By Allison Schiff and Zach Rodgers.
Wall Street never really seemed to get soon-to-be-former Twitter CEO Dick Costolo.
Costolo will step down as chief exec of Twitter on July 1, the company said in a filing with the Securities and Exchange Commission. [Read the SEC filing.]
Founder and board chairman Jack Dorsey will take the reins as interim chief while the company hunts for a replacement. Costolo will continue to serve on the board, and Dorsey will remain CEO at payments startup Square.
The news felt a bit “sudden” to Noah Mallin, head of social, North America, at MEC.
“The work Dick has done to grow and expand Twitter as an ad platform has been tremendous and he’s been undervalued by Wall Street,” Mallin said. “He was and will continue to be a great partner for agencies and brands.”
That may be, but in his five years running the company Costolo has struggled to grow the user base and reach profitability. Twitter’s monthly actives crossed 300 million in Q1 2015, during a time when Facebook's active user base continues to skyrocket. And the financial picture is not great; Twitter missed its guidance in Q1 and reported a net loss of $162 million.
“Twitter needs to walk a tightrope between finding ways to keep growing while also keeping intact what’s unique about the platform,” Mallin said. “That’s a tricky thing to do from a product standpoint.”
But not all advertisers are convinced of the platform's value. Retailer Bonobos has cut back on its Twitter ad spend, according to a recent story in The Wall Street Journal.
To help create value for advertisers, Twitter recently began a stronger push into ad tech acquiring MoPub, TellApart and TapCommerce within the space of about a year. It paid an estimated $532.6 million in stock for TellApart, a very high price by Twitter standards.
Direct response type advertising was a particular focus. In a recent conversation with AdExchanger, Twitter VP of global online sales Richard Alfonsi laid out the company's new performance-centric sales strategy.
“We’re only charging for the specific engagement types a brand wants, even if that means a short-term revenue hit to Twitter,” he said.
Mallin anticipates redoubled efforts in the DR department, but that’s something Twitter would need to do with or without Costolo as chief.
“Online spend is huge and in many ways it’s an area Twitter has lagged in,” Mallin said. “But at this point, monetization is top of mind for investors.”
Twitter’s focus on performance marketing is a positive move, but it hasn’t done much to assuage the investor community to date.
“Dick has been embattled by the public market analysts and investors to convincingly tell a story that’s understandable and consumable,” said Eric Litman, chairman of WPP-owned mobile ad platform Medialets. “The company, it seems, hasn’t been able to break that cycle, but maybe having Jack back at the helm temporarily will put a fresh perspective on how Twitter describes its metrics and how it thinks about audience engagement.”
In addition to DR, rich media could be another way to attract advertisers and appease investors, said Mallin, who noted that Twitter is working on something to that effect.
“Facebook has taken video and run with it. Twitter is looking at that and trying to figure out how to make it a bigger part of what they’re doing,” Mallin said. “Because that’s where the ad dollars are.”
For all the flack Twitter has taken from the investor crowd, Litman sees vast potential in the platform.
“It’s a solid company, it has an interesting product, it has lots to capitalize on, especially in terms of distribution outside of its own site, and it’s got an awful lot of mindshare – just look at how hashtags are used across all media,” Litman said. “But every digital product need to evolve, and Twitter needs to clarify their story to get people to buy into it.”
Rob Griffin, head of innovation at Havas Media, is also rooting for Twitter to succeed, despite obvious challenges.
"From the outside looking in they seem to not be able to get out of their own way [and] sales turnover seems high,” said Griffin. “It's too bad, because I love the product."
Costolo joined Twitter as COO in 2009 and was promoted to CEO in 2010.
Updated June 12, 2014.