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.
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Filed Under: advertising, jack dorsey, paul singer, platforms, profits, protocols, short term, wall street
Companies: elliott management, twitter
Reader Comments
The First Word
“The short termers
I work for a decently mid-sized cutting-edge technology company that Elliott Management owns a stake in. For years they have been trying to tell us how to run our business. That advice is 99% of the time about quarterly returns and not about long term strategic investment in growth and technology. Half of the time, it is exactly about sacrificing long term growth in the name of scooping out money now.
I can understand that shareholders have an interest in how the company is working, but... if they don't like how we're working and don't think they'll make enough money, go buy some other stock! The people who run our company are knowledgeable and passionate about our technology and where it's going. Elliott doesn't have a clue, and that doesn't seem to matter to them.
So far, our company has managed to tell them to go pound sand (ever so politely, I assume). We've been hiring as opposed to laying off, and getting our engineering groups back into fighting shape to take on our technology challenges. Let's hope that can continue.
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For me...
I use Twitter as a news feed, a quick access to a wide variety of quickie news summaries from all areas of interest. If (Like Yahoo news) it becomes mostly garbage diluted with ads, I ain't a-gonna be there long... If they think it will replace Facebook as a means to chat and update friends. It wasn't and won't.
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The short termers
I work for a decently mid-sized cutting-edge technology company that Elliott Management owns a stake in. For years they have been trying to tell us how to run our business. That advice is 99% of the time about quarterly returns and not about long term strategic investment in growth and technology. Half of the time, it is exactly about sacrificing long term growth in the name of scooping out money now.
I can understand that shareholders have an interest in how the company is working, but... if they don't like how we're working and don't think they'll make enough money, go buy some other stock! The people who run our company are knowledgeable and passionate about our technology and where it's going. Elliott doesn't have a clue, and that doesn't seem to matter to them.
So far, our company has managed to tell them to go pound sand (ever so politely, I assume). We've been hiring as opposed to laying off, and getting our engineering groups back into fighting shape to take on our technology challenges. Let's hope that can continue.
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Re: The short termers
That works if they don't let that group get a majority of the votes. In practice, it's fine till they need to raise more money. (And if they're clever they can keep control even then, as long as there are willing buyers.)
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'I get a golden egg, and the one after me gets... nothing.'
That advice is 99% of the time about quarterly returns and not about long term strategic investment in growth and technology. Half of the time, it is exactly about sacrificing long term growth in the name of scooping out money now.
Sounds like someone who heard the story about the goose that laid golden eggs and took exactly the wrong lesson from it, willing to destroy long-term stability if it provides short-term gains, and while that can work in a limited fashion short-term it's a mindset that guarantees a crash after things become no longer sustainable.
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Re: 'I get a golden egg, and the one after me gets... nothing.'
You're giving them a lot of credit. I get the impression that many businesspeople are simply impatient. They might just want the money now. After the company implodes, they can always move onto another one. (Have we seen evidence that a CEO who runs a company into the ground will have trouble finding another job? And if they already have tens or hundreds of millions of dollars, does it matter?)
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A pandemic may work in favor of metrics like "number of user who can see ads". Even if the advertisers aren't there, bored people might be.
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The mindset of the average investor doesn't just affect what the company produces. The internal culture often takes a hit, too.
I've been on the front lines of this a couple of times working for companies that have gone public. Priorities change, and all the sudden the wonderfully creative intangible things that made the company work in the first place, as well as become attractive to investors, has now been pushed off to the side for short term financial gratification. This is where you lose a lot of the idealism and altruism that exists in private firms that really do want to do things to improve peoples' lives.
Since those days, I've made it a point to work only at private SMBs, where the passion hasn't yet been doused by the bean-counters. If my current company decided to go public, I'd be instantly preparing and reviewing my resume'.
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Re:
Sticking around right up to the point where a company goes public is exactly the right time to abandon ship. Take your shares and skills that helped make that company so attractive to a new company that values the right things. Rinse, repeat, sell your shares, profit.
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I don't understand the benefit of the share market / investors to a company at all. What the investors want does not always align with what's best for the company. Numerous times rumours have floated my (software development) company might go public, and the previous CEO had that plan too. But I know doing so would kill our growth and quality in pursuit of profits. Our test team would be the first to go, then any improvements in software quality that can't be directly measured in dollars.
The last sentence in the article puts it perfectly.
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Re:
A large part of the problem is that a large proportion of shares are owned by companies whose sole business is investment. This results in a lot of pressure for short term profit on the companies that they invest in, so that their books look good.
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