Markets

Life Beyond 140 Characters: Inside What Could Be a Historic Shift in Twitter's Strategy

TWTR Chart

Perhaps you noticed, but things haven't been coming up roses at social blogging platform Twitter . Faced with a number of internal and external obstacles, Twitter's shares have descended substantially from their post-IPO highs.

TWTR data by YCharts

Revenue and user growth have slowed in recent quarters, raising concerns that Twitter will never enjoy the scale to produce meaningful profits to rival its social networking brethren and frequent comparison Facebook . And to complicate matters further, internal upheaval within Twitter's executive suite has also cast doubts about the firm's long-term trajectory.

Well-known CEO Dick Costolo stepped down from Twitter's top spot as of July 1 with co-founder Jack Dorsey assuming the interim slot, and then being named to fill the job on Sept. 30. The news of Dorsey's taking over was officially announced in an SEC filing today. As part of the move, Dorsey will also step down as Twitter's chairman, a position he has held since 2008. Adding an even more bizarre, larger-than-life grandeur to this storyline, Dorsey will also continue to act as CEO of mobile payments power Square. Lingering questions understandably remain as to whether Dorsey has the capacity to navigate Twitter's product problems while leading Square toward an IPO, which weighed on its stock on Friday.

According to reports before the official CEO announcement, Dorsey and company are fast at work charting a new course in Twitter's vaunted history, which may include overhauling the rules underpinning the very fabric of its success.

Life after 140 characters

According to reports from a number of sources, Dorsey has rekindled a serious discussion about dramatically revamping or doing away with the 140-character limit for its flagship product, arguably the single most defining characteristic of the service.

Per reporting from Re/Code citing a number of internal sources familiar with the discussions, internal debates have always existed within the firm regarding the usefulness of its character limit. However, given the rule's close association with the company as a whole, many Twitter employees worried eliminating the rule could dilute the product's uniqueness, potentially reducing the $17 billion company into just another faceless blogging platform. But Dorsey, a product visionary who also founded payment unicorn Square, apparently favors the idea, which has helped bolster the notion of doing away with what once appeared to be a "sacred cow."

Little is known about the exact form Twitter's new core product might take. So while executing such a sweeping change would require its fair share of tact on management's part, this move could be the key for reversing Twitter's current slump.

A tipping point for Twitter?

From an investor's perspective, this potential course of action seems spot-on. Doing away with the 140-character limit would open Twitter up to an entirely new host of opportunities to grow its user base, which is by far its greatest problem at present.

Source: Twitter SEC filings and author's calculations

Here, the green line at the top is the most important piece of this graph. It represents the amount of revenue Twitter yields on each monthly active user (MAU) on its site. Twitter has nearly tripled its per-user revenue over the past 10 quarters as the firm expanded its ad-sales teams and introduced new advertising products for merchants. However, like any ad-based service, Twitter can only draw so much revenue out of its users before it becomes a problem. The primary problem hampering Twitter's financial prospects is user growth (red line), and removing its longtime 140-character limit could go a long way in helping alleviate this pernicious headwind.

Right now, Twitter's most meaningful use probably lies in news gathering and sharing, rather than social networking with friends and colleagues. Removing the 140-character limit could lay the foundation for Twitter to move one step deeper into the media world, expand its potential audience, and create fresh monetization opportunities for the struggling firm.

Here, Facebook ' s recently launched Instant Articles product serves as the perfect blueprint for how Twitter could position itself in a more prominent position within the digital world, while also producing more revenue off the content that crosses its platform. Instant articles allows media outlets to publish their articles directly to Facebook, which in theory reduces the friction for users to consume a given piece of content. It also allows Facebook to sell advertisements against that content, which it shares with the content producers. Importantly, Instant Articles also keep users within Facebook's ecosystem, which helps increase users' time-on-site, another important metric for any ad-based web company. In this way, gravitating away from the current linkfest that it is toward a more suitable news consumption platform, Twitter could broaden its appeal to a greater audience as well.

So while breaking with tradition can create unease among investors and company insiders, Twitter ditching its historic character limit could serve as a perfect example of the kind of positive innovation that can help address several of the companies most significant issues in one fell swoop.

The next billion-dollar iSecret

The world's biggest tech company forgot to show you something at its recent event, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here .

The article Life Beyond 140 Characters: Inside What Could Be a Historic Shift in Twitter's Strategy originally appeared on Fool.com.

Andrew Tonner has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

TWTR

Other Topics

Stocks

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More