Twitter External Internal Analysis Report to CEO

Appendix
External Analysis
1. PESTEL Analysis
1.1. Political
1.1.1.Global leaders use of social media impacts the political landscape and is able to influence operations. (C-142)
1.1.2. Several high-profile world leaders utilize social media platforms to address their followers, the most notable being U.S. President Donald Trump who tweets regularly to announce global interactions with other political leaders. They also have high interactions and reach with the global community: U.S President Donald Trump had 30.13 million twitter followers as at May 2017 and former U.S. President Barack Obama had 103 million followers as at June 2018 (C-142)
1.1.3. Depending on the political climate in various countries, governments may censor content and access to social media platforms.
1.2. Economics
1.2.1. Generated revenues through advertising, data licensing and other products. products. In 2017, total revenue generated was $2,443, 299, 000 (C-142)
1.2.2. Fluctuating exchange rates and inflation rates can affect overall profit-margins. (C-147)
1.3. Social
1.3.1. The expectation of the population is that they are able to post whatever they please on social media platforms. That explains why Twitter uses the bird mascot, which is a symbol of freedom (C-147)
1.3.2. The need to express feelings and experiences without a character constraint. The popularity of internet and social media devices has allowed social media companies to ensure that their platform is optimized for mobile devices. Encouraging real-time interactions. (C-141)
1.3.3. Global celebrities like Rihanna, Lady Gaga, Jimmy Fallon, and Taylor Swift use Twitter to communicate with their fans, build their public image and spread news (C-141)
1.4. Technological
1.4.1. In 2017, Twitter raised character counts to 280 from 140 in order to encourage freedom of expression and make it more comprehensive and relevant. (C-141)
1.4.2. Verification badge placed on accounts that are at risk of impersonification to indicate legitimacy. (C-141)
1.4.3. Social media platforms have implemented features such as broadcasting live videos, photo attachments to increase engagement. (C-141)
1.4.4. As internet access is becoming readily available, the use of social media is also growing especially in countries like India and Indonesia. It is estimated that India has 270 million Facebook users while Indonesia has 140 million (C-143)
1.5. Ecological
1.5.1. Data centres require electricity and total energy use is increasing. (C-142)
1.5.2. In order to access social media, mobile phones and laptops are often used. These devices have their own carbon footprint.
1.6. Legal
1.6.1. Freedom of speech is suppressed in Jared Taylor case. Users believe that platforms like Twitter are a great way to express their views freely without any ramifications. Jared filed a lawsuit against Twitter and claimed that his account was suspended because of his racial views. Twitter's policy of suspending accounts with or without reason raises issues of unethical behaviour. Users also believe it contradicts the platform that is supposedly focused on free speech. (C-147)
1.6.2. Data sharing partnerships and licensing generates revenue for social media companies. For instance, Facebook has data sharing partnership with four Chinese companies. Given this fact, Senator Mark Warner of the Intelligence Committee asked Twitter to disclose any data sharing agreements they have with Chinese companies (C-148)
1.6.3. Risks associated with impersonation, offensive, malicious posts/users. (C-141 & C-147)
1.7 Conclusions
Political: U.S. President Donald Trump has help boost Twitter popularity.
Economic: Twitter is a global brand. The blue bird alone communicate twitter worldwide.
Social: Twitter accounts that are at risk of impersonification have a verification badge.
Technological: Internet access is readily available in most parts of the world. So, the number of social media users will increase in future.
Legal: Senator Mark Warner has asked Twitter to disclose any data sharing partnership they have entered into with Chinese companies and the outcome of a lawsuit filed by Jared Taylor would have significant impact on Twitter.
2. Dominant Economic Features
2.1. Number of Rivals
· The social media industry is one that is interrelated and also has a lot of competition within the compact industry. It is an industry where the users tend to be on many platforms sending the same message at once. Twitter main rivals include Facebook, WhatsApp, Snapchat, LinkedIn, and Instagram. In 2018, Facebook average monthly users was 1.7 billion and only 17 percent of total users were from United States (C-144). In early 2018, WhatsApp active monthly users was 1.5 billion (C-145). In January, 2018, Snapchat had 300 million users of which 187 million were daily users (C-146). Instagram had 1 billion active monthly users as of June, 2018 (C-146). LinkedIn total users was 562 million as of July 2018 (C-147). The total actively monthly users would equal more than half of the worlds population if considered all different individuals, which would be false to assume, therefore it is an industry where individuals choose to use a variety of the platforms with in the same social media industry
· The Industry itself is growing as more and more people have access to the internet and are able to use the free services. Twitter had increased 23 million active monthly users, Facebook 461 million, and Instagram 400 million (C-138). Of that majority of revenue growth seen in the industry comes from international revenue. With that being said the growth is being seen from acquiring new users as the new users now have the ability to access the internet thus to access social media services
· The industry has become such that the only way to have an upper hand over its competitors is to acquire one another. In this case, Facebook that already has the highest monthly users, now owns WhatsApp, and Instagram (C-144, C-146)
2.2. Channels of Distribution of Content
· The industry is one that allows people to communicate with family friends and also to the public. One statement on either platform is able to be seen by thousands of millions of users (C147). The users have the ability to find content that associates with them without restriction (C-141). The users are able to customize their usage of social media that relates to them. This also allows entities to target those users by providing those individuals with content that is relatable and consistent with them.
· There are many influencers and public figures that use such social media platforms. Those included are presidents of countries and other highly known celebrities C-141. This allows to those individuals to get their message across such a large audience with a single click of the button. News outlets are now also becoming a key feature in interacting with the audiences.
· Social media allows users to have access to all their needs at a single stop, to view their personal social circles, to access the news, and more. Now instead of turning on the TV for the latest news on what had transpired within their neighborhood, now are able to follow their local police department and view and interact with them
2.3. Economics to Free Services
· The industry is one where users are able to use the services for free at no cost. In return, the companies collect data on how users interact and sell such data. The data is used by companies for many purposes on ways that individuals interact. The majority of revenues for these companies come from the sale of data and advertisement (C-142). The revenue landscape is also growing directly with the ability of users to gain access to the internet, especially in developing countries. This can be seen as the revenue stream is increasing year over year from countries other than North America (C-147).
· The industry is expanding with multiple companies going public to seek investors. Facebook and Twitter are both public entities and trade on the stock market C-143. This allows companies to access additional capital to further expand their businesses and investors gain a return for such investments.
3. Porter's 5 Forces
3.1. Threat of Substitutes
3.1.1. Relative price and performance substitutes
· Twitter does not have restrictions on whom the user could follow and this enhances the "breadth and depth" of the content they have access to.
· Twitters' platform is public so cost is low (C-141)
3.1.2. Buyers Propensity to substitute
· Companies extend their reach of twitter content and it as noted, media outlets distribute Tweets. Tweets have appeared on over one million third-party websites in 2013 there were over 30 billion impressions of tweets. (C-141)
· Already on the lead with "High profile users and high-profile use." Used by global celebrities and world leaders like the presidents of U.S. and the Pope, Narendra Modi of India, The White House. (C-141).
· Already on the lead with a strong number of followers by prominent users. President Barack Obama 103 million, Katy Perry has 108 million, Justin Bieber 106.5 million followers.
So What? There are major competitors that could attract their users.
The industry's rivalry is strong and making it unattractive for new entrants however within the industry there is also strong competition with players like Facebook. Twitter can increase the customer share by innovations, maintaining a creative and responsive culture.
Overall strength of the force: Low
Supplier power
3.2. Threat of Entry
3.2.1. Retaliation by established producers
· Twitter has a powerful brand image which makes it a dominant player and poses difficulty for new entrants to enter.
· Twitter survey shows that 90 percent of users worldwide recognize the Twitter brand called "minimization at its finest" since it did not have a word but yet delivered a powerful message for the brand.
3.2.2. Access to distribution channels
· Twitter is used by high profile global celebrities as well as high profile global leaders like President Trump, President Barack Obama and the Pope giving them immediate access to follower (C141- 142)
3.2.3. Government and legal barriers
· Twitter lost dismissal of Jared Taylor's lawsuit claiming the company unlawfully suspended his account because of his racial views. The judge said that Twitter's policy of 'suspending accounts at any time, for no reason or for no reason' may be unconscionable since the company calling itself a platform devoted for free speech and this may be misleading and fraudulent. Twitter claimed that it has First Amendment rights like the newspapers to publish or not publish whatever it wanted and based on the Federal Communications Decency Act, to regulate pornography, they have the right to ban offensive content. (C-148)
· Date sharing investigations of Chinese Vendors by Senator Mark Warner, Vice Chairman of the Senate Intelligence committee. (C-148)
Overall strength of the force: Low
3.3. Industry Rivalry
3.3.1. Product Differentiation
· Tweets are simple and easy to create with a limit of 280 characters
· Twitter has no restrictions on who a user could follow
3.3.2. Concentration
· Twitter faces serious competition from Facebook, WhatsApp, SnapChat, Instagram, LinkedIn and Pinterest.
· There are many other competitors entering the market, including Reddit and Quora. (C-138)
· Competitors' growth is at multiple of Twitter's growth. (C-138)
3.3.3. Diversity of Competitors
· Facebook is the world's largest online social networking and social media company that also bought WhatsApp as well as Snapchat, Instagram and LinkedIn. (C143-146)
· In June 2018 Facebook announced data sharing partnerships with four Chinese companies. (C-148)
· "WhatsApp was a freeware and cross-platform messaging and IP service owned by Facebook" (C-144)
· SnapChat was a camera company that provided products that "empowered people to express themselves." (C-145)
· Instagram was a video and photo-sharing social network service with an extremely high growth rate. It was acquired by Facebook in 2012. (C-146)
· LinkedIn was a social media that operated through websites and mobile apps with a focus on professional networking. The company was aquired by Microsoft in 2016. (C-147).
Overall strength of the force: High
Industry rivalry is high as others are providing other services to satisfy certain segments in the market. Facebook is the world's largest online social networking and social media company that also bought WhatsApp as well as Snapchat, Instagram and LinkedIn. (C143-146)

3.4. Buyer Power
3.4.1 Competition between buyers
· Twitter obtained rights to "NFL Thursday Night Football" due to leadership of CEO (C-138), however since his departure this is a concern.
· Major sporting events and industry shows allow Twitter like Super Bowl and the Academy Awards. (C-141).
· First to report in 2009 on the famous plane crash on the Hudson.
· First to report on the killing of Osama in Laden in 2011.
· Used by Prince William to announce his engagement in 2010.
· Twitter global platform for real-time public self-expression and conversation is used by some of the world's most trusted media outlets like CNN, Bloomberg, the Associated Press and BBC to distribute content. (C-142)
Overall strength of the force: Low
3.5. Supplier Power
3.5.1. Competition between suppliers
· Twitter is used by major world trusted media outlets. (C-142)
· Twitter data partners usually purchase licenses to access the company's data for a fixed period. (C-142)
· Twitter operates a mobile ad exchange and receives service fees from transactions. The exchange allows buyers and sellers to purchase and sell advertising inventory and match buyers and sellers. (C-142)

So What? Twitter's provides a global platform real-time public "self-expression and conversation" and is the choice of many of the world's most trusted media companies like CNN, Bloomberg, the Associated Press and BBC to distribute content. (C-142). Its relationship with data partners and buyer and sellers for advertising inventory provides Twitter with a high supplier power.
Overall strength of the force: High
4. Driving Forces
5. Key Success Factors
5.1. Accessibility – users want to use the apps on any device with access to the Internet
· "WhatsApp was a freeware and cross-platform messaging and IP service" that sends messages over the internet (C-144)
· "LinkedIn was a social media service that operated through websites and mobile apps" (C-146)
5.2. Service Variety – users like the efficiency of one app to do all
· Snapchat was a "camera application that helped people communicate visually with friends and family through short videos and images called snaps (C-145)
· Instagram provides both "video and photo-sharing social network service" (C-146)
· LinkedIn "enabled members to […] create professional networks, share insights and knowledge, and find jobs and business opportunities." (C-146)
· Twitter was a "global platform for real-time public self-expression and conversation, which allowed people to create, consume, discover, and distribute content" (C-142)
· Twitter's launch of Periscope as a separate app counters what the user wants "Periscope was a mobile app launched by Twitter in 2015 that enabled people to broadcast and watch live video with others" (C-142)
5.3. Quality of Service – real-time/up-to-date content, live content
· "Twitter provided an almost-immediate access channel to global celebrities" (C-141)
· "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" (C-142)
5.4. Privacy Protection – there is a growing concern for privacy from users of social media platforms
· Facebook 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" to which the founders of WhatsApp quit due to disagreement (C-144)
· Although not a policy, Snapchat recognized concerns for privacy: "Snaps were deleted by default, so there was less pressure to look good when creating and sending images on Snapchat" (C-145)
5.5. Personalization – users want to easily create their online identities and customize what they see
· Twitter "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" (C-141)
· LinkedIn "focused primarily on professional networking, which enabled members to create, manage, and share their professional identities online" (C-147)
5.6. Conclusion
· Social networking service industry standards cost efficiency and accessibility, having apps that are mostly free to the public as well as be used on any device connected to the internet.
· Service variety is highly important because users prefer an app that does it all. Combining different services and features such as video-sharing, photo-sharing, and direct messaging which Instagram and Snapchat provide, gives users more efficiency in social networking.
· The quality of service is also important because users want content that is instantaneous, up-to-date, or even live. Being constantly up-to-date with a favourite celebrity or simply catching up on news is a huge convenience for users.
· Users also want options for personalization especially when creating their online identity and customizing the content they see. LinkedIn is the go-to app for professional networking and Twitter offers no following restrictions which expands available content that users cared about most (C-141).
· Privacy has always been a concern and privacy policies are commonly used to comfort users about their safety online, but more can be incorporated. Snapchat recognized the concern by making snaps be deleted by default, on the other hand, Facebook encountered problems regarding privacy when WhatsApp's original creators quit in disagreement of data mining and using targeted ads.
6. Competitive Positioning Plot
6.1. X and Y Axis

6.2. Service Variety vs Personalization/Customizability

6.3. Service Quality vs Privacy Protection

6.4. Conclusion
In the graphs above we can see that firstly the apps with the largest user base include Facebook, WhatsApp, and Instagram, however, it is important to note all three are owned by the Facebook company. When comparing service variety and personalization, we can see two major leaders. LinkedIn leads mainly because it has a niche market, focusing on creating a professional networking app gives it the opportunity to know what kind of customization and services options to offer. Similarly, WhatsApp dominates quadrant 3 because it does not necessarily need to offer lots of customization options when its goal is to provide direct messaging and calls for free. When comparing service quality and privacy protection, we can see the implications of Facebook's decision to create 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," (C-144). Both Facebook and WhatsApp rank low on privacy protection, but in contrast, Snapchat's action to integrate a minor privacy feature of default-deleted snaps allows it to be trusted (C-145). Twitter leads I n service quality mainly because of the speed to which content is updated, however, this relies heavily on user-created content and the constant interaction users have on the app.
7. Assessment of Industry
7.1.
Internal Analysis
1. Financial Analysis
1.1. Financial Charts Comment by Karen Rojas: Note that the financial analysis is allotted 4 pages, 2 of which belong to charts and ratios
1.2. Ratios
1.3. Can the company pay its bills? Comment by Karen Rojas: please follow the files formatting, the number bullets clarify each section this assignment is not an essay it is a report
In terms of its ability to pay its bills, the liquidity ratios provide the best insight into this. The current ratio and the quick ratio will be the same, as Twitter does not hold inventory on its balance sheet (nor would it be expected to, in any meaningful way, since it does not sell physical goods). The current ratio for Twitter at the end of 2018 was 4.7, but it has always been a very healthy number, ranging from 4.7 to 10.8 at different points in the past five years. Cash flow has never really been the issue for Twitter, in terms of financials, as it seems to have always been able to raise additional capital. Its level of working capital over the past three years, always well into the millions of dollars, highlights that cash flow is not an issue and has not been.
1.4. Does the company have the capacity to raise capital?
The company's debt levels have generally been kept low. The current debt/equity level is 0.25, and this has only ever been as high as 0.38. There are a few implications for this. First, that Twitter's valuation has consistently been rising, allowing it to raise more money via equity, and keep the level of long-term debt relatively low. Indeed, Twitter has barely taken on any additional long term debt over the past five years, despite showing a negative net income in four of those. As such, its debt-equity ratio has always been healthy.
1.5. Do the financials provide a competitive advantage? How?
Furthermore, Twitter has never faced any interest payment burden. This is not immediately evident in its interest coverage ratio, because the company has had a negative EBITDA for four of the past five years. That results in a negative interest coverage number, which would normally be a challenge for a company in terms of its liquidity, but in Twitter's case the company was clearly able to raise equity capital during this span, and that has allowed it to keep paying the interest on its debts, defer capital repayment, and not put the company in a negative cash flow position.
1.6. What are the implications of the financials for future strategy and for the execution of strategy?
Twitter has only recently achieved profitability, with 2018 being the first year that it recorded a positive net income. Prior to that point, Twitter had struggled with profitability. The net income was -$108 million in 2017, which was an improvement over the prior three years. This shows, however, that the company has been able to turn the corner financially. Attaining profitability is an important milestone in a startup like Twitter, because the company has now seen two consecutive years of improving financials, and at this point might not require any more outside financing.
1.7. How does the company perform compared to its competitors?
Raising equity should show up on the balance sheet, and it does. The common size balance sheet shows that the level of equity in terms of the total size of the company has remained more or less the same for the past five years, ranging between 67-70%. Over this time, the company has posted a net loss in four out of the five years, which should in theory reduce the shareholders' equity. Indeed, the retained earnings did decline from 2014-2017 in line with the losses that the company was posting. Yet during this same time period, the total equity value of the company rose from $3.6 billion to $5.0 billion. This increase in equity, at a time of decreasing retained earnings and overall debt/equity stability indicates the influx of new equity capital into the company – this is the only means by which Twitter was able to grow, via increasing its valuation and selling off more equity to raise cash flow.
1.8. What is increasing--revenue, debt, costs, etc.? What is decreasing? What are the implications?
The next question is how did Twitter get to have a positive net income, and is that trend sustainable? First, the top line growth has been strong, with revenues more than doubling in the past five years. This top line growth is the primary driver of the company's increased valuation, but also has helped it get to profitability, when combined with some cost controls. For a few years, Twitter saw a decrease in gross margin, but in 2018 the company restored the gross margin it enjoyed back in 2014. This gave it the final boost in productivity that helped it to become profitable. Analysis of the operating margin says little, as the company had negative operating income for 2014-2017 inclusive. But with the improvement in gross margin, that trickled down to a positive operating margin in 2018.
1.9. Is the company in a healthy or unhealthy position? Implications?
That said, the company also placed focus on controlling its fixed costs as well. Research and development costs were very high in 2015, accounting for nearly 50% of the total revenue the company was generating. This expense spiked the following year, and has been declining ever since. Today, R&D spending is at a lower level than it was in 2014, and this is with substantially higher revenues. As a result R&D as a percentage of revenue has fallen to 18.2%, and this has to be seen as a significant contributor not just to the company's profitability but a sign that this profitability is quite likely sustainable. Furthermore, selling, general and administrative expenses fell as a percentage of revenue from 57.3% to 35.2.% during this time period. So while SGA expenses have grown in real terms, they have declined significantly relative to revenues.
1.10. Outstanding trends in data?

1.11. Conclusion
The company's newfound net income is the culmination of trends that have been in evidence in its financial statements for several years now. Twitter has cut its fixed costs, more than doubled its revenues, and restored its gross margin to previously high levels. The means in which it has kept the cash flow above water is not necessarily sustainable, but by focusing on growing revenues rapidly Twitter was able to attract the equity investors it needed to keep the lights on. Now that it has positive cash flow on its own, and positive net income, the company is in a much better position to sustain its profitability, and without the need for additional investment, or maybe even additional debt either.
2. Current Strategy
3. Value Chain Analysis
3.1 Inbound Logistics and Operations
· It is the main primary activity that adds the most significant value to Twitter's customers.
· Twitter's global platform allows users to instantly share real-time breaking news, clip opinions, and knowledge and can be accessed using desktop or mobile web browsers (C-142).
3.2 Marketing and Sales
· It is the second major primary activity of Twitter.
· In 2017, sales and marketing accounted for 29.8% of Twitter total costs (C-139)
· Twitter has managed to build a strong brand image within a shorter time (six years). Their 2018 ad campaign was successful, yet they only used the bluebird icon (Larry the Bird) and hashtag symbol (C- 142).
3.3 Technological Development and Infrastructure
· It one of the major secondary activities of Twitter.
· Twitter is investing heavily in technology because more than 85% of its total revenue is from advertising services (C-143).
· Twitter is looking to improve their technological infrastructure because advertisers are looking for new and better ways of conveying their message to the public.
· Twitter programming structure allows for app development and customized user experience.
3.4 Research and Development
· In 2017, research and development accounted for 22.5% of total costs and expenses (C-139).
· Twitter is investing in the development of new apps and products to maintain and grow its user base and attract new advertisers. For example, Periscope was launched in 2015. This mobile app allows users to broadcast and watch live videos with others (C – 142).
3.5 Conclusion
· Technological development and inbound logistics are Twitter's main sources of differentiation advantage. So, they should strengthen their global platform by investing more in research and development.
· Twitter should also differentiate themselves from other platforms such as Instagram, Facebook, and WhatsApp because it is crucial for growth and helps in attracting new users and advertisers
2. SWOT Analysis
2.1. Strengths
· Strong brand image - people are able to associate logo (blue bird) without a name (C-141)
· Global high profile - political leaders around the world and famous celebrities of similar high-profiles use the platform (C-142)
· Platform allows businesses and content creators to extend reach and have the potential of billions of online impressions of tweets (C-141)
· Immediate data generator, every time a tweet is published, data is created(C-142)
2.2. Weaknesses
· Financial weaknesses - unable to generate profit until 2018, in deficit of over $2.6 billion, marginal revenue increases, unreliable profitability (C-138)
· Slow growth - competitors are growing at a much faster rate (C-138)
· High operational expenses - spending on technology infrastructure, sales, marketing and research and development (C-147)
2.3. Opportunities
· Collection and use of data to turn into solid revenue stream (C-142)
· Leverage platform as a massive marketing tool for B2B, B2C businesses (C-142)
2.4. Threats
· Legality issues - to what extent does freedom of expression apply, if Twitter restricts accounts or enforces rules on what can/cannot be published, they may face legal action (C-147)
· Fluctuation of stock price in comparison to competitors, investors may not think it is worthwhile to invest (C-143)
· Competitors are providing services similar to Twitter, which may make the platform less unique (C-143, C-146)
2.5. Conclusion
· Businesses and content creators can use reach and ability of impressions to leverage platform as a marketing tool
· Since it is an immediate data generator, Twitter can use the data collected to generate a revenue stream, by either selling the information, providing other services, or catering to specific niches. Can also sell itself as a marketing service and earn revenue through that
· As Twitter is facing a slow growth, financial weaknesses and news of high operational expenses, the stock prices will see a decline
3. Front-burner Strategic Issue









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References

Thompson, Arthur A.,. (2015). Crafting and Executing Strategy: Concepts and Readings..New
York: McGraw-Hill Education, (pp. 138-148)