News Column

Twitter Looking To Quell Critics, Tweak Business Model

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It's among the most recognized brands on the Internet and a bona fide cultural phenomenon, with as many as 400 million monthly users and a brand-new $800 million funding deal. It's also been the scene of recent high-level comings and goings and enough gossip to fuel a soap opera. And when it comes to users, estimated revenue and general buzz, Facebook is eating its lunch.

So whither Twitter, the high-flying social media network whose legions of die-hard fans are nearly equaled by its skeptics? Can the microblogging site become a big business -- or does the turmoil at the top in the past few months bespeak a company in trouble?

"Ever since we started Twitter, there's been chatter, and from the beginning it's been negative," said Biz Stone, one of its three co-founders -- and one of two who've left the startup since the spring. "I believe that when people are talking about your product or company, it signals that they care."

He and other top Twitter officials insist the corporate musical chairs -- Jack Dorsey's 2008 ouster as CEO, Evan Williams' replacement in the top job last fall, Dorsey's March return as executive chairman, accompanied by Williams' departure, and finally Stone's own exit to join Williams at a new venture -- is little more than the natural

shuffling of personnel as the company evolves.

They also say focus on the movements of the three founders overlooks the bench of executive talent new CEO Dick Costolo has recruited from the likes of Google (GOOG), Pixar, eBay (EBAY) and Palm.

Still, the company's leaders face weighty challenges: How to better monetize the service's voluminous and fast-growing user traffic; how to banish for good the notorious "fail whale" icon that appears when the site is overloaded; and how to help users better navigate the 200 million daily "tweets" that make up Twitter's so-called firehose.

Bill Reichert, a venture capitalist at Garage Technology Ventures, is among those who doubt they can pull it off.

"It's hard to find any other company that has been so successful by some measures be so incredibly lacking in innovation for so long," he said. "Twitter is no longer cool or exciting. It's just there, like texting. Only I pay for texting."

But while Reichert believes the company should sell itself to someone who can better leverage the data stream into new products and services, Costolo and the board have doubled down, largely out of faith that Dorsey -- who conceived of and first developed Twitter -- can be the one to lead it to glory.

Costolo, a former stand up comic and Google veteran who joined Twitter in fall 2009 and a year later supplanted Williams as chief executive, recently outlined his and Dorsey's shared vision of Twitter as "the world in your pocket." At a technorati-laden conference in Aspen, Colo., he talked of billions of tweets being delivered via computer, smart phones and even TV, with improved search features enabling users to troll the stream for information -- and enabling advertisers to reach those users in a seamless and unobtrusive way.

Costolo added that he wooed Dorsey to return in March in part to help settle internal debates over what the product should aspire to be: "It's helpful to have the inventor of the product in the room."

Dorsey has likened being ousted by Williams in 2008 to "getting punched in the stomach," but Stone and other insiders say there's no personal animosity among the founders -- just differing tactical visions for how the company should fulfill its destiny.

"It's weird, because they're such similar guys, such similar product visionaries and super-hard workers," Stone said of Dorsey and Williams. "They just have slightly different approaches to things."

Board member Peter Fenton, a partner at Benchmark Capital, said he's not concerned about Twitter's public growing pains. "The principals have been able to park their egos at the door," he said. "There's no lawsuits around Twitter."

He also said the turnover is par for the course at a growing startup, noting that in the past two years, the company's payroll has shot from 25 to more than 600.

Twitter last month marked its fifth anniversary by tweeting that it had added 600,000 users just in the previous day. Traffic has doubled since January, and Costolo says that according to data harvested by Google Analytics, 400 million unique visitors used the site in June.

The most recent figures from tracking service comScore Media Metrix are more modest, yet still robust, showing that nearly 145 million people worldwide visited Twitter.com that month.

Then again, according to comScore, Facebook in June garnered 161 million visits in the United States alone.

Despite Facebook's bigger membership base, some users say Twitter gives them access to news makers they care about.

"Twitter has a meaningful impact on my life," said Jay Marcyes, a San Francisco Web entrepreneur who met his startup's co-founder when both were following tweets by the same angel investor.

Even so, "There are still aspects of the experience that are broken," acknowledged Mike Abbott, who helped create Palm's operating system before joining Twitter last summer as head of engineering.

As part of making the product more useful, Twitter recently tweaked its search function to show users more relevant results from the data stream. "Let's say you take Caltrain," Abbott said. "How do you know which accounts to follow so when there are delays, you know why?"

Suggesting whom users should follow is also part of the company's evolving advertising strategy. Another part is "promoted tweets," which lets advertisers insert product blurbs in the same 140-character-or-less format by which users communicate with each other.

While some devotees have complained about the rise of promoted tweets, Adam Bain, the company's president of global revenue, said the messages have proven far more likely than banner ads to coax viewers to click for more information.

"We get a lot of people asking why we aren't just full-on blasting users with ads," said Bain, who joined Twitter last fall from News Corp. "That's not the Twitter way."

Research firm eMarketer has estimated Twitter will reap $150 million in advertising revenues this year. Again, that's just a fraction of Facebook's projected $4 billion.

To keep users and advertisers happy, Twitter's been pumping resources into reliability. Abbott says the engineering staff has tripled since he joined and makes up more than half of the company's workers. "The Super Bowl this year was the first one in company history that everything worked great," he said.

Twitter's also doing more to beef up its network of external partners. Last month, it helped land funding for a New York startup called DataSift, which Twitter has licensed to help brand marketers better harness the firehose to target customers.

And in answer to criticism, Twitter launched a website to provide tools and support to the 750,000 developers who've created applications on the company's platform.

"They heavy-handed some of those same developers over the last six to eight months, trying to control everything, which gave them something of a bad reputation," said Mike Fauscette, a software industry analyst with International Data Corp. "It's important to their business model to be able to grow that ecosystem."

Fauscette calls Twitter "an interesting problem," noting that while it seems to be more popular than ever with users, the business model remains perplexing.

"At some point, you've gotta fish or cut bait," he said. "When can they articulate the vision that makes me go, 'Oh, I get it?'"

Stone, like others in the company, preaches patience.

"Sometimes, if you're gonna do something awesome and do it right, it takes time," he said. "I think that this team is gonna pull it off, and it's going to be one of those, 'How'd they pull it off?' moments."

Contact Peter Delevett at 408-271-3638 or pdelevett@mercurynews.com. Follow him at Twitter.com/mercwiretap.

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