Online Marketing Strategies

• Read in your textbook Case #5, “Twitter, Inc. in 2019: Are the Growth and Profit Sustainable?” and watch the following two videos. For the latest information on developments at Twitter, please visit the Investor Relations section at www.twitter. com and review the company’s recent press releases and financial results.
o Twitter Inc (TWTR) IPO: Watch Social Media Giant Go Public At NYSELinks to an external site.
o Resale Is Big BusinessLinks to an external site.
• Write a 3–5 page paper, double-spaced, answering the questions below. The page count does not include the cover page, reference page, any charts, graphs, etc. Points will be deducted if the body of your paper (the responses to the Case Study Questions) exceed 5 pages. Do not include an abstract.
• At least 3 references of an academic or scholarly source are required for this case study to support your analyses and conclusions.
• Use APA 7th Edition writing style for your entire paper. Include narrative or parenthetical citations in the body of your paper and a reference page. Remember, all information that is not your own work or that is not common knowledge must be cited.
• Include headings to help organize your paper. Convert the questions to short descriptors. For example, an appropriate heading for Question 1 is: Macro-environmental Impact and Factors.
• Set your margins to 1-inch on all sides and double-space your entire paper, including the reference page.
In addition to the above listed requirements, assignments are graded using the Case Study Rubric available in the online classroom.
Case Study Questions

1. What does a PESTEL analysis suggest for the macro-environmental impact on the social media industry? Which of the macro-environmental factors appear to have the greatest potential impact on Twitter? Why? (Notice: The first question asks about the entire social media industry. The second question asks about Twitter specifically. Please make sure your responses align with the questions).
2. Identify the driving forces in the social media industry. What appears to be the impact of these driving forces on the industry?
3. Prepare a SWOT analysis for Twitter. What does the SWOT suggest for Twitter’s future?
4. Using the data in Case Exhibits 1 & 2, what is your assessment of Twitter’s financial position? Based on your analysis, what financial performance can reasonably be expected in the near-term future for Twitter? Support your answer.
5. From the data provided in the case (Exhibits 1, 2, 6 & 7), how does Twitter’s performance stack up with Facebook and Snapchat? Is there a clear winner based on your analysis?

From Textbook: Case Study 5
Jack Dorsey, CEO of Twitter Inc., had breathed a slight sigh of relief when the fourth-quarter 2017 financial results showed the first profitable quarter since the company went public in 2013. One year later, the company’s 2018 annual report showed net income of $1.2 billion, which was 40 percent of its revenue. Twitter had experienced rapid growth since its founding, and by January 2018 there were more than 330 million active monthly users. Notables with Twitter accounts included U.S. President Donald Trump, Taylor Swift, Justin Timberlake, Ellen DeGeneres, Pope Francis, Katy Perry, and Turkish President Recep Erdogan. However, despite the number of users and the volume of use, Twitter had failed to provide any financial gains until the fourth quarter of 2017, and this profit had come because of cutting costs, not growing the business. Research and development, and sales and marketing expenses, had been cut by 24 and 25 percent, respectively, and the company’s annual net revenue for fiscal 2017 was down over 3 percent from 2016. Twitter discovered in the third quarter of 2017 that it had been miscalculating monthly user numbers since the fourth quarter of 2014, and consequently was forced to lower the previously reported numbers. Even more problematic was an accumulated deficit of over $2.6 billion. Although Twitter showed its first full-year profit in fiscal 2018, it was due largely to maintaining low costs, and the impact of the Tax Act. Revenue of $3.0 billion in 2018 was an increase of 24 percent over 2017, but costs for research and development, sales and marketing, and total costs and expenses were below 2016 levels, as a percentage of revenue. Total costs and expenses were 11 percent lower than 2016, and research and development costs were 20 percent below 2014 levels. The accumulated deficit, which at the end of fiscal 2017 was over $2.6 billion, had been reduced to $1.5 billion.
Twitter Inc.’s consolidated income statements for 2014 through 2018 are presented in Exhibit 1. The company’s consolidated balance sheets for 2014 through 2018 are presented in Exhibit 2. Twitter was a giant in the industry; however, it faced serious competition from companies such as Facebook (including Instagram and WhatsApp), Snap, TikTok, Alphabet (including Google and YouTube), Microsoft (including LinkedIn), and Verizon Media Group. There are also foreign competitors that are regional social media and messaging companies, with strong positions in particular countries, including WeChat, Kakao, and Line, which pose competitive challenges. Many of these competitors were growing at a multiple of Twitter’s growth—over the two-year period 2017 to 2018, Facebook had an increase of 296 million monthly active users (+15.8 percent), WhatsApp increased by 300 million (+30 percent), and Instagram had increases of 200 million (+33 percent). Over the same period, Twitter increased only 13 million monthly users (+4.1 percent): In 2018 its share of worldwide digital ad revenue dropped to 0.8 percent in 2018 (compared to Google’s 38.2 percent and Facebook’s 21.8 percent). Although Twitter had made a good profit in fiscal 2018, was it due largely to keeping costs at unsustainably low levels? Could the company continue to grow revenue and operate without allowing costs and expenses to drift up and erode income? Twitter’s CEO and its Board were faced with two daunting questions: (1) what could they do to assure Twitter’s continued growth and profitability, and (2) was the company an increasingly attractive take-over candidate?
EXHIBIT 1 Consolidated Statements of Operations for Twitter, Inc., 2014–2018 (in thousands of $, except per share amounts) Source: Twitter, Inc., 2019 Annual Report, accessed August 2, 2019, http://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_TWTR_2018.pdf. page 285
EXHIBIT 2 Consolidated Balance Sheets for Twitter, Inc., 2014-2018 (in thousands of $) Source: Twitter, Inc., 2019 Annual Report, accessed August 2, 2019, http://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_TWTR_2018.pdf. History of Twitter Founded in 2006 by Jack Dorsey, Noah Glass, Biz Stone, and Evan Williams, Twitter was an online microblogging and social networking service that allowed users to post text-based messages, known as tweets, and status updates up to 40 characters long. Jack Dorsey sent the first tweet on March 21, 2006: “just setting up my twitter”- Jack(@jack) 21 March 2006. By the first of January 2018, Twitter had more than 330 million monthly active users.
The history of Twitter began with an entrepreneur named Noah Glass who started a company named Odeo in 2005. Odeo had a product that would turn a phone message into an MP3 hosted on the Internet. One of Odeo’s early investors was a former Google employee, Evan Williams, who got very involved with the company. As Odeo grew, more employees were hired including a Web designer, Jack Dorsey, and Christopher “Biz” Stone, a friend of Odeo’s new CEO, Evan Williams. Williams decided that Odeo’s future was not in podcasting and directed the company’s employees to develop ideas for a new direction. Jack Dorsey, who had been doing cleanup work on Odeo, proposed a product that was based on people’s present status, or what they were doing at a given time. In February 2006, Glass, Dorsey, and a German contract developer proposed Dorsey’s idea to others in Odeo, and over time, a group of employees gravitated to Twitter while others focused on Odeo. At one point, the entire Twitter service was run from Glass’s laptop. Noah Glass presented the Twitter idea to Odeo’s Board in summer of 2006; the Board was not enthused. Williams proposed to repurchase the Odeo stock held by investors to prevent them from taking a loss, and they agreed. Five years later, the assets of Odeo that the original investors sold for about $5 million were worth $5 billion. After Williams repurchased Odeo, he changed the name to Obvious Corp. and fired Odeo’s founder and the biggest supporter of Twitter, Noah Glass. page Christopher “Biz” Stone left Twitter in 2011 and pursued an entrepreneurial venture with Obvious Corp. for six years. In mid-2017, he returned to Twitter full time. As of the second quarter, 2018, only three of the original Twitter founders remained active in the company: Biz Stone, Jack Dorsey as the company’s CEO, and Evan Williams who was on the Board. Twitter provided an almost-immediate access channel to global celebrities. The majority of the top 10 most-followed Twitter accounts were entertainers who used the service to communicate with their fans, spread news, or build a public image. The near-instant gratification through direct updates from celebrities such as Rihanna, Jimmy Fallon, Lady Gaga, and Taylor Swift and the feeling of inclusion in a specific group of fans was a major reason for social media users to use Twitter. The accounts of high-interest people such as entertainers, politicians, or others at risk of impersonation were verified by Twitter to authenticate their identity. A badge of verification was placed on confirmed accounts to indicate legitimacy. Major sporting events and industry award shows such as the Super Bowl or Academy Awards generated significant online action. The online discussion enabled users to participate in the success of celebrities who often posted behind-the-scenes photo tweets or commentaries. On-set or in-concert tweets were other methods utilized by celebrities to enhance their appeal and fan interaction. Twitter was quite simple: Tweets were limited to 140 characters until late 2017 when the limit was raised to 280. The character constraint made it easy for users to create, distribute, and discover content that was consistent across the Twitter platform as well as optimized for mobile devices. Consequently, the large volume of Tweets drove high velocity information exchange. Twitter’s aim was to become an indispensable daily companion to live human experiences. The company did not have restrictions on whom a user could follow, which greatly enhanced the breadth and depth of available content and allowed users to find the content they cared about most. Also, users could be followed by hundreds of thousands, or millions of other users without requiring a reciprocal relationship, enhancing the ability of users to reach a broad audience. Twitter’s public platform allowed both the company and others to extend the reach of Twitter content: Media outlets distributed Tweets to complement their content by making it more timely, relevant, and comprehensive. Tweets had appeared on over one million third-party websites, and in the second quarter of 2013, there were approximately 30 billion online impressions of Tweets. The Twitter Brand Image Twitter had a powerful brand image. Its mascot bird was not chosen because birds make tweeting sounds, but rather because “whether soaring high above the earth to take in a broad view or flocking with other birds to achieve a common purpose, a bird in flight is the ultimate representation of freedom, hope and limitless possibility.”
1 Twitter was initially named “Jitter” and “Twitch,” because that is what a phone would do when it received a tweet. However, neither name evoked the image that the founders wanted. Noah Glass got a dictionary and went to “Twitch,” then to subsequent words starting with “Tw.” He found the word “Twitter,” which in the Oxford English dictionary means a short inconsequential burst of information, and chirps from birds. Dorsey and Glass thought that “twitter” described exactly what they were doing, so they decided on that name. The name was already owned, but not being used, and the company was able to buy it very cheaply. In 2012, the old Twitter bird was redesigned, slightly resized, changed from red to blue, and named Larry the Bird (named after NBA star Larry Bird). The lowercase “t” icon and the text “twitter” were removed; the company name was no longer on the logo. The blue bird alone communicated the Twitter brand. “Twitter achieved in less than six years what Nike, Apple, and Target took decades to do: To be recognizable without a name, just an icon.”
2 According to a Twitter survey conducted to help understand the company’s brand legacy, 90 percent of Twitter users worldwide recognized the Twitter brand. Twitter’s 2018 ad campaign “What’s happening” used only the Twitter logo and hashtag symbol. The Twitter brand was called “minimalization at its finest”
3—an advertising campaign that did not have one word, but delivered a powerful message from the brand. Twitter’s Global High-Profile Twitter had become very well-known because of several high-profile users. Several of the world’s leaders had millions of followers, as shown in Exhibit 3. From May 2017 to May 2019, U.S. President Donald Trump’s follow count increased to 60.3 million. President Trump regularly used Twitter to break news, praise his friends, campaign for supporters, and feud with his enemies; consequently, Twitter was in the daily news almost constantly in 2019.
EXHIBIT 3 World Leaders with the Most Twitter Followers as of May 2018 Millions of Followers Pope Francis, Vatican @Pontifex 33.7 Donald Trump, U.S. @RealDonaldTrump 30.1 Narendra Modi, India @NarendraModi 30.1 Prime Minister, India @PMOIndia 18.0 President, U.S. @POTUS 17.8 The White House, U.S. @WhiteHouse 14.4 Recep Erdogan, Turkey @RT_Erdogan 10.3 HH Sheikh Mohammed, UAE @Jokowi 7.9 Joko Widodo, Indonesia @jokowi 7.4 Source: Statista, “World Leaders with the Most Twitter Followers as of May 2018,” accessed July 23, 2019, https://www.statista.com/statistics/281375/heads-of-state-with-the-most-twitter-followers/. Although the world’s leaders had millions of followers, others have far more. As of May 2019, Katy Perry had over 107,400,000 followers, Justin Bieber 105.5 million, former U.S. President Barack Obama 106.1 million, Rihanna 90.9 million, Ellen DeGeneres 77.6 million, Lady Gaga 78.6 million, and Justin Timberlake 64.9 million. The miraculous plane crash on New York’s Hudson River in 2009 was broken on Twitter, and on May 1, 2011, an IT consultant in Pakistan unknowingly live-tweeted the U.S. Navy Seal raid that killed Osama Bin Laden over nine hours before the raid was on the news. Prince William announced his engagement to Catherine Middleton in 2010 on Twitter. Whitney Houston’s death and the bombing at the Boston marathon were broken on Twitter. President Obama used Twitter to declare victory in the 2012 U.S. presidential election, with a Tweet that was viewed about 25 million times on the Twitter platform and widely distributed offline in print and broadcast media. Twitter Services, Products, and Revenue Streams Twitter’s primary service was the Twitter global platform for real-time public self-expression and conversation, which allowed people to create, consume, discover, and distribute content. Some of the most trusted media outlets in the world, such as CNN, Bloomberg, the Associated Press, and BBC used Twitter to distribute content. Periscope was a mobile app launched by Twitter in 2015 that enabled people to broadcast and watch live video with others. Periscope broadcasts could be viewed through Twitter and mobile or desktop web browsers. Twitter Inc. generated advertising and data licensing revenue as shown in Exhibit 4 by providing mobile advertising exchange services through the Twitter MoPub exchange and offering data products and data licenses that allowed their data partners to search and analyze historical and real-time data on the Twitter platform, which consisted of public tweets and their content. Also, Twitter’s data partners usually purchased licenses to access all or a portion of the company’s data for a fixed period. The company operated a mobile ad exchange and received service fees from transactions completed on the exchange. The Twitter mobile ad exchange allowed buyers and sellers to purchase and sell advertising inventory, and it matched buyers and sellers.
EXHIBIT 4 Twitter Inc. Advertising and Data Licensing Revenue, 2016–2018 (in thousands of $) 2018 Compared to 2017. Revenue in 2018 increased by $599.1 million compared to 2017. Source: Twitter, Inc., 2019 Annual Report, accessed August 2, 2019, http://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_TWTR_2018.pdf.
Twitter Restructures on June 29, 2018, Dorsey announced that he was restructuring Twitter to make the company quicker and more creative, as Ed Ho, VP of product and engineering, stepped down to a part-time position. Twitter employees would be organized in functional groups such as engineering, as opposed to the present product teams. Dorsey decided on the structural change to simplify the way the company worked and to make the organization “more straightforward.” He believed that a “pure end-to-end functional organization” would help make decision making clearer, allow the company to build a stronger culture, and prepare the company for increased creativity and innovation. Dorsey believed that Twitter must enter a creativity phase to be relevant and important to the world. Twitter’s Stock Performance Twitter went public on November 7, 2013, with an IPO price of $26.00, and the stock closed 73 percent ($44.94) on its first trading day. The stock hit its all-time high of $69.00 on January 3, 2014, and began a long downtrend, lasting until mid-April 2017. On August 21, 2015, Twitter shares dropped below the IPO price to $25.87, rebounded slightly, and then slid to $14.10 on May 13, 2016. The stock did not get above the IPO price of $26.00 until early February 2018. After a year’s climb, Twitter stock hit a three-year high of $47.79 in early July 2018, and then began to slide again, trading in the $28.00 to $32.00 range until rebounding to $40.80 in early May 2019. Exhibit 5 tracks Twitter’s market performance between May 2014 and April 2019.
EXHIBIT 5 Monthly Performance of Twitter, Inc.’s Stock Price, May 2014 – May 2019 Adapted from bigcharts.marketwatch.com. Twitter, Inc. joined the S&P 500 index on June 7, 2018, replacing Monsanto. The addition of Twitter was unusual because the S&P regulations required that the sum of a member company’s four most recent quarters, as well as the last quarter, were positive. In April of 2018, Twitter reported its second consecutive profitable quarter, which followed 16 consecutive quarters of losses. The addition of Twitter to the S&P 500 Index would increase the number of individual investors who owned the stock through index funds that track the large company stock gauge. Twitter’s addition to the index fueled a rally that pushed the company’s stock to more than $40.00/share, which was its highest price since March of 2015. Twitter’s Major Competitors Facebook was the world’s largest online social networking and social media company. It was founded in February 2004 by Mark Zuckerberg, Eduardo Saverin, Dustin Moskivitz, Chris Hughes, and Andrew McCollum. As was common among online social networking companies, Facebook was not immediately profitable; however, after becoming profitable in 2010, it had its IPO in 2012 at $38/share. Although the stock price dropped to under $20 in August 2012, it rebounded and was selling at $217.50/share in mid-July 2018, and then began a slide down to $124.95 in December 2018. In late page 289December 2018, Facebook stock began a recovery, and in May 2019, was trading at $195.47. In the fourth quarter of 2018, Facebook had 2.32 billion users worldwide—India had the largest number of users at 270 million, the United States was second with 240 million, and Indonesia was third with 140 million. In January 2019, Facebook had 2.23 billion average monthly users, and 83 percent of the total users were from outside the United States. Facebook’s year-over-year revenue growth rate in the first quarter of 2019 was 26 percent. A financial summary for Facebook, Inc. for 2014 to 2018 is presented in Exhibit 6. WhatsApp was a freeware and cross-platform messaging and IP service owned by Facebook. The company was founded in 2009 by ex-Yahoo employees Jan Koum and Brian Acton. WhatsApp used the Internet to send messages, audio, video, and images, and was like a text messaging service. However, because WhatsApp sent messages over the Internet, the cost for users was much less than texting. The company grew quickly and within a few months of startup, WhatsApp added a service charge to slow down its growth rate. In 2014, WhatsApp was acquired by Facebook for $21.94 billion.
EXHIBIT 6 Selected Financial Data for Facebook, Inc., 2014–2018 (in millions of $, except per share data) Source: Facebook Inc., 2018 Annual Report, accessed August 2, 2019, http://d18rn0p25nwr6d.cloudfront.net/CIK-0001326801/a109a501-ed16-4962-a3af-9cd16521806a.pdf. Source: Facebook Annual Report, 2018.
In early 2018, after a long feud with Facebook founder and CEO Mark Zuckerberg about how to get additional revenue from WhatsApp, Koum and Acton resigned from Facebook. Zuckerberg was focused on using targeted ads to WhatsApp’s large user base; Koum and Acton were believers in privacy and had no interest in the potential commercial applications. When WhatsApp was sold to Facebook, the founders pledged privacy of WhatsApp. Four years later, Facebook pushed WhatsApp to change its terms of service and give Facebook access to WhatsApp users’ phone numbers. Facebook also wanted a unified profile that could be used for ad targeting and data mining, and a recommendation system that would suggest Facebook friends based on WhatsApp contacts. WhatsApp had 1.5 billion users in 180 countries in 2019, with 1 billion daily active WhatsApp users and 65 billion messages sent each day. Snapchat Snap Inc. was a camera company that believed that reinventing the camera was a great opportunity to improve the way that people communicated and lived. Snap, Inc.’s products empowered people to express themselves, live in the moment, learn about the world, and have fun together. The company’s flagship product, Snapchat, was a camera application that helped people communicate visually with friends and family through short videos and images called snaps. Snaps were deleted by default, so there was less pressure to look good when creating and sending images on Snapchat. By reducing the friction typically associated with creating and sharing content, Snapchat became one of the most-used cameras in the world. Snapchat had 300 million users in February 2019, and, on average, 186 million people used Snapchat daily, creating over 3.5 billion snaps every day; however, its users were declining. A financial summary for Snap Inc. for 2015 through 2017 is presented in Exhibit 7.
EXHIBIT 7 Snap, Inc.: Selected Financial Data (in thousands, except per share amounts) Source: Snap Inc., 2018 Annual Report, accessed August 2, 2019, https://investor.snap.com/~/media/Files/S/Snap-IR/reports-and-presentations/2018-annual-report.pdf.
Instagram was a video- and photo-sharing social network service created by Kevin Systrom and Mike Krieger in 2010. Facebook acquired the company in 2012. The agreed price was $1 billion (a mixture of cash and Facebook stock); however, the final price was $715 million because Facebook’s share process tumbled before the deal was finalized. If Instagram was a standalone company, it would be worth more than $100 billion, which would be a 100-fold return for Facebook. In March 2019, Instagram reached 1.1 billion monthly active users, 88 percent of which were outside the United States, and expected revenues of over $8 billion in the next 12 months. Instagram attracted new users at a faster rate than Facebook’s main site. At its present rate of growth, it would have over 2 billion users by 2023. LinkedIn was a social media service that operated through websites and mobile apps, and focused primarily on professional networking, which enabled members to create, manage, and share their professional identities online, create professional networks, share insights and knowledge, and find jobs and business opportunities. The company was founded in December 2002 by Allen Blue, Reid G. Hoffman, Jean-Luc Vaillant, Konstantin Guericke, and Eric Ly. LinkedIn was named by Forbes as one of America’s Best Employers in 2016. LinkedIn was acquired by Microsoft for $26.2 billion in June 2016. In March 2019, LinkedIn had 575 million users in more than 200 countries and territories worldwide. 4 Further Signs of Encouragement in First Quarter 2019 Twitter’s first-quarter 2019 financial results were positive and unexpectedly robust, with revenue growth up 18 percent year-over-year, from $665 million to $787 million. The company’s revenues enjoyed growth across all major product and geographic areas. Twitter’s largest growth in income was from the United States, which increased by 25 percent, year-over-year, from $347 million to $432 million. Also, international revenue increased 11 percent, year-over-year, from $318 million to $355 million. Year-over-year advertising revenue increased by 18 percent during the first quarter of 2019, from $575 million to $679 million, and data licensing revenue increased from $90 million to $107 million, year-over-year, which was a 20 percent increase. Cost of revenue increased 18 percent, and stayed steady at 34 percent of revenue, as in the same period, 2018. Research and development and general and administrative expenses were unchanged, as a percentage of revenue year-over-year, at 34 percent and 19 percent, respectively. Sales and marketing expense dropped to 26 percent in the first quarter of 2019 from 27 percent in the same period in the prior year. Income from operations increased to $93.6 million (12 percent of revenue), up from $74.9 million (11 percent), and net income for the first quarter of 2019 increased to $190 million (24 percent of revenue), up from $60.9 million (9 percent of revenue) in the same period in the prior year. Twitter announced expectations for fiscal 2019 but did not provide a revenue expectation. The company expected operating expenses to increase by about 20 percent year-over-year due to growth and support for the company’s investment priorities. Going into the second quarter of fiscal 2019, Twitter was focused on: Health as the top priority. To help people find credible information and feel safe participating in the conversation on Twitter. Conversation as Twitter’s superpower. Promoting more conversation on Twitter to ensure that it is the place where people all around the world go to see and talk. Revenue product and sales to support the growth of Twitter customers around the world. The company will continue to invest in revenue product and work to improve its ad platform and ad formats to help its ad partners launch new products and services and connect with what’s happening on Twitter. Also, Twitter plans to grow its sales page 293teams in the United States and internationally to better serve large and medium advertisers. Platform investments to ensure long-term success, in the data centers that host Twitter, customer data security, and the technology to support and improve the service.