Twitter quitters dog IPO


By Alexei Oreskovic

SAN FRANCISCO, Oct 20 (Reuters) - Retired schoolteacherDonald Hovasse signed up for Twitter about a year ago at theurging of his daughter. He lost interest after trying theservice a few times and finding lots of celebrities but few ofhis friends using the online social network.

"I didn't really get the point of it at all," said the LasVegas resident. "Most of them were people I wasn't interested inhearing what they had to say anyway." He said, however, that hedoes check Facebook every day to see what his friends are up to.

Hovasse's experience highlights a risk for investors asTwitter Inc marches towards this year's most anticipated initialpublic offering in the United States, expected to begin tradingon the New York Stock Exchange in mid-November.

According to a Reuters/Ipsos poll, 36 percent of 1,067people who have joined Twitter say they do not use it, and 7percent say they have shut their account. The online survey,conducted Oct. 11 to 18, has a credibility interval, a measureof its accuracy, of plus or minus 3.4 percentage points.

In comparison, only 7 percent of 2,449 Facebook members report not using the online social network, and 5percent say they have shut down their account. The results havea credibility interval of 2.3 percent.

People who have given up on Twitter cite a variety ofreasons, from lack of friends on the service to difficultyunderstanding how to use it. Twitter declined to comment forthis story, saying it is in a quiet period ahead of its IPO.

Twitter's attrition rate highlights a challenge that hasdogged the online messaging site over the years: while it hasmanaged to enlist many high-profile and avid users, from thePope to President Barack Obama, Twitter has yet to go trulymainstream in the way Facebook has.

Convincing ordinary people to think of Twitter as anindispensable part of their lives is key to the company'sability to attract advertisers and generate a profit.

Twitter reported it had 232 million "active" users - peoplewho access the service at least once a month - at the end ofSeptember, up 6.1 percent from the end of June. Twitter'squarter-over-quarter growth in active users has not exceeded 11percent since June 2012.

When Facebook was a similar size, its active users wereincreasing by more than 20 percent every quarter, and it was notuntil the social network neared the half-a-billion member markthat its user growth decelerated to 12 percent.

"Twitter is a great service, it's still got growth in frontof it. But in my opinion, I would say the opportunities are lessthan that of Facebook, and it has to be valued appropriately,"said Dan Niles, chief investment officer of tech-focused hedgefund firm AlphaOne Capital Partners.

"The data would seem to imply that the ultimate revenuepotential for this company is less than for Facebook," Nilessaid, referring to Twitter's number of active users.

Twitter's revenue in the third quarter more than doubledfrom the year before to $168.6 million, while its net losstripled to $64.6 million. Analysts expect Facebook, which is dueto report its third-quarter results later this month, to bringin $1.9 billion in quarterly revenue.


Twitter aims to become the "fabric of every communication inthe world" and to eventually reach every person on the planet,Chief Executive Dick Costolo has said. Still, Twitteracknowledged in its IPO prospectus that "new users may initiallyfind our product confusing."

The company prides itself on staying true to its roots: itlets people send 140-character messages and does not pack inscads of extraneous functions. Since its inception, Twitter hasresisted overtly manipulating how people use its platform,instead preferring conventions to be formed organically.

As a result, new users often find it initially difficult tograsp how discussions ebb and flow, complaining that featuressuch as the "hashtags" that group Tweets by topic, abbreviationsfor basic functions (for instance, RT for retweet) and shortenedWeb links, are geared towards a technologically-savvy crowd.

"The average person that's coming on here, they're stillbaffled by it," said Larry Cornett, a former executive at YahooInc and designer at Apple Inc, who now runsproduct strategy and design consulting firm Brilliant Forge.

"If they want the mass adoption and that daily engagement,they have to make it really easy for people to consume."

According to the Reuters/Ipsos poll, 38 percent of 2,217people who do not use Twitter said they did not find it thatinteresting or useful. Thirteen percent said they do notunderstand what to use Twitter for. The results have acredibility interval of 2.4 percent.

Twitter has taken steps to help new members. In December2011, it introduced a new "Discover" section to highlight themost popular discussion topics based on a person's location andinterests.

The company also simplified some features and rolled out newtools that embed photos and videos directly in a person's tweetstream, making for a richer and easier-to-use experience.

These changes may mean that Twitter's retention rate for thepast several months is better than its overall retention rate,which includes people who joined years ago, say analysts.

Brian Wieser, an analyst with Pivotal Research Group, saidTwitter's current user base is already big enough to be valuableto advertisers. Investors need to get more comfortable with theidea that Twitter is not for everyone, he said.

"The practical matter is that this is a niche medium," hesaid. "Their appeal, they will never be as broad as Facebook."

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