A few days before Twitter’s 8 September board meeting, as the company’s finance team readied a presentation, it received conflicting directions on a crucial question. Should their slides reflect Twitter’s prospects as an independent company or delve into the benefits of getting acquired?
Jack Dorsey, Twitter’s chief executive officer, argued that the 10-year-old company should remain on its current course and work to capitalize on recent product improvements and success in streaming live video, people familiar with the discussions said. Ev Williams, a former CEO who has a history of clashing with Dorsey, was in favour of exploring a sale. Other directors agreed they had a fiduciary duty to consider that option. The board ultimately decided to consider takeover prospects after getting an expression of interest from a potential acquirer, which led it to hire Goldman Sachs and Allen & Co. to evaluate possible bids.
After pitching the San Francisco-based social network, the bankers received inquiries from suitors which so far include Disney and Salesforce, with Google also weighing a potential bid. This week, the board is consulting with other outside advisers on how to deal with the internal disagreement over a possible sale, according to people familiar with the matter, who asked not to be named because the process is private. Formal bids could come within a couple of weeks–or not at all.
Though its fate is in flux, one thing is clear: A year after he officially took back the reins as CEO, Jack Dorsey has either ceded or lost at least some control over the future of the company he helped create. On the board, he may be overruled by fellow directors on the future of Twitter as an independent company. Within his management team, he’s largely delegated command of Twitter’s strategy to chief financial officer Anthony Noto. And among advertisers, Twitter’s fortunes are being constrained by its stagnant user numbers, which Dorsey’s product changes have failed to significantly boost, and by growing concern about harassment and abuse on its service.
“The lack of growth in users and engagement underscore that Jack’s initiatives thus far haven’t really been effective,” said Robert Peck, an analyst at SunTrust Robinson Humphrey Inc. “If this whole ‘live’ idea doesn’t work, then what is it that gets Twitter to grow?”
Twitter spokeswoman Kristin Binns declined to comment on the board’s discussions about a potential sale process. Asked to provide perspective on Dorsey’s progress, Binns said in an e-mail that the CEO has met the goals he outlined a year ago and made significant strides in each of his priorities for the company. The company has been rolling out products faster than ever, she noted, and has boosted engagement through enhancements to the timeline, such as showing people the most relevant tweets first. She also cited the company’s advancements and partnerships in live video streaming, including deals to broadcast NFL games and presidential debates.
As Twitter’s first CEO, Dorsey was initially known as a detail-obsessed micromanager. He was ousted in 2008, then brought back to Twitter–which was having trouble attracting new users–to apply vision and direction with the kind of authority that only a founder can bring.
But Dorsey hasn’t seemed interested in being the sole authority on Twitter’s future, according to insiders. While he was away from Twitter, he built a credit-card reader company, Square Inc., and learned the importance of trusting others with strategic decisions. His leadership style in the past year at Twitter has been Socratic, not prescriptive, these people said. He’ll ask open-ended questions to spark debate, like, “Are we preventing people from expressing themselves fully with our 140-character tweet limit? What would a different solution look like?“
The discussions eventually lead to solutions, like Twitter’s move last month to exclude photos and attachments from a tweet’s character total. But the process takes time. And that passive, contemplative style created a void in management that Noto has stepped in to fill, people said.
“Noto has been just as responsible, just as influential at the company as Jack,” said Mark Mahaney, an analyst at RBC Capital Markets. “He’s been unusually active as a CFO.”
Earlier this year, Noto told Twitter’s other senior staff that he intended to bid for the rights to stream 10 Thursday night National Football League games. He wasn’t expecting to win, but he wanted to try, according to people familiar with the conversations.
Noto, who is a former CFO of the NFL, did win–for the bargain price of $10 million, lower than what others were willing to pay. That kicked off a string of other deals in sports, politics and entertainment, centered on making Twitter accessible to a wider audience through live video they can watch for free. The first NFL game drew 2.3 million users, and the next one got 2.4 million, hinting at the potential for a growing audience, according to the company.
It’s not that Dorsey has been uninvolved. On the contrary, his employees say he answers e-mails so quickly that it’s difficult to imagine how he has the time, given that he’s also still CEO of Square. During his first month at Twitter, he cut 8% of the workforce. He recruited new board members like Debra Lee, the CEO of BET, and Hugh Johnston, the CFO of Pepsico, to add executive experience. He’s helped the strategy by providing a long-term perspective on the business and focused on a single concept to help drive it: live.
But if Dorsey is the introverted deep thinker, Noto is the doer. He’s the high-energy cheerleader who has cut through indecision at the company and rallied Twitter’s employees around a future of live video streaming, boosted by licensing of premium content. (Twitter has partnered with Bloomberg LP to stream some Bloomberg TV shows, as well as the presidential debates.) It’s unusual for a company’s CFO to be leading its product vision, and even rarer at a technology company.
Twitter’s engineers have long grappled with how to make the service easier to use, cycling through six heads of product in six years. Noto’s deal-making provided them with a unique solution: to make video an entry point to the Twitter experience. Twitter recently released streaming applications for Apple TV, Xbox and Amazon Fire TV, letting viewers pick content that streams alongside related tweets, and sidestepping the need for people to create an account and decide who to follow–previously a cumbersome prerequisite of using Twitter.
Twitter hired Noto in 2014 with more than $60 million in stock options, following a career in banking at Goldman Sachs, where he helped Twitter go public. It’s unclear whether Noto supports a Twitter sale. But he did recently retain Goldman to look at other options, like selling off assets besides the core business, according to people familiar. Noto’s presence at the company has long been a comfort to investors, with many figuring that if it came time to sell, he would know how to get it done.
Even as the company gains ground in streaming, Dorsey is being forced to reconsider Twitter’s future in part because its lack of user growth. US average monthly users have hovered around 66 million for six quarters. Revenue, which more than doubled in 2014, is projected to rise just 15% this year, and to slow further next year.
Advertisers see potential in the company’s live video strategy, but they’re also being wooed by photo- and video-sharing app Snapchat, and Facebook’s Instagram, which has recently become more advertiser-friendly. At the time of Twitter’s 2013 initial public offering, those services weren’t close competitors. Now they both have larger daily audiences than Twitter.
“Twitter budgets have slowly gone down and down and down,” said James Douglas, who consults with advertisers on their spending as executive director of social media for Society, an agency within IPG Mediabrands whose clients include Coca-Cola and Red Bull. “It’s kind of hard to compel clients who had an experience with Twitter that wasn’t good, or have the perception that Twitter’s audience is declining. Everyone has questions for them,” Douglas said.
Tom Buontempo, the president of Attention, the social arm of ad firm KBS, said he’s seen the trend worsen in recent months. It’s all a matter of where people are spending their time, he said. “I’m starting to hear more clients consider whether or not they need to be on Twitter at all.” Attention’s clients include BMW, Mattel and Lincoln Financial, though Buontempo wouldn’t say who is pulling back.
When Twitter’s CEO search committee was looking to replace Dick Costolo in 2015, they made calls to major investors, asking for input and floating Dorsey’s name as a contender. Some investors expressed their skepticism, given that Dorsey was already a large influence on Costolo, and could already impact the company’s direction through his executive chairman role.
Still, one year ago this week, Twitter’s board was jubilant on a conference call announcing the decision to bring back Dorsey permanently. Dorsey would “help us achieve what we see as a massive opportunity to grow the company,” Peter Currie, who helped lead the search and has since left the board, said at the time. “The board has been pleased and impressed with the strategy, vision and alignment around goals coming from the Twitter teams these last few months, and there is much more the world hasn’t seen just yet.”
Perhaps there is more to come. But some investors haven’t been willing to wait.
Twitter’s stock had dropped about 20% this year before reports began to surface about the company considering a sale. Even one of its largest and earliest investors, Chris Sacca, a vocal critic of Twitter’s strategy under Costolo and proponent of bringing back Dorsey, has sold a large part of his stake, he told Bloomberg TV on Tuesday.
Brad Slingerlend, who manages the global technology fund for Janus Capital Group, holds Facebook, Google, Amazon and Apple–but sold Twitter after Dorsey took over. Social networking, he said, is a business that depends on a network effect to generate growth. If the network’s momentum starts to ebb, it’s difficult to recover.
The best-case scenario, Slingerlend said, would be an acquisition by Disney. As Twitter becomes more of a media company, the two make for a good fit, he said. And Disney’s CEO, Bob Iger, has experience bringing a brand back to life.
“Jack is a good entrepreneur,” Slingerlend said. “But Twitter needs a turnaround CEO, and that’s a completely different job.