(Breaking: Just as we were about to publish the article below, Vine announced that Twitter plans to shut down its six-second video service in "the coming months." The website will remain online for now, and Vine has promised to let its users know before changes are made to its app and site. Details about why the service will be shut down were not provided, but it likely has something to do with the issues discussed in this piece.)
Twitter announced plans to reduce its workforce by 9%, introduce many changes to its service, and increase its advertising revenues. Many of these changes have been in the works for some time--the company has been experimenting with new features for a while--but their inclusion in the company's most recent letter to shareholders could be a sign of Twitter CEO Jack Dorsey's efforts to avoid having to sell the social network.
The layoffs are expected to affect roughly 300 people. Twitter said in its earnings report that it expects this restructuring to cost between $10 million and $20 million in cash, the vast majority of which will be used for severance payments, and that most of the pink slips will be distributed this year. Despite the upfront costs incurred by these job cuts, Twitter's hope is that reducing its workforce will help it become profitable some time in 2017.
Changes to the company's service are also intended to help Twitter achieve profitability. The company said that it's planning to modify the on-boarding process for new users to make it easier for them to find topics that interest them; to use machine learning techniques to send more relevant notifications that will keep people coming back to the service; and to change the process of tweeting so people will have more meaningful conversations.
Twitter explained the reasoning behind this overhaul to its service in its letter to shareholders:
All the initiatives above are focused on enabling people to consume and express themselves freely; freedom of expression is core to who we are. Everyone on Twitter should feel safe expressing diverse opinions and beliefs and targeted behavior that harasses or threatens others to silence another person’s voice is unacceptable to us and a violation of our policies.
The company will also introduce new policies and safety features in November to help people feel more comfortable with the service. Twitter as a social network can be hard for many people to understand, and even those who do see the service's value might leave after having a bad experience with another user, so it makes sense for the company to plan changes that will make it seem much more inviting and worth visiting on a regular basis.
This could in turn help the company increase its advertising revenues. Yet that won't be enough to reach profitability; Twitter's earnings report shows that its audience has grown, its advertising revenues have risen, and its efforts to branch out into video streaming have been successful. None of these changes have made the company profitable, though, which is likely why it's laying off almost one-tenth of its workforce even as its financials improve.
Twitter has been caught in this cycle for a while. It introduced mobile video and group messaging in 2015 to increase user engagement and boost its revenues, and many new features added since--such as Periscope's live-streamed videos, a new view for conversations, and the removal of the service's famous 140-character limit from private messages--had the same goal. Twitter the service needs to grow even as Twitter the company needs to shrink.
The alternative is making Twitter part of a larger company. Such an acquisition would allow the service to function without having to worry about investor pressures, at least not directly, while also giving whoever buys the company control over one of the world's largest social networks. Yet because Dorsey is reportedly hesitant to sell the company he co-founded, changes like the ones announced in this earnings report are Twitter's best option.