As Twitter dips below its IPO price, the business needs to execute a strategy urgently that utility platform to a real product business. At $25 a share, Twitter would be worth materially more to a larger business that can accelerate its product and feature innovation. An acquisition, in the absence of that innovation, would appear far more likely today than six months ago.

One of the tensions in social networks is what we describe as the ‘passing through’ versus the residential. Facebook, for instance, is a ‘residential’ property, like a social living room decorated with individuals’ ‘assets’. Twitter, on the other hand, is like the social media equivalent of AirBNB.

Twitter’s share price is currently languishing below its IPO price. At Wall Street’s close on Friday, Twitter shares were trading at $25.87, below its IPO price of $26. Shares in Twitter peaked at $69 in January 2014. The business is on our list of ‘Icarus’ businesses, defined as companies that have achieved valuations too far ahead of legitimising revenues.

Market expectation was that Twitter, having created a completely differentiated platform, would accelerate innovation and introduce products and features that would justify a $60+ share price. Disappointingly, innovation for users has largely stagnated. Furthermore, user acquisition numbers have slowed and many sign up and don’t activate.

Granted, Twitter is now able to monetise the platform thanks to previous acquisitions (eg Mopub) and its own efforts. What has been lacking, though, is product and feature innovation and this is driving down platform value. Contrast that with Facebook’s huge and successful transition to mobile. Analysts expected it to falter. Facebook now captures a huge percentage of mobile ad spend and has multiple mobile-first products to maintain engagement. As a result Facebook’s platform value has soared. Twitter’s experience has been the opposite.

Twitter still has an opportunity to be a successful standalone business but to date it has squandered that opportunity. The business has made around fifty acquisitions since 2008 but the user experience has remained largely unchanged since launch. The business is still essentially an overwhelming firehose of crowdsourced data.

User experience is crucial for Twitter. Without a better way of sifting data or sorting and compiling a user’s own posts the platform will almost certainly find that its user base begins to run out of steam. To compound the problem, user acquisition growth grew at a snail’s pace in the last reported month. Gnip’s recent release of the nine-year Twitter archive only makes the user experience challenge worse.

At $17.5BN Twitter is no longer too big to be acquired. A logical acquirer for Twitter would be from two camps: organisations with larger user networks (Facebook / Google) or a news organisation with an interest in real time data. Both would bring a strategic user-focused discipline to a business.

Posted by Victor Basta @MaExits

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