Twitter's latest departure could dampen its prospects in Asia
At a time when Twitter's US ad base is under heavy attack from Facebook and Google, the social media company has welcomed an influx of Chinese ads. Although Twitter has been blocked by the Chinese government, the company has grown its Asian ad base by 400% in the past two years as Chinese advertisers want to reach users in the West. However, the departure of Twitter's managing director for China, Kathy Chen, could hamper attempts to work with the Chinese government. In October, Twitter reported a quarterly loss of $100m and announced plans to cut 9% of employees.

by John Motavalli , Columnist, January 4, 2017

Twitter may be the favored communication tool of the President-elect, but that’s not helping its business much.

Twitter is in turmoil, and advertising — or its lack — is at the center of it all. Twitter gets about 90% of its revenue from advertising. We read with interest yesterday in the Wall Street Journal that Twitter’s managing director for China, Kathy Chen, had departed the company, after several other Asian Twitter honchos also ankled, as they say in Variety.

“Now that Twitter’s APAC [Asia Pacific] team is working directly with Chinese advertisers, this is the right time for me to leave the company,” Chen tweeted. All the more interesting because Twitter is not seen in China, as it has been blocked by the government.

But therein apparently hangs the tale, because Chen also tweeted that Twitter’s East Asian ad base, focused on China, Hong Kong and Taiwan, had grown 400% in the past two years, made up of Chinese advertisers who apparently want to reach users in the West. We doubt that figure means anything, as Twitter was probably starting from virtually nothing in this regard. Twitter needs Asian ads at a time when its U.S. ad base is under heavy attack from Facebook and Google, which can offer much more detailed programmatic targeting than Twitter.

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Some of Chen’s tweets in English are interesting. “Working at Twitter has opened my mind, my passion is to connect people to the world through cross-cultural communications & businesses.” “I'm proud to have helped build a successful Great China business for Twitter.” And, “At this time, our HK office will stay open to maintain our Greater China presence & for business opportunities with Chinese companies.”

The Journal says Chen stirred controversy by “a willingness to cooperate with China’s state-controlled media.” It could be that Twitter is sensitive to charges it is currying favor with the Chinese government in order to get reinstated to the huge Chinese Internet user base.

But why would Twitter be spending all this time and effort in the first place, courting advertisers in China when it’s blocked there?

A Rocky Road Ahead

This probably leads to an inevitable conclusion, that Twitter’s growth in the U.S. is under even more stress than in Asia. Last October, Twitter said it would cut 9% of its employees, with most of the cuts coming from ad sales and marketing. And it reported a quarterly loss of $100 million.

Last May, in downgrading Twitter to “sell,” analysts MofftettNathanson cited “advertiser fatigue — Twitter is now not only dealing with user fatigue, but advertiser fatigue as well. Following triple-digit growth only 2.5 years ago, Twitter is now growing in line with Google on a revenue base that is about 1/35th the size, indicating both a lack of perceived value and increasing client choices.”

It also said “the path forward will not get any easier as Twitter increasingly competes with Instagram, Snapchat, Pinterest, core Facebook and YouTube. In addition, Facebook continues to co-opt the features most unique to Twitter through the additions of ‘Trending Topics,’ Instant Articles, and live video.”

The analysts added, “while initiatives like the monetization of logged-out users and courting direct response advertisers through ROI and measurement partnerships like the DoubleClick integration could lead to some stabilization and possibly upside in late ’16/early ’17, they probably do too little, too late. The small likelihood of a meaningful payoff doesn’t justify owning the stock here.”

In its latest financial filing, Twitter’s admission of tough competition rings true.

“Although we have developed a global platform for public self-expression and conversation in real time, we face strong competition in our business. We compete against many companies to attract and engage users, including companies which have greater financial resources and substantially larger user bases, such as Facebook (including Instagram and WhatsApp), Google, LinkedIn, Microsoft and Yahoo, which offer a variety of Internet and mobile device-based products, services and content. For example, Facebook operates a social networking site with significantly more users than Twitter and has been introducing features similar to those of Twitter. In addition, Google may use its strong position in one or more markets to gain a competitive advantage over us in areas in which we operate, including by integrating competing features into products or services they control.”

In Asia, according to Twitter’s latest financial filing, stiff competition blocks growth. In its latest 10-Q, the company said: “For example, in South Korea we face intense competition from a messaging service offered by Kakao, which offers some of the same communication features as Twitter.”

Hence the move to get Chinese advertisers to market to the rest of the world, not to their own country, where Twitter is blocked. Hence Chen’s attempt to work with the Chinese government. Hence the controversy.

Personally, I never really got the appeal of Twitter. As a person who values the printed word, it appears to me to epitomize the inability of today’s readers to grasp more than a few lines of type at a time. Perhaps, in 2017, Donald Trump’s embrace notwithstanding, the shallowness of it all is coming home to roost.