Will Wall Street Get In The Way Of Jack Dorsey's Lofty Plans To Turn Twitter Into A Protocol?
from the that-would-suck dept
A year ago, I was at a round table discussion, where someone was doing one of the standard rants we’ve all heard, about how big internet companies were evil because they were focused on profits over the health of their user base, etc. I pointed out that while this narrative had taken hold among many people outside of these internet companies, it didn’t seem to reflect what I was hearing from those within those companies — especially as they were investing heavily in “trust & safety” teams, including both hiring people and building technology, that would provide better overall experiences on the platform. Instead, I suggested, their complaint seemed to be more with Wall Street investors, and the short term profits that it demanded from many public companies. There are the Jeff Bezos/Amazon exceptions — where he basically told Wall Street to go put their head in a bucket for many years while he re-invested in the business as they demanded profits — but for the most part, public companies are put on a short leash, not so much by management expectations, but the demands of investors.
I’m thinking about that a lot again, following the news of the proxy fight over Twitter’s management that was raised just recently. At the beginning of the month, it was revealed that Paul Singer’s massive hedge fund Elliott Management had taken a large stake in Twitter, and wanted major changes, including getting rid of founder/CEO Jack Dorsey. A few days later, it was revealed that a deal was struck between Twitter and Elliott Management to keep Dorsey in charge… for now. However, it seems that the situations is fairly tenuous. Elliott Management now has a board seat, and a promise of some very tricky “growth” targets (especially tricky in the face of who knows what’s coming with the economy during a pandemic).
The details of those metrics makes it seem clear that Elliott Management is forcing Twitter down a specific path — one that is likely to make the user experience for Twitter users much, much worse:
As part of the deal, Twitter has committed to reach certain growth and revenue goals. It promises to grow its average number of daily users who can see ads by 20 percent or more in 2020. This is not impossible; in 2019, Twitter nosed past that threshold. But it may be tougher this year, what with a pandemic and maybe a recession. Twitter also vows to ?accelerate revenue growth on a year-over-year basis and gain share in the digital advertising market.? (This will be tied to specific numbers as yet undetermined.) This bigger share would most likely have to come at the expense of Google or Facebook, which aren?t exactly pushovers. If Jack doesn?t perform, the committee won?t be happy.
This is crazy on multiple levels — and seems likely to harm Twitter’s long term objectives in a demand to focus solely on the advertising model to make it work. That’s going to piss off users, and potentially drive down usage, just to make these Wall Street short termers happy.
My even bigger fear, however, is that this will make it nearly impossible for Dorsey and Twitter to follow through on the company’s stated belief in moving to an open protocol, rather than remaining a proprietary platform. Moving to a protocol, while potentially opening up new revenue streams, would likely cause at least a short term problem for Twitter’s traditional ad revenue business. And given the short term nature of the investor’s mindset, they seem unlikely to allow the company to really push forward with such a radical change. And, of course, if Dorsey is eventually pushed out by the board, whoever takes over may not care at all about the open internet and a protocols-based approach. I think that would doom Twitter over the long run, but Wall St. doesn’t much seem to care about that.
Hopefully this isn’t how things play out, but it is concerning. It’s also a reminder that whenever people insist that it’s the folks at the internet companies driving for profit over all else, it might actually be Wall Street and the broken structure of our public markets, that basically require a short-term, profit-maximization model over a long-term sustainable model.