0 barger_christopher_0002 By: Christopher Barger

Twitter, Dick Costolo and the Myth of Perpetual Growth

(Note: This post was originally published on the Voce blog)

The social media and business worlds were abuzz yesterday with the news that Twitter’s embattled CEO, Dick Costolo, is resigning, to be at least temporarily replaced by founder Jack Dorsey. Virtually every story about Costolo’s resignation cited the same factor — user growth struggles — as one of the major reasons for his departure, and for Wall Street’s dissatisfaction with his performance.

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It’s impossible for outsiders to know what kind of person Costolo is, whether his personality is a good fit for the company, or whether he truly was a good CEO. But if the speculation is true about the main reason for his departure, then Twitter has been let down by unrealistic shareholder expectations — expectations that reflect one of the most commonly made mistakes in the social media industry. It’s possible that going public, at least in the short term, hurt Twitter more than it helped.

There is a myth prevalent in social media — or at least, believed by those who don’t understand social very well. It is the myth of perpetual growth, and that growth is always attainable. This myth postulates that growth curves are infinite, that ever-increasing numbers of consumers will be interested in your product or service, and that, to paraphrase Gordon Gekko, “growth… is good.”

Perpetual growth is not only not possible, it’s also not even necessarily good

This certainly seems to be the attitude of Twitter’s investor base and of Wall Street. A subscribed user base of “about a billion” and 302 million monthly active users is seen to pale against the giant on the block, Facebook, and its approximately 1.4 billion users. Twitter’s growth rates have certainly slowed. And after months of disquiet, the shareholders’ voices got loud enough, and Costolo resigned (almost certainly not of his own accord).

The problem is that perpetual growth is not only not possible, it’s also not even necessarily good. Believing in that myth is one of the most simple mistakes a brand can make in its social media program — selecting fan growth and fan numbers as KPIs against which the program is measured, which leads them to spend lots of ad and promotion money trying to achieve those follower counts, whether on Twitter, Facebook, or any other platform.

Social media efforts are better focused on increasing the engagement rate

But as we’ve seen most evidently with Facebook’s algorithm changes, audience size doesn’t always matter. Your organic (read: non-paid) reach on Twitter dwarfs that of Facebook, and even then it’s only 30%. So accumulating 100,000 followers on Twitter doesn’t mean you’re actually reaching 100,000 people with your content or messages. At best, you can hope for about 30,000 of them, on average.

Social media efforts are better focused on increasing the engagement rate — how many fans are actually interacting with your content or your community manager — than blindly trying to increase fan counts for their own sake. It’s far better to have a smaller, more engaged community that actually interacts with you than a large, casual and disengaged community that may or may not see or care about your content or messaging.

This is understood by most social media marketing professionals, whether they’re on the agency side or the client side. It’s not always grasped by those with a peripheral understanding of the genre, however, and occasionally you still see brands spending time and money chasing followers in the misguided belief that growth automatically equals good.

Twitter wasn’t going to keep growing meteorically forever

Twitter’s shareholders appear to have made the same mistake and may be equally misguided. Many of them, I would venture, don’t have a full understanding of how social media marketing works; they just invested in something they’d heard lots of hype and buzz about. To them, user base growth equaled value and return, and they demanded it of Costolo and the rest of Twitter’s leadership. Even the more seasoned and knowledgeable of Twitter’s shareholders appear to have been looking at the platform’s user base as the most critical of the KPIs they measured leadership against.

But just like in social media strategy, the shareholders made the mistake of believing in the myth of perpetual growth rather than focusing on whether Twitter was providing actual value to its users. Twitter wasn’t going to keep growing meteorically forever. But the shareholders and Wall Street equated the slowing of user growth to failure.

Instead of tilting at that windmill, the shareholders were better off looking at Twitter’s functionality, its features, and whether its established users were deriving value from the tool and were using it regularly. Just as in social media strategy, a smaller, more engaged user base is better than a large, casual one. A user base of 300 million people who find Twitter vital, use it daily, or are even willing to pay for certain features or services, is far better than a community of 500 million of which more than half are casual, disengaged, and who frequently question its value. Quality over quantity should have been the mantra.

The next CEO should be judged on whether she or he has made the platform more friendly and valuable to users

Unfortunately for Twitter, going public meant from that point on its real, demonstrable value to shareholders and investors was going to be tied to its ability to sell advertising. And advertisers want – they need – scale. So if Twitter can’t continue to show substantial growth on a consistent basis then the advertisers aren’t going to spend the money because the sheer audience size they’re looking for isn’t there, at least not in their eyes. Twitter itself knows this, so you see their advertising innovations revolve around increasingly granular ways to target the existing user base even as they also roll out new features to try and figure out how to be more valuable to that base while attracting new ones. Whether these new features ultimately successfully appeal to users is yet to be seen, but those efforts, not user base growth, should have been the yardstick against which Costolo and his leadership team were measured.

When the history of Twitter is written, the book will most likely judge Dick Costolo as a failed CEO. That’s at least a little unfair. He was a victim of unrealistic shareholder expectations, based on outdated perceptions of what success looks like in social media. If Twitter’s shareholders don’t learn and correct their expectations, the next CEO is in many ways set up to fail. Twitter is not going to attain stratospheric growth again; that part of its history is already written. Instead, the next CEO should be judged on whether she or he has made the platform more friendly and valuable to users, whether they’re willing to pay for some of the new services the company has rolled out. Utility to the existing user base and growing revenue amongst that base are far better KPIs than user base growth.

Let’s hope for the new CEO’s sake that more Twitter investors figure that out.