shift the perception of Twitter from a social network to a broadcast platform in the likeness of Google Inc. GOOGL in Your Value Your Change Short position 's YouTube, whose videos are often embedded on other sites.

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Twitter declined to comment, citing the quiet period before earnings.

Despite doubling revenue for each of the past five quarters, Twitter's moneymaking successes have been overshadowed by faltering user growth, forcing investors to recalibrate their long-term expectations.

Twitter sizes up its digital town square by the number of users who log into the service at least once a month. That standard industry metric, called monthly active users, and a self-invented measurement called timeline views designed for advertisers to track usage, were the primary nonfinancial metrics offered to potential investors when Twitter went public in November.

But those metrics backfired after the company reported abruptly slowing user growth and signs of a less-engaged audience, sending the stock to new lows and raising unflattering comparisons to Facebook, whose user base is about five times larger. Twitter's stock is trading below its first day trading price of $44.90, finishing Thursday at $36.87. The new metrics will supplement the current measurements.

The situation is a sore point inside the company. Adding more users to the 140-character messaging service had become a top priority. Now, with investor patience wearing thin, Twitter Chief Executive Dick Costolo is looking to more immediately assuage concerns.

Because Twitter is a public forum, content spreads more broadly than the private status updates posted on Facebook. Many people who aren't on Twitter see tweets in other places, such as scrolling across TV screens or embedded in news stories. Some nonusers also visit the site, viewing tweets on user profiles for example, but don't sign up. Done correctly, the numbers could help close the gap between Twitter's seemingly ubiquitous presence in media and its more niche user base.

It isn't clear whether Twitter will use a third-party data provider for any of the metrics. LinkedIn, for example, discloses data from comScore, which also tracks Twitter's unique visitors in the U.S., or those who access the Twitter site or mobile app. That latest figure was 117 million in June, twice the 57 million monthly active U.S. users Twitter reported in the first quarter.

Whatever the numbers, Twitter will need to demonstrate strong growth over the long haul and how it can make money from users who aren't logged in. Most of Twitter's revenue comes from advertising, which is earned whenever a user interacts with an ad such as by retweeting, replying, favoriting or clicking on the ad.

To help sell the new metrics, Mr. Costolo earlier this month recruited Anthony Noto, a former Goldman Sachs Group Inc. banker, to succeed Mike Gupta as chief financial officer. Together Messrs. Noto and Gupta steered Twitter through its IPO just eight months ago.

They crafted much of Twitter's IPO documents, devising which metrics to present to potential investors, according to people familiar with Twitter's IPO process. Mr. Costolo hopes Mr. Noto will be more adept at communicating Twitter's business to his former peers than Mr. Gupta. Mr. Noto's appointment is the latest in a flurry of changes to Twitter's executive lineup. Since April, Twitter has hired a new product chief, replaced its heads of engineering and finance and divvied up the duties of its former operating chief, Ali Rowghani. Mr. Gupta is now in charge of overseeing a new team investing in startups.

Which nonfinancial metrics to use in its IPO documents was a main source of debate between Twitter management and its team of bankers and lawyers. They had to find a formula that was informative enough to please the Securities and Exchange Commission, yet can withstand changes to the product and doesn't give away competitive information.

The team debated ways to illustrate user engagement, but it rejected several ideas, such as disclosing daily active users over time, people familiar with the matter said. In the IPO prospectus, Twitter said it had 100 million daily active users, less than half the number of monthly users it had at the time.

Messrs. Gupta, Noto and Costolo considered disclosing how much users interact with tweets, including the rate at which users clicked on links, favorited or retweeted messages, for example, according to people familiar with the situation. Twitter's revenue team rejected that proposal because it didn't want advertisers to compare how much a user engages with tweets versus those that are sponsored, according to people familiar with the situation.

The company eventually settled on timeline views, which tracks the number of times users view or refresh their message feed. The metric fell on shaky ground in February when timeline views slipped in the fourth quarter for the first time sequentially. Mr. Costolo publicly played down the metric, saying on the earnings call it was affected in the quarter by product changes. He supplemented the explanation by saying other engagement metrics, such as the volume of retweets and "favorites," increased 35%.

Mr. Costolo has hinted at what might come. In recent months, he has started to characterize Twitter's vast size by the number of impressions, or the number of times tweets have been viewed.

Some analysts are unconvinced unless Twitter management can show how to monetize its reach, said Youssef Squali, an analyst at Cantor Fitzgerald.

"With all of these social platforms," he said, "there are only two metrics that matter: how many people use it and how they use it."