Twitter is no Facebook -- at least that's the hope
The contrasts between what Twitter and Facebook did in the run-ups to their respective IPOs may prevent lightning from striking twice.
For years, Twitter's good fortune brought headaches with it.
On one hand, Twitter attracted a passionate and growing audience. But phenomenal growth went hand-in-hand with semi-regular outages, such as the service disruptions that occurred in 2010, 2011, and 2012.
But the questions about Twitter went beyond the technical problems. Management turnover raised doubts about what was going on behind closed doors. And above all, was there ever going to be a business model? How would a company ever make money with a service built around simple, 140-character messages?
These days, most of that tumult is in the rearview mirror. Twitter, which last week announced its intention to go public, is justifiably seen as a key player in the Internet and media industries. It is reportedly bringing in hundreds of millions of dollars in annual revenue, advertisers are lining up, and now, finally, after a year or more of speculation, it is poised to sell stock to the public.
News of thewas met largely with applause. And though it's too early to tell whether Twitter will ultimately avoid the kinds of mistakes that led Facebook's IPO to tank, all available signs suggest that Twitter circa 2013 is a steady, well-organized business that is ready to make its big move.
To be sure, few outside the company really understand the structure of its business, but there are plenty of signs that indicate steadily growing revenue, a user base of about 200 million monthly actives, and a.
"People are optimistic," said Brian Blau, an analyst for Gartner in Silicon Valley. "There's optimism about Twitter finally growing up."
The obvious comparison people make -- and the one that big investors will make -- is with Facebook, whose stock price is now hitting highs after a year in the doldrums following its botched IPO. Investors can only hope that Twitter's path to IPO will be smoother but there is optimism that it can avoid the mistakes of its fellow social media giant.
What went right for Twitter
Twitter has received high marks for making smarter moves, particularly with itsset in motion a year ago. The upshot is that now .
The strategy was to create a similar experience across all devices and operating systems. As well, Twitter asserted new control over the user experience and funneled users toward Twitter's own Twitter clients, instead of the countless third-party clients that had long been popular. The move was Twitter's best chance at controlling how users accessed the service, and more specifically, the increasing flow of advertising dollars.
Twitter, too, has been making smart deals with big-time advertisers and content owners. Earlier this year, the company cemented deals with powerhouses like, the NBA, the NCAA, and that are resulting in those networks' content being integrated directly into tweets. And of course, new advertising dollars come with that content.
It also has been working to put out a series of stand-alone apps that can garner their own audiences. While Twitter #Music is regarded as a flop, its video-sharing app Vine is.
Blau also pointed to the fact that Twitter has solidified its management structure over the past few years. After wobbly leadership that rotated between co-founders Jack Dorsey and Evan Williams, the company finally appointed Dick Costolo as CEO nearly three years ago. An early Twitter investor and successful entrepreneur in his own right, Costolo has managed to stabilize things and "get management roles correct," said Blau. That's the sort of steady hand Twitter will need at the helm given how it's soon going to have to heed Wall Street's often impatient demands.
What went wrong for Facebook
Prior to Facebook's IPO, there hadn't been so much excitement about a technology company going public since Google.
But this much-ballyhooed IPO went sour almost immediately, in part due to mishandling by the Nasdaq. (Nasdaq subsequently got fined $10 million.) Facebook's stock, which launched at $38 a share, soon plummeted to as low as $18.80 amid concerns about growth concerns. As it turned out, those fears were overstated and in the last year Facebook's shares have rebounded, on the strength of a growing mobile business. Still, the IPO was a case study in how not to go public.
Perhaps Facebook's greatest error in the process was that the company failed to manage expectations and made the everyman investor feel blindsided by a process where insiders may have been privy to the company's financial circumstances. It's no surprise that shareholders turned on Facebook after learning that underwriters had downgraded revenue expectations prior to the IPO, though the social network was later. Add to that the fact that insiders, such as Peter Thiel, Digital Sky Technologies, and Accel Partners, were allowed at the last minute to dump larger chunks of their holdings in the offering, and you have a situation where the average person felt cheated.
Similarly, the social network -- or its bankers -- overvalued the company, which was great for letting Facebook bank the most money possible, but bad for employees and others who held the stock. Initially, Facebook was said to be exploring an offering price between $28 and $35 a share. But eventually it boosted the price to $38 and sold more shares, putting its valuation at $104 billion. The market quickly corrected that value.
In the lead up to its IPO, Facebook left too many important questions unanswered. The company had no clue how members migrating to mobile would affect its business, and it was uncertain about how revenue would be influenced by a tenuous relationship with game maker Zynga, then a major contributor to the social network's revenue. Overall there was a general lack of visibility into the business model, RBC analyst Mark Mahaney told CNET in a previous interview, which means that it was, and still is, difficult to gauge how quickly Facebook can grow. Many of these situations sorted themselves out in the months following the IPO, but the stock price went on a roller-coaster ride in the interim.
To a lesser extent, one could point the finger at CEO Mark Zuckerberg for having a little too much chutzpah for someone naive with the ways and wants of Wall Street. "Learning to lead in the equity market is not a natural skill; it's learned," Michael Useem, a professor of management at Wharton, told CNET. "Predictably, mistakes were made when the company went public on how Zuckerberg and others worked with the equity market."
'Don't be afraid'
Speaking at TechCrunch Disrupt last week, Zuckerberg joked that Twitter shouldn't be afraid to go public. The next day, Twitter announced its IPO plans.
Now, the company has to convince would-be investors it won't make the same mistakes Facebook made, and that it still has plenty of upside potential.
Blau said he thinks that Twitter's best bet going forward is to follow the model created by Google, Facebook, and even LinkedIn and "expand horizontally." That means, Blau explained, that Twitter needs to go well beyond its still relatively simple set of features and offer users -- and advertisers -- a much wider set of services. If Twitter wants to be a leader "in the real-time news and information [business]," Blau said, "they have to go in that direction. ...They can't afford not to innovate."