Bottom line: Twitter’s new CEO is likely to re-think the company’s decision to stay out of China due to Beijing’s strict self-censorship policies, and could ultimately make a play for the market in the next 2-3 years.
It seems that Weibo (Nasdaq: WB), often called China’s equivalent of Twitter (Nasdaq: TWTR), isn’t the only one struggling these days in the social networking (SNS) realm. The original Twitter has just announced that its own CEO Dick Costolo has succumbed to calls for his resignation due to stagnating growth, meaning his replacement will come under intense pressure to jump-start the company’s prospects. One of the fastest ways to do that would be going to China, leading to the intriguing prospect that Twitter’s road map could bring it to China sooner than many expected under its yet-to-be-named new leader.
Of course I’m being quite speculative here, and I’m at least partly motivated because it’s fun to write about this kind of hypothetical question. But the signals certainly do seem to indicate a China re-think could be coming soon for Twitter, following the announcement of Costolo’s resignation 5 years after he took the chief executive position at one of the world’s pioneering SNS companies. (English article)
Twitter said its co-founder and Chairman Jack Dorsey will return to the company as CEO on an interim basis following Costolo’s exit. But Dorsey’s leadership role at his latest company, mobile payment start-up Square, precludes him from returning to lead Twitter on a long-term basis. Accordingly, Twitter will look for a new, long-term replacement in the months ahead and probably announce a new CEO before the end of this year.
Despite its pioneering status in SNS, Twitter actually shares many traits with its Chinese copycat Weibo, which rose to prominence after the original Twitter was blocked in China in 2009. No reason was ever given for Twitter’s original blockage, but most believe it was because the service contained material considered politically sensitive to Beijing. Costolo himself later said that China wasn’t a market where Twitter could do business, implying he wasn’t willing to abide by strict self-censorship policies imposed by Beijing on all Internet companies in China. (previous post)
Following its early meteoric rise, Twitter has seen its user growth slow dramatically since its 2013 IPO. Weibo is in a similar situation, with its previously meteoric growth also slowing sharply in the last 2 years. The former now has about 300 million users, while the latter has about 200 million. Twitter’s shares are down 30 percent since the company reported disappointing results in April. Weibo’s shares have also been lackluster since their IPO last year, though they have rallied recently.
Weibo’s big challenge for now is finding a formula for profitability. Twitter, on the other hand, is more under pressure to rekindle its broader growth. That brings us back to the China question, since the market is clearly attractive for its sheer size and also the fondness of Chinese for socializing online. Costolo himself made a surprise trip to Shanghai last year, though he didn’t give any indication that he was re-thinking his decision to stay out of China. (previous post)
Costolo’s approach contrasts sharply with that of his chief rival, Facebook (Nasdaq: FB) CEO Mark Zuckerberg, who is lobbying heavily for permission to open a site in China. Zuckerberg has traveled to China numerous times over the last few years in pursuit of that goal, and even welcomed one of China’s top Internet regulators into Facebook’s Silicon Valley offices last year in a highly publicized visit. (previous post)
So far Zuckerberg hasn’t drawn much criticism for his China courtship, a fact that other western Internet company chiefs have probably noticed as they also eye the market. That could quickly change if Facebook actually entered China, though professional SNS site LinkedIn (NYSE: LNKD) made a similar move last year and drew little criticism. (previous post) Accordingly, I wouldn’t be surprised if Twitter’s new CEO takes a serious new look at China when he or she is named, and perhaps decides that the market is worth a try despite the many unique risks it poses.