Although Twitter, Inc. (TWTR) is just over a decade old, it is decidedly mature in social Internet years. It has reached a critical developmental stage — perhaps a crisis point —where its value is driven by the monetization of existing users -- not by the mere attraction of new ones (a task that has proven increasingly difficult). While Twitter’s revenue ($2.53b and +14% Y/Y in FY2016, compared to +58% Y/Y in FY2015) has not yet begun to decline, the firm has never been profitable and does not show any imminent signs of being so under part-time CEO Jack Dorsey.

Over the past six months, Twitter has gone from a potential M&A-driven 52-week high of $25.25 to a close today (28 Mar 2017) of $14.94, all of which has increased public and investor pressure on Dorsey and his team to either perform or let someone else handle the reins full-time.

Enter TweetDeck

In an effort to better serve the needs of its power users, and add revenue, Twitter recently announced it was considering an enhanced/paid version of its once-popular TweetDeck interface, which it backed up with the release of an exclusive user survey (which included yours truly). The survey was revealing (and a bit unsettling) regarding Twitter’s TweetDeck plans, and leaves us less than confident that the firm has a strategy behind this tactical move.

Per the survey:

“Twitter is considering offering an advanced TweetDeck experience, with more powerful tools to help marketers, journalists, professionals, and others … find out what is happening in the world quicker, to gain more insights, and see the broadest range of what people are saying on Twitter,”

This is a clear nod to the consumption-driven power user, and ad-free, no less. But it also promises:

“valuable viewing, posting, and signaling tools like alerts, trends and activity analysis, advanced analytics, and composing and posting tools,” a clear nod to the engager/publisher user.

Can Twitter nail two birds with one stone?

Not from our perspective.

For those who are not hardcore Twitter fans, TweetDeck is a console interface for Twitter that allows real-time management of multiple accounts and far superior list tracking than Twitter’s standard web or mobile interfaces. TweetDeck was the brainchild of Iain Dodsworth, initially released in 2008 and later acquired by Twitter in 2011. It has been my personal favorite Twitter tool since the first iOS/iPhone version was released in 2009, as its utility as an aggregator of Twitter feeds/searches is undeniable.

One of TweetDeck’s most valuable features is its ability to create custom channels (News, Sports, Finance, etc.) based on search interests or personal Twitter lists. This is something that Twitter could and should have leveraged previously, with the creation of preconfigured “verified” channels (a feature that would help users filter out trolls, noise, and fake news).

TweetDeck originally supported other social networks, such as Facebook and LinkedIn (which is no longer in Twitter’s target zone). Snapchat, Facebook, Facebook’s Instagram, Pinterest, and Google’s YouTube are apparently now its core focuses, as this grab from the survey reveals:

Five or six years ago, when it still supported Facebook (FB) and LinkedIn (MSFT), TweetDeck could have very easily been morphed into a social media management tool and hit a homerun as a social customer engagement portal. However, TweetDeck fell prey to Twitter's desire to become a platform and resource for others. Rather than build/expand tools that would make it a true app provider, Twitter instead focused on being a “platform” (which it never achieved), and driving revenue through advertising and by selling access to the Twitter data firehose. It eventually killed off the iPhone/Android versions of TweetDeck in 2013 and culled back its functionality to exclusively focus on Twitter (available in OS X and Mac/PC browser versions). This was a missed opportunity.

Twitter dropped the ball again in 2013 when one of the strongest independent Twitter analytics tools, Topsy, was acquired by Apple (AAPL) for $200m. The combination of TweetDeck and Topsy would have been brilliant, and in the direction with what Twitter is contemplating today (Apple shut down Topsy after a couple of years, leveraging its search and analytics technology into its own products).

Could such an approach work today?

Unlikely.

The size of the market for social media engagement tools is equaled only by the number of well-established providers in this rapidly maturing segment. In its survey, Twitter specifically calls out a targeted list of competitors, many of which are already extremely well-established in this market: Sprout Social, Hootsuite (TweetDeck’s closest competitor), Falcon Pro, Tweetbot, Echofan, Buffer (more of a timing/posting tool), Social Booster, Media Studio, Sprinklr, Twitterrific, and SocialBro.

We’re also not sure of Twitter’s true intended market. While it calls out journalists, marketers, and professionals, several demographic questions in the survey clearly stood out as more than a bit bizarre.

When was the last time you saw a product-oriented survey ask respondents if they felt the world was not a good place or if they don't have particularly happy memories of the past?

This is not to say that enhancing TweetDeck is a bad idea, as we believe it could potentially drive software-like margins (that investors would love to see in Twitter’s results). But who exactly are they targeting?

The market for this type of product is already heavily saturated, and we’re not sure if Twitter has the clout (or the will) to make this a dominant play (based on our discussions with a few Twitter power users, it would have to significantly enhance the analytics features beyond what was disclosed in the survey).

The Price Point of Happiness

From a revenue perspective, this particular version of the survey is pretty clear about pricing: it’s a $9.99/month opportunity (note: some early recipients of the survey have reported seeing different price points).

At this point in Twitter's life cycle, $9.99 alone is unlikely to have any material impact on revenue or profitability. Assuming a more-than-generous adoption rate of 1% of its current users (3.19m users), that only generates $382m/year. Note this is “replacement” revenue, as the new service would be ad-free, partially removing these users from the ad-revenue stream. Just as importantly, it does nothing to address Twitter’s far greater issue of flat (or potentially negative) user growth.

Negative Twitter Growth?

Twitter's self-reported growth rate of MAUs (monthly active users), its primary metric for potential opportunity, has declined markedly. From 20% in 2014 to 6% in 2016, the trend is certainly cause for concern.

Bots are fake/automated accounts that, while active, do not provide any reasonable revenue value for Twitter directly (note that they do provide value for the owner of the bot). Bots typically either engage (as a simple response, like the @Yoda_bot that responds to users with Yoda-esque Star Wars quotes) or amplify (by creating massive networks of fake users that follow key individuals and amplify their messages). It’s the latter group that is most troubling for Twitter.

Amplify bots often follow, tweet, retweet, and otherwise engage in what Twitter would call an “active” manner, and can be generally indistinguishable from many average Twitter users (and, thus, counted as MAUs). Just as alarming, the type, number, and sophistication of “networked” bots (a collective group with a focused agenda) has grown considerably over the past two years.

How big is this bot issue?

Huge.

In 2014, Twitter acknowledged “approximately 8.5% (23m) of its 288m MAUs could potentially be bots.” In early 2017, a research team from the University of Southern California and Indiana University estimated that in 2016, 15% (48m) of Twitter’s 319m MAUs were bots.

Backing this up, an additional study by Oxford University revealed that “between the first two presidential debates, a third of pro-Trump tweets and nearly a fifth of pro-Clinton tweets came from automated accounts.” It’s clear that bots have become more common, and more active (and more likely to influence the MAU numbers).  

Assuming these numbers are valid, in 2014 the actual “non-bot” MAU count was around 265m. In 2016, the actual “non-bot” MAU count would have been around 271m. Assuming a steady growth of bots between 2014 and 2016 (which is generous to Twitter), this yields a 1.13% non-bot MAU Y/Y growth rate in 2015 and a 1.12% non-bot MAU Y/Y growth rate in 2016.

If we assume even a slight increase in the rate of bot deployment during 2016 (over 2015), we very quickly arrive at a scenario where Twitter’s human MAU count is either completely flat or declining Y/Y.

Bottom Line

Twitter clearly has an issue here, one that may, along with its “troll” issue, have strongly influenced the decision of suitors to walk away from rumored M&A deals with Twitter in 2016. While we believe that Twitter has extensive value in its data, and that the expansion of TweetDeck is long overdue, we do not believe those values justify its present valuation.

Twitter may be a compelling acquisition (as we've discussed previously), but we do not believe this new paid version of TweetDeck will save Twitter. At this point, it’s not a fruitful investment.