Twitter Case Study

Case Study Table of Contents Executive summary.........................................................................................................................4 Issue 1 with Justification with the Reference to Appendix:............................................................5 Issue 2 with Justification with the Reference to Appendix:............................................................5 Issue 3 with Justification with the Reference to Appendix:............................................................6 Recommendations............................................................................................................................6 EXTERNAL ANALYSIS...............................................................................................................6 Appendix A:.................................................................................................................................6 PESTEL Analysis:....................................................................................................................6 Appendix B:.................................................................................................................................9 Dominant Economic Characteristics:.......................................................................................9 Learning Curve Effects:......................................................................................................10 Appendix C:...............................................................................................................................10 FIVE FORCES ANALYSIS:.................................................................................................10 Appendix D:...............................................................................................................................12 Drivers for Change:................................................................................................................12 Appendix F: Key Success Factors.........................................................................................14 INTERNAL ANALYSIS...............................................................................................................15 Appendix A:...........................................................................................................................15 Weighted Competitor strength analysis.................................................................................15 APPENDIX B:...........................................................................................................................16 SWOT ANALYSIS:...............................................................................................................16 Appendix C:...............................................................................................................................17 Financial Analysis..................................................................................................................17 Ratio Analysis:.......................................................................................................................17 Profitability.............................................................................................................................17 Liquidity.................................................................................................................................18 Leverage.................................................................................................................................18 Appendix D:...............................................................................................................................19 Company’s current strategy:..................................................................................................19 Product Strategy:.................................................................................................................19 Distribution Strategy:..........................................................................................................20 Case Study User Strategy:.......................................................................................................................20 Marketing Strategy:.............................................................................................................20 Advertising and Data Licensing Strategy:.........................................................................20 Case Study Executive summary In this paper we have analyzed the Twitter case study, we analyze issues face by the organization, Recommendations are given to overcome these issues. In Appendix A we’ve done external factor analysis through PESTEL Analysis in which political, economic, social, technological, and legal external factors are examined. In Appendix B dominant economic characters like market size and growth, number of rivals, the scope of competitor rivalry, number of buyers, degree of product differentiation, product innovation, supply/demand condition, the pace of technological change, vertical integrity, economies of scale are discussed. In Appendix C five forces analysis is done in which we analyzed the threat of new entrants, bargaining power of buyers, bargaining power of suppliers, the threat of substitute products. Appendix D describes the significant drivers of changes which an organization face, includes technological, privacy factor, attractive content, competition among rivals and customer preferences and demands. Appendix E competitor analysis through weighted competitor strength analysis in Appendix A, SWOT analysis through company weaknesses and strengths, financial analysis in Appendix C through ratio analysis, and a graphical representation, Appendix C includes all the current strategies Twitter implemented. Case Study Issue 1 with Justification with the Reference to Appendix: “Twitter” fails to achieve financial gain until the fourth quarter of 2017, this is due to the lack of cost control by the management and overspending on the departs like research and development and marketing alike companies who want to grow in long-term. As we can see in EXHIBIT 1 “Twitter” since 2013 incurring huge operating losses till 2016 due to overspending on two departs namely (research and development) and (sales and marketing) while in 2017 “Twitter” start to implement cost-cutting techniques on those departs and cuts 24 and 25 percent respectively, immediately “Twitter” experience the positive outcomes of these cost constraint and experience it’s 1st operating profit in 2017 since 2008. In 2017, only due to these cost constraints “Twitter” achieved the positives even though its revenue decrease. In EXHIBIT 1, we can see that “Twitter” still incurring net losses even in 2017 net loss (108,063), “Twitter” starts looking for major constraint in their financial growth, they discover that they are miscalculating the number of users since the fourth quarter of 2014, if the company needs the desired result, they should know the market, its competitors and the potential customers who create the aggregate demand for their goods and services. Appendix C analyze the financial health and why Twitter fails to achieve desired financial growth and profits. Issue 2 with Justification with the Reference to Appendix: Growth of “Twitter” was very slow as compare to its direct competitors, after financial constraints this is the most important issue for “Twitter” management to encounter since from the third quarter of 2015 to the third quarter of 2017, most of its competitors like Facebook, Instagram and WhatsApp experience multiple growths and captures the significant market share. Facebook reached 461 million monthly active users as WhatsApp and Instagram reached 400 million in the aforesaid period. In contrast to all these massive growths of the competitors “Twitter” experiencing an increase of only 23 million monthly users. Growth is one of the most essential factors for any business in the long run to survive and achieve the desired outcomes. If the direct competitors are achieving the desired growth it means the market is growing or there is a potential growth opportunity in the market, so this is the time where “Twitter” management should play its part, take some bold steps, and corrective actions to compete in the market. “Twitter” should work on the interface, make it more user-friendly so people feel more convenient to create, share, and promote contents. This is how Twitter can achieve the desired growth when the number of users increases and the elite brand is here for all. Appendix A PESTEL analysis shows a deep analysis of the slow growth of Twitter as compared to its competitors. Case Study Issue 3 with Justification with the Reference to Appendix: EXHIBIT 4 shows the decrease in Twitter’s advertising revenue from 2016 to 2017, the company encounters a 6% decrease in revenue in that period. The research firm in their report categorically mentions that Twitter lost its share of about 2.6 percent in 2016 of the U.S mobile advertising industry, worth $1.21 billion revenue through mobile advertisements, also lost by “Twitter” in 2017. In the era in which E-marketing and industries associated with it are growing at a rapid pace, in contrast, “Twitter” experienced a decrease in their revenue. The spending of marketers on E-marketing and mobile ads is an all-time high in 2017 that is $58 billion, 25 percent more than last year. But questions arise, why “Twitter” is struggling to achieve the desired market share in advertisement and e-marketing? This is due to the strong competition which “Twitter” experience against the two big giant like Facebook and Google, “Twitter” need to find ways to dominate and get the competitive advantage against these two giants. Appendix C deep financial cost analysis, with Twitter cost issues and constraints implemented in 2017. Recommendations Since (2017) cost constraint is implemented, parallel to that “Twitter” needs to increase its revenue by generating influential E-marketing and advertising structure that can compete with Facebook and Google who shares 57% of the market share in 2017. Cost constraint should be implemented all over the company not only for a couple of departments, to attract marketers Twitter can offer discounts and other packages for emarketing and advertisements so they will get more revenue from this sector as well. EXTERNAL ANALYSIS Appendix A: PESTEL Analysis: are the external six factors analysis, which affects the company’s management decision making and long and short term strategies. PESTEL Analysis are as follow: Political: “Twitter” presence is all over the globe right now, it increases the probability of conflicts with the policies of different governments. Sometimes government band social media apps or websites due to the contents or campaigns, which create conflict with the social, religious, or cultural policies of a government. Despite this factor, there is no such major political constraint that “Twitter” face.  Restrictions to access to products or censoring information. Case Study  Political stability and the use of social media to disperse information. Economic (Very High): In this rapidly growing and emerging sector, there are vast growth opportunities but the competition with innovative and adoptive competitors like Facebook and Google, it demands “Twitter” to be highly responsive towards any opportunity in the market. So, this highly competitive macro-economic environment pushes “Twitter” and its management to give the best out of it.   Allowing exchange rates between countries using information from Internet providers. The addition to Twitter’s increases in investors comes from being a part of the S&P 500. Social (Moderate): “Twitter” enjoys so many benefits as a global company but operating globally put some social constraint on companies advertisement, marketing, and communication strategy because due to the different educational level, different level of responsiveness, attitudes and understanding level, people react differently from each other and it creates a negative impact on the company to penetrate in the new market.   Social media increases with news updates that allow customers to rely solely on social media for quick accurate updates. Twitter is a great place for marketing. Online shopping and advertisement for businesses tend to grow into a bigger platform on Twitter. Technological (Moderate/High): Technology transforms drastically from the last 40 to 60 years, “Twitter” operates in the market which has dynamic technological factors, so much emerging social media platforms which give the same or similar kind of services that Twitter gives to it users, so to be competitive Twitter always have to innovate and update itself technologically and with creativity. But at the same time this technological advancement increases the potential users of SOCIAL MEDIA and also creates a dynamic situation in the market which does not give suitable time for corrective actions, it requires management with native forecasting skills and a flexible internal environment which can adopt the changes and adjust as required.   Social media is the best outlet for obtaining news. Twitter being the biggest. Marketing on Twitter platforms creates great opportunities for many types of businesses and industries around the world. Case Study Environmental (Low): The environment is essential for the company growth or penetrates the new market, suitable and stable environment makes it quite easy for the company to forecast opportunities and make their long-term plans to achieve certain benchmarks or goals. “Twitter” operates in the market which shows all the upward growth trends, all the favorable internal and external environmental factors except high competition from giants like FACEBOOK AND GOOGLE, which “Twitter” has to counter to be the leading one.   Promoting environmental platforms for campaigns. Laws of the environment related to power at data centers. Legal (High): There is some legal Law which acts in favor of “Twitter” like the anti-trust law, which keeps the monopolistic activities out of play, so the fair competition prevails in the market. The sector in which “Twitter” operates demands so many different legal patents or copyrights to protect and differentiate their works.   Things to consider are the types of risks of lawsuits regarding defamations and/or impersonations. Most countries have law regulations that vary from country to country regarding the use of private information. Case Study Appendix B: Dominant Economic Characteristics: Market Size and Growth Rate: Twitter is the social media web site which came into being in 2006, the same year in which smartphones are starts positioning into the U.S market, the use of the smarts phone make their market rapidly and violates all other types of phones due to its multi-tasking and entertainment factors, with the extensive use of the smarts phones, brought the social media websites like Facebook, Twitter, Instagram, etc., into an all-new era of opportunities and growth. Since the time smartphone deployed the growth in the social media industry is unstoppable and still, the industry is in a growing phase. Social media statistics shows that there is 3.5 billion social media user all around the globe, and the numbers are growing day by day, approx. 45% of the global population using social media in different means. The future growth forecast regarding social media growth is USD 3.6 billion in 2020 to USD 15.6 billion by 2025, the growth rate is expected to be 34.1% in between 2020 to 2025, the sum increased almost 4 times in 5 years. The market size has been growing at a rate of 40% yearly. Scope of Competitive Rivalry: Social media industry is open for all the service providers, the industry has some of its technological behemoths like Facebook, Instagram, and now Twitter. There are thousands of other service provider’s but they can’t compete with Twitter because it achieves the economy of scale and so many competitive advantages over others, which makes the small service providers irrelevant as the riyals except Facebook and Instagram. The major rivals like Facebook, WhatsApp, Snapchat, LinkedIn, and Instagram possess strong competition and they try to attract their users by having different techniques and advancement in their social media platforms. These media platforms are Twitter's 5 main competitors in the internet provider sector of the USA. Product Innovation: Innovation in the sense of limited corrector Tweets and unlimited followers/followed option were brought in by “Twitter”, despite that it possesses all similar properties which other competitor’s product have. So, Twitter must go for some more innovation in their product. Twitter innovation targets Smartphone/Computer-based markets as a product is the key to innovation. Twitter is currently seeking out new startup companies with innovative technology to acquire. Economies of Scale: The cost of web hosting and company server is not public but it’s likely that with millions of user Twitter achieves its economy of scale in their web infrastructure. As the traffic for web hosting, e-marketing, and other internet services with a bundle of discounts that their competitor can’t efforts to give. This economy of scale gave a huge competitive advantage over the thousands of other social media service providers and limited the Case Study competition in the market. Current industries have established distribution and advertising channels that would be difficult for new entrants to replicate. Learning Curve Effects: Coding has become one of the most popular skills to learn the tools are easily accessible to anyone. Therefore, the learning curve is relatively flat making it easy for new entrants to join the market. The Internet information provider industry had yearly revenue of around $45 billion and it is growing at a rapid rate. The top competitors in the industry are Twitter, Snapchat, LinkedIn, and Facebook, which also includes WhatsApp and Instagram. As a technology-based industry, it is ever-evolving as innovative breakthroughs are made. Appendix C: FIVE FORCES ANALYSIS: The threat of new entrants (Strong force): Twitter is in a competitive market where there is no legal constraint to enter into the market as a producer but there is some barrier to enter like cost, brand loyalty, competition against giants, capital investment, low return.    Moderate economics of scales due to established distribution and advertising platforms. (Strong factor) The high industry growth rate increases with the internet and smartphones worldwide. (Strong factor) Easy creations of creating new accounts at no cost. (Strong factor) The threat of substitute products (Strong force): One of the most significant external forces, which affect the company environment. We analyze the effects and factors, which make the substitution factor that much strong force for Twitter.    Switching cost is very low (Strong factor) Availability of substitute is high (Strong factor) Availability of variety limited (Moderate force) Due to the nominal costs of switching competition among the rivals increase and the threat of substitution is also on the higher side, a user feels free to switch on different substitutes Case Study which gives them better utility as compared to others. The second factor which increases the tread of substitution in the industry is the availability of substitutes these numbers are on the higher side so the user experience so many options and feel indifferent to switch among them. The limited variety in the product or the limited abilities in the companies to be different from their competitors in terms of their product, so the users have almost similar experiences from all so that the substitution becomes easier. Bargaining power of buyers (Strong force): In this element of five forces analysis, we elaborate on the effects of the bargaining power of the buyers on the company’s environment, in the case of Twitter their users possess strong bargaining power, it imposes pressure on the company. Through this bargaining power, customers can dictate what they want or what they don’t, irrespective it’s beneficial for the company or not. It creates a different constraint on the company’s decision making and a strong influencing force. The factor which makes the bargaining power of the buyers that much stronger are:     Low cost of switching (Strong factor) A high number of substitute (Strong factor) Indifferent or lack of variety (Strong factor) A high number of buyers (Moderate factor) Bargaining power of suppliers (Weak force): This element of the five-factor model look at how the bargaining force of supplier can influence the company environment. Twitter achieve the economy of scale due to one of the utilities they enjoy is the weak bargaining force of suppliers.    Size of supplies is moderate (Weak force) large availability of supplies (Weak force) large number of suppliers (Weak force) Explanation: In the case of Twitter supply needs of different hardware, server and networking technologies, office supplies, etc. Except for some large suppliers Twitter experience a weak force to bargain from its suppliers due to above mention three reasons, the huge quantity demanded and the large supply of the demanded goods weaken the bargaining possessing of the suppliers, it helps the company to be cost-efficient in there processes. Rivalry among existing competitors (Strong force): Even one of the leading firms in the industry “Twitter” still experience significant competitive force from its direct competitors. This element of the five force model looks at how the companies or industry environment effected by the competitors.    A large number of firms (Strong force) A large variety of firms (Strong force) Low switching cost (Strong force) Case Study Twitter is one of the leading and growing social media platform in the world, the industry in which they are operating has a low cost of entrance so there is so much traffic of new and small competitors, still, the numbers are very high of the significant social media platform providers like Facebook, Instagram, WhatsApp, snap chat, Myspace, Tiktok, etc. so this emerges a strong force of competition in the market. In the recent past, new types of social media and entertainment apps and platforms are provided by some of China firms like Tiktok. So, the variety of services provided by different companies makes this rivalry and competition tougher. Above all the very low or approx. nil tangible switching cost like in the case of Twitter, if the user quits it will lose his past Tweets and followers, so this low cost possesses a very strong force in making this competitive rivalry a strong factor. Appendix D: Drivers for Change: Technological: Twitter in the industry that is highly reactive and adoptive for the technology change, Twitter has to adopt the latest technological changes to be compatible with rivals, and also to attract new and existing users through efficiency and better services. Overtime Twitter adopts so many things like they increased their tweet characters from 140 to 280 and Enabled live videos and broadcast, these are some front-end changes that Twitter makes to be relevant and competitive. There is so much back end technological changes were done for these little front end changes. Customer preferences and demands: In the social media industry, customers are the strongest force of change due to the low cost of the switch and a high number of substitutions, people don’t want ads on their social media platform where they casually interact with their family and friends but advertisements and marketing is one of the major revenue resources of any social media platform so they have to find the mix that will satisfy the user and fulfill the revenue needs of the company. In some cases, social media platforms have to adopt certain characteristics due to increasing demands of things like in the case of Twitter adopt video live streaming and broadcast. Privacy factor: This factor is very crucial for so many users and marketers as well, in this modern world where all the information is on the world wide web, private becomes the crucial element of concern for so many online sectors, if a social media platform compromise on the quality of their privacy policy and security structure, it will lead to devastating effects on the business, no one wants their private content to be unsafe and misused. Case Study Competition among rivals: Competition in the influential external factor for any company, Twitter in particular faces many competitive giants in the market, sometimes these external forces exert pressure on your internal decisions and are the driving force for changes. Attractive contents: Social media depend so much on their customers even for a single content, they only give the platform nothing else if the content maker stops making content the platform is no longer attracts attract anyone, so this strong dependency can influence the change. Appendix E: Competitor Analysis Twitter has three main competitors in the Internet information provider industry. Those competitors and their strategies are listed below:  Facebook - utilize a broad differentiation strategy. They have aggressively expanded globally and had products with the capabilities to share photos or textbase information, instant message, share articles, and log-in and connect third-party games and applications.  Snapchat – utilize a broad low-cost strategy. They are the go-to photo-sharing application for instant communication. People communicate visually with friends and family through short videos and images that are deleted by default.  LinkedIn - utilize a focused low-cost strategy. They provide a low-cost easily accessible platform for professional networking. Members create, manage, and share their professional identities online, create professional networks, share insights and knowledge, and find jobs and business opportunities. Case Study Appendix F: Key Success Factors Advertising Contracts – The majority of revenue for Internet information providers comes from selling advertising space on their sites or applications. Obtaining these contracts is key to success. Product Differentiation – The firms that have succeeded (Facebook) have created product differentiation by purchasing other applications and developing new features for their current sites Innovative Products – As with most tech-based industries, the Internet information provider industry is ever-evolving as breakthroughs are made. Firms must stay in front of this by continually researching new technology and incorporating it into their products. IT service and reliability – It is inevitable that technology base products will occasionally have bugs and not work as they are intended. If these are not corrected quickly, their image and users can be impacted negatively. High Profile Users/Endorsements – High profile users such as famous entertainers or world leaders will draw in large amounts of new users. Case Study Strategic Group Map Internet Information Providers High Product Differentiation Facebook LinkedIn Twitter Snapchat Low Target Market Based on this strategic Group map Facebook is a clear industry frontrunner with the majority of the internet social media market. They have differentiated their product by acquiring various companies and expanded globally. Twitter and Snapchat utilize similar strategies and boast similar market shares. LinkedIn has carved out its niche in professional networking. INTERNAL ANALYSIS Appendix A: Weighted Competitor strength analysis KSF Weight Advertising 0.2 Twitter R W 8 1.6 Facebook R W 9 1.8 Snapchat R W 6 1.2 LinkedIn R W 6 1.2 Case Study Product Differentiation Product Innovation IT Service Celebrity Users Weighted Score 0.2 0.25 0.15 0.2 1.0 9 7 9 10 1.8 1.75 1.35 2.0 8.5 9 9 7 9 1.8 2.25 1.05 1.8 8.7 6 8 8 5 1.2 2.0 1.2 1.0 6.6 5 6 8 4 1.0 1.5 1.2 0.8 5.7 Twitter has been able to remain competitive with Facebook due to its comparative advantage in IT service and high-profile users. However, there is room for improvement. Product differentiation and innovation must be a top priority going forward. Twitter needs to develop new uses for its platform to succeed. This would increase their number of users while simultaneously increasing their ability to profit from selling advertising space. APPENDIX B: SWOT ANALYSIS: Strengths 1. The number of audience past 330 million. 2. Make a strong brand image in less time and faces fewer issues as compared to other competitors in the market like Facebook. 3. Twitter is one of the experienced in the market (2006) 4. Innovation and technology is the focal point and the industry required continue technological improvements to be competitive and grow. 5. Huge reach benefits provided to marketers with better results and attractive new techniques. Weaknesses 1. Low retention rate, only 40%. 2. Twitter experiences low revenue and comparatively less ROI as compare to Facebook. 3. Operation expenses on the higher side due to extra spending on R&D and marketing. 4. Online Harassment, Treads, and scams are a few matters of concern in this industry. 5. Privacy and cyber-attacks which lead to low of precious data are a serious concern. Case Study Opportunities Threats 1. Target new markets and customers for faster growth. 2. To becoming a communication tool, customer service offering for organizations in a structured way. 3. Ability to integrate with other social media platforms. 4. For diversified growth and continued improvement in user experience. Investing in technology and innovation will help Twitter to achieve desired results. 5. Twitter already possesses the kind of data and resources to enter the search engine business. 6. After Facebook, Twitter is the second most recognized social media platform, this brand equity will pay off in the future. 1. The social media industry has a competitive threat due to the high rate of growth. 2. Legal constraints: In the recent past social media industry is under pressure by a different political figure like president Trump with its executive orders put pressure on this industry. 3. The value of the company creates the user's trust but hacking and fake accounts are a threat to companies. 4. Data security and privacy always a concern for this industry so many users avoiding social media due to this issue, it will result in loss of trust and business. 5. New companies bring new ideas and innovation in the market which can absolute the existing ones. Appendix C: Financial Analysis Ratio Analysis: Profitability Ratio * Calculations show in hundreds of thousands; working capital results in thousands Profitability Gross Profit Margin – Calculated as net income divided by revenue 2017 ($1,582/$2,443) * 100% 64.8% 2016 ($1,597/$2,530) * 100% 63.1% 2015 ($1,489/$2,218) * 100% 67.1% Operating Profit Margin – Calculated as operating income divided by revenue 2017 2016 2015 Case Study ($39/$2,443) * 100% 1.6% (($367)/$2,530) * 100% -14.5% (($450)/$2,218) * 100% -20.3% The profitability ratios show that Twitter has been losing money steadily. Fortunately, in 2017, they were able to get their operating profit margin back into the black. 1.6% is not going to do much to help their situation as it is due to a decrease in expenses rather than an increase in revenue. Liquidity Current Ratio – Calculated as current assets divided by current liabilities 2017 ($5,322/$583) 9.1 2016 ($4,652/$584) 8.0 2015 N/A N/A Working Capital – Calculated as current assets minus current liabilities 2017 $5,322-$583 $4,738,606 2016 $4,652-$584 $4,068,175 2015 N/A N/A The liquidity ratios show that Twitter is highly liquid and should easily have the capital to cover current liabilities. This should allow them to fund further R&D and advertising expenditure. Leverage Total Debt-to-Assets Ratio - Calculated as total debt divided by total assets. 2017 ($2,365/$7,412) 0.32 2016 ($2,265/$6,870) 0.33 2015 N/A N/A Total Debt-to-Equity Ratio: Calculated as total debt divided by total equity 2017 ($2,365/$5,047) 0.47 2016 ($2,265/$4,605) 0.49 2015 N/A N/A Case Study Twitter is in good shape when it comes to their leverage ratios. They are not at risk of bankruptcy from the overuse of debt. This has a positive impact on their credit score and will allow them to borrow from creditors to cover expenses should the need arise. Appendix D: Company’s current strategy: Broad Target Market Broad Low Cost Broad Differentiation Narrow Target Market Narrow Low Cost Narrow Differentiation Twitter is on its growing phase as its market is, having a rough start in 2008 till 2017 now Twitter is catching momentum and becoming profitable. Now Twitter adopted a long-term costcutting strategy to gain financial stability and spending on those factors which can bring desired results. The growing and evolving nature of the industry demand certain flexibility from all the companies in the market due to this the industry possess high risk and also having many legal barriers. Driving forces must be in consideration while making the strategies for the future. Twitter employs a broad differentiation strategy to appeal to a large range of buyers with a differentiated product from their rivals. They aim to become an indispensable daily companion to live human experiences. They have created a product optimized for smartphones that allow for simple distribution of information. Product Strategy: Twitter has committed to creating a platform for real-time information distribution that is simple and easy to low. They limit the character count to make it easy for users to create, distribute, and discover content that was consistent across the Twitter platform. The large volume of tweets drove high-velocity information exchange. Case Study Distribution Strategy: Twitter’s broad differentiation strategy is evident in its use of an app that can be easily accessed and used by anyone with a smartphone no matter where they are located. User Strategy: Twitter did not restrict who a user could follow which greatly increased the variety of content and allowed users to find the content they cared about most. Also, they could be followed by millions of other users without reciprocating which allowed them to reach a broad audience. Marketing Strategy: Twitter’s product and user strategies provide easy free marketing in its design. Its public platform extends the reach of both the users and the company. Media outlets distribute tweets to enhance their content making it more timely and relevant. This reach also encourages high profile users to tweet their messages for further free marketing. Advertising and Data Licensing Strategy: Twitter generates large amounts of revenue by offering mobile advertising to third parties through their Mo Pub exchange. They also offer licenses allowing partners to search and analyze historical and real-time Twitter data.