Costolo Out in Twitter’s Latest Round of Musical Chairs

Twitter is changing CEOs for the fourth time in four years.

Incumbent Dick Costolo is stepping down July 1 and company cofounder Jack Dorsey will take over as interim CEO while the board searches, both internally and externally, for a suitable candidate to hold the post.

Costolo will remain on Twitter’s board, and Dorsey will continue to serve as CEO of Square, which he also cofounded.

Costolo reportedly had indicated previously that he wished to step down, triggering speculation that mounting pressure from investors — and from subscribers unhappy about Twitter’s weak response to online harassment — had done him in.

It’s likely that Dorsey will not go beyond the interim CEO role if Twitter remains independent, because it’s “a mature public company,” noted Alan Pelz-Sharpe, a research director at the 451 Group.

“If it’s to remain independent, somebody with the skills and ability to cut costs and reorganize the operation will be required,” he told the E-Commerce Times.

Twitter Under Dorsey

Dorsey was never a good manager, something he has acknowledged himself.

He has pledged to continue executing Twitter’s strategy and said the company has an exciting lineup of products and initiatives coming to market.

That could spell trouble, as investors weren’t thrilled with Costolo’s strategy, and the company’s Q1 resultswere a letdown, sending shares plunging 18 percent.

“Twitter is facing the same challenges, though magnified, of many social networking sites converting activity into revenue,” Pelz-Sharpe suggested.

While growth is slow, “generating a profit from 300 million users is the issue, and Costello was unable to do that,” Pelz-Sharpe pointed out.

Changes are essential, because “the trajectory Twitter is on is not sustainable,” he said. While its revenues “are actually pretty good, all things considered, sales and marketing, along with R&D costs, are disproportionately high for a firm that has been in business since 2006.”

In the short term, the focus likely will be on “more aggressive advertising sales, cost-cutting, more work to monetize data sales, and the courting of potential acquirers,” Pelz-Sharpe suggested.

An Investor’s View

One investor just last month published a blueprint for “What Twitter Can Be.”

Twitter needs to make tweets effortless to enjoy, make it easier for all to participate, and make each subscriber feel heard and valuable, according to Chris Sacca, owner of Lowercase Capital.

Still, revenue is growing at 74 percent year over year, far better than other public companies of that scale, he pointed out, and the management team has stopped selling its stock.

Google will integrate tweets into search results on smartphones in a deal the two companies signed in May, and Twitter’s purchase of Periscope and TellApart are strong acquisitions, Sacca noted.

However, the Street as a whole wasn’t happy with Twitter’s status quo — the company’s share price surged on news of Costolo’s stepping down.

Between a Rock and a Hard Place

Twitter “is a prime example of a good idea in social media that’s proving to be hard to monetize,” observed Michael Jude, a research manager at Frost & Sullivan.

“It’s hard to evolve from free to pay,” he told the E-Commerce Times.

Twitter’s management may have its work cut out to improve matters.

Nearly 55 percent of senior marketing professionals and 52 percent of consumers saidcompanies too often use social media in a manner that’s intrusive to consumers, according to a recent survey by the Marketing Executive Networking Group.

Senior marketing professionals were almost evenly split on the question of whether information available from monitoring social media is actionable — 39 percent thought not, while just over 37 percent responded that it is.

“Unless Twitter resolves these two issues, it doesn’t matter who runs it, because they’re not going to get anywhere,” said Larry Chiagouris, a professor of marketing at Pace University.

“The world is going to pass Twitter by,” he told the E-Commerce Times, “in the form of other platforms that are more digitally arresting and engaging, and less intrusive.”