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Ultimate #Fail Whale: Twitter Forces Out CEO Dick Costolo

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Dick Costolo was ousted as Twitter’s CEO on Thurday, after a disastrous year that saw active users stagnate and the company make earnings promises it could never have met.

The company has over just over 300 million users, but Business Insider reported last year that Twitter had 697 million abandoned accounts. Twitter has gone, in three years, from the hottest new thing to not even in the same class as Facebook, which owns 70 percent of social referrals to 3 percent for Twitter.

Twitter is the fifth-largest social media company, with 302 million users who sign in once a month, but its developer offerings are far behind competitors and monetization opportunities are poor, according to tech savvy Stratechery. They believe the company has to merge very soon or advertisers will abandon en masse–and the company that had $1.4 billion in revenue last year could implode.

Twitter should have been the best platform to monetize advertising dollars, because through an “interest” graph, Twitter knows exactly what users’ interests are. The data comes from not only what they tweet, but more importantly from who they follow.

Originally founded as an SMS service, it was web apps created by third-party developers that quickly became the company’s primary attraction. Websites in those days had been expected to remain the interaction vehicle for the perceivable future. But with smartphones becoming the dominant platform, it was third-party app developers that put Twitter into the fast lane to the future.

In April 2010, Twitter launched promoted tweets on its website, but websites for users of Twitter were already a secondary platform. If Twitter was to succeed in advertising, it would need to place promoted tweets into third-party apps that they did not control. So days before their promoted tweets announcement, Twitter bought Tweetie, which was considered the best third-party Twitter app at the time.

Trouble started in 2012 when Twitters released a blog post entitled “Changes Coming in Version 1.1 of the Twitter API.” Under the section “Changes to the Developer Rules of the Road,” the company basically killed the majority of third-party Twitter clients by stating:

If you are building a Twitter client application that is accessing the home timeline, account settings or direct messages API endpoints (typically used by traditional client applications) or are using our User Streams product, you will need our permission if your application will require more than 100,000 individual user tokens.

With the company making the fateful decision to act like a big corporation and essentially lock out third-party developers, Twitter created a deep sense of betrayal in the developer community, which had been overwhelmingly responsible for Twitter’s user growth. Although Twitter allowed some third-party apps to continue, such as Twitterrific and Tweetbot, the company earned a reputation as an evil tech pariah after third-party developer support had been the key to the user growth.

With Costolo out, co-founder and Chairman Jack Dorsey will serve as interim CEO while he remains Chief Executive of payments startup Square, Inc. In a sign of complete rejection of management, Mr. Dorsey is not part of the search committee, which the Wall Street Journal reported will include board members Peter Currie, Peter Fenton and co-founder Evan Williams.

Despite the red-hot stock market for tech, Twitter’s stock is basically unchanged for the year. Rumors are circulating about a Google-Twitter merger that makes sense: “the former pays the bills, and the latter provides a road into the brand advertising future.”


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