What’s got Twitter all a-twitter? Layoffs and the future of the tech giant

Twitter appears to be on its way out. The small message giant has recently been soliciting purchase invitations. Finding no takers, it’s been forced to reduce staff. The company announced this week plans to cut up to 8% of its sales force.

The decision comes in response to struggling sales. The company just can’t bring in enough revenue to continue to grow. As sales growth has slowed, the company has missed revenue projections in the last several quarters. After acquisition talks with Walt Disney and Salesforce fell through, Twitter needed to take drastic actions just to stay solvent.

It’s always bad news for a company when these kinds of cuts occur. Having less staff means having the ability to sell less, which means lower revenues, which means more staff cuts and so on. This is called a vicious cycle, and it’s difficult for companies to escape. It takes outside investment, like the purchase Twitter is searching for.

The staff cuts could help Twitter over the short term, though. The company follows the proud Silicon Valley tradition of paying employees partially in stock, resulting in huge payroll expenses. Last year, the company paid out $682 million in stock-based compensation while taking in revenues of just $557.8 million. This is a big problem for a company trying to attract a purchaser. Cutting staff may make Twitter a more attractive potential purchase to SoftBank, a Japanese telecom firm said to be the company’s last suitor.

There are two fundamental reasons for Twitter’s stagnation: technology and market. On the technological side, there’s a capacity problem. To get much bigger in terms of users, Twitter will need significant capital investment. They’ll need new hardware and, most likely, a total overhaul of the code side of the application. That’s a big investment just to have the possibility to grow. Especially in a world where Facebook and Google are still growing exponentially, putting that much capital into the mere possibility of growth just doesn’t make sense.

There’s also a question of place in the market. Twitter was a revelation when SMS messaging was the principal way phones communicated. That’s where the 140-character limit comes from. Now, smartphones can send and receiving entire novels worth of text through digital signals. Everything’s on data, and data doesn’t have the same character limits. Twitter’s service was perfect for the technology that was ubiquitous in the early 2000’s, but smartphones have gotten faster and data networks more powerful.

Now, services like WhatsApp and Instagram enable users interested in microblogging to use a larger variety of tools. These services make their focus videos and images, while allowing just enough text to get a point across. Particularly as cellphone camera technology has improved, Twitter’s focus on text is likely to keep it pinned down. That same unique form of communication that made the service such a hit is likely to be its undoing in the end.

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