Why Twitter’s millions just weren’t enough

October 28, 2014

Remember that mantra about the soft bigotry of low expectations? Twitter probably does. Yesterday, the micro-blogging site announced third quarter earnings, precisely hitting its Earnings Per Share forecast and beating estimates with $361 million in revenue— better than double the $169 million quarter it posted a year ago.

Good news, right? Not for the fickle financiers of Wall Street. Shares were off 14 percent in early trading Tuesday amid cuts in ratings and price targets by a number of brokerages. And then there were posts like these: “Twitter disappoints by meeting expectations, stock tanks http://t.co/BQ3Y6X8Rwm— Henry Blodget (@hblodget) October 27, 2014

So why was good enough not good enough? Analysts point to a disappointing lack of innovation and stalling user growth. As this Reuters graphic shows, the social microblogging platform added 13 million active monthly users during the quarter, up to 284 million. However, this represented just a 4.8 percent increase form the previous quarter, sparking concerns that its user base is plateauing.

“We have an aspirational goal to build the largest daily audience in the world,” CEO Dick Costolo told CNBC. A fine goal, and 284 million sounds like a big number … until you realize that Facebook bests that number by a billion.

Twitter user growth

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Pointing out the bigger problem–that the Twitter service is worthless–might be wise. I don’t know why nobody wants to question the value of the service.

Some years ago, IBM posted a video on Youtube about their new analytics software. The scientist showed that the software could query Twitter for all tweets that met user defined criteria (over any given period of time in any geographic region, etc.), build a database out of the results and make spectacular looking graphs showing, for example, how people felt about the new iPhone.

This is the sort of insight that supposedly gives Twitter its worth, this is whence Twitter’s revenue comes. Can someone assess whether this data is worth anything at all?

Sure, Twitter can provide demographics on all the tweets, too, and the IBM software can break down the analysis by all sorts of criteria, but I’m still not sure if any legitimate extrapolation can be made from the Twitter users to the consumers at large, even if the Twitter data is controlled for race, age, socio-economic class, etc., etc.

Twitter obviously has some people convinced that its data are relevant, but nobody has scrutinized that claim yet. I venture that no matter how many more users Twitter signs up, the statistical confidence that goes behind a business decision may never be achieved precisely because behavior on Twitter does not in any way represent normal behavior. The statistical fundamentals are flawed.

It would be so nice if an organization with Reuters’ resources would tackle the fundamental underpinnings of a lot of businesses that could potentially be ripping people off.

Posted by cleanthes | Report as abusive