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Does Twitter Have a Growth Problem?

costolo6Is Twitter growing fast enough?

This seems like an odd question to ask, since the company has just told the world that it’s getting ready to go public.

But there are signs that the company isn’t adding users at the pace it had expected. If Wall Street has the same concern, this could be a problem for its upcoming IPO.

Last December, Twitter announced that it had more than 200 million active users — people who used the service at least once a month.

A few months later, CEO Dick Costolo told employees he expected to get to 400 million users by the end of 2013, according to people familiar with the company.

Sources said that Twitter now has around 240 million users, which means it has been adding fewer than 4.5 million users a month in 2013. If it continues to grow at that rate, it would end this year around the 260 million mark — meaning that its user base would have grown by about 30 percent, instead of Costolo’s 100 percent goal.

That’s not a bad pace by many standards. Facebook, for instance, grew its active user base by 33 percent in the 12 months leading up to its IPO in 2012. But Facebook was and is a much bigger company — it had 900 million users when it went public, and more than a billion today — and that size was a big selling point.

One factor that may have thrown off Twitter’s growth targets from earlier this year has been spam. The company went through a significant campaign to get rid of bogus accounts earlier in the year, people familiar with the company said. That effort was successful enough that it ended up shrinking Twitter’s true user number. On the bonus side, Twitter can now tell Wall Street — and advertisers — that they’re getting what they pay for, user-wise.

But Twitter employees also said the company has a basic problem with churn — lots of people sample the service and then stop using it. And it may be that Twitter, which has its own particular set of customs and expectations — try telling someone who doesn’t use the service what “retweet” is, and how that differs from a “modified tweet” — may simply be more of a niche service than Facebook.

Twitter is still bent on figuring out how to increase its growth and become a truly mainstream service, primarily by focusing on ways to make the service more appealing to new users, or to those who tried the service and bailed.

TwitterIPOIt has made design changes, like the blue lines it introduced last month that make it easier to follow conversations between users. It is experimenting with boxes that would highlight Twitter chatter about TV shows or other big events, to make it easier for novice users to find stuff lots of people are talking about. It is sending lots of emails, pointing out when you’ve been mentioned or retweeted, in an effort to lure back wayward users.

It has also introduced supplementary apps alongside the main Twitter app, in an attempt to attract new and different demographics. Vine, the Twitter-owned video service that launched in January, is growing at an “okay” pace, according to sources. But the Twitter Music app it introduced in April has “tanked,” sources said. (Note that Instagram, the photo-sharing service Facebook bought last year, has continued to grow at a fast clip.)

Costolo has brought in new personnel to try to boost growth. Late last month, he hired ex-Google ad director Christian Oestlien as Twitter’s senior director of growth and international. He’s a key hire who is supposed to build the company’s user base, particularly outside the U.S. He replaces Othman Laraki, who left the company last December.

But even if Twitter can’t show rocket-growth in its user base, it may still have a convincing story for Wall Street when it comes to revenue growth.

The company has only started ramping its ad sales in the last two years, and has deliberately held back some ad products so it can show a steady growth rate, sources said.

And advertisers are happy to experiment with the service, at the very least: People outside the company expect it to reach $900 million in sales next year, which might be triple this year’s revenue.

Meanwhile MoPub, the mobile ad startup Twitter bought this week, will give the company another growth story to tell. People familiar with the company said Twitter intends to keep running MoPub’s core ad exchange, in addition to using it to help market Twitter’s ad inventory. That means Twitter will be able to make money by helping other people buy and sell ads, even if they’re not buying Twitter’s ads.

And Twitter is also contemplating using MoPub so it can place Twitter’s native ads on other publishers’ mobile sites and apps. That is, it is thinking about using MoPub to create a Twitter ad network.

That’s a move people have expected for years from Facebook but haven’t seen, supposedly because Facebook is busy figuring out how to sell ads on its own properties, to its own users. But Twitter may have a good reason to look beyond its borders for more dollars.


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