Twitter's (NYSE:TWTR) history in the public markets has not been a pretty one. After the market crash over the past week, the social-networking site now trades around its IPO price of $26, a long drop from its peak at $73 in December 2013, shortly after its debut.
Plenty of fingers have been pointed to explain the microblogging site's struggles. In a well-publicized blog post in early June, early investor Chris Sacca pleaded with the company to innovate, calling on management to make Twitter effortless to enjoy and easier for all to participate in. Former CEO Dick Costolo's recent departure also unlocked a Pandora's box of soul-searching about the company within and outside the business, as many laid the blame for Twitter's lackluster performance at Costolo's feet. Flat-lining user growth has sounded alarm bells as founder Jack Dorsey returns to the helm to get the company back on track.
While Twitter appears to be stuck in its own dark age, Instagram has become social media's newest sensation, as well as parent Facebook's (NASDAQ:FB) smartest investment after acquiring the photo-sharing site for a cool billion in 2012.
Instagram launched in 2010, four years after Twitter, but late last year it eclipsed its social-media elder in user count, reaching 300 million monthly users to Twitter's 284 million. While Twitter's user growth has flattened, Instagram's seems to be accelerating, as it reportedly took the photo-sharing app 13 months to go from 100 million to 200 million members but just another nine months to reach 300 million. According to the Pew Research Center, the percentage of online adults who say they use Instagram has more than doubled from 2012 to 2015, from 13% to 28%, while Twitter users have grown only from 16% to 23%, but did not increase last year. In many ways, Twitter's struggles are a direct result of Instagram's rise as people with a limited amount of time choose between the two similar services.
Same, but different
Though the two networks have their obvious differences, no other social-media site is more similar to Twitter than Instagram. Both rely on asymmetrical networks of followers geared to users who want real-time information or photos from celebrities, brands, and friends, meaning many of the eyeballs that Twitter was getting or would have gotten are likely now on Instagram.
Twitter notably made a bid for Instagram before Facebook, but Facebook offered more money and presented itself as a more appealing partner for Instagram. Once Facebook acquired the photo-sharing app, the rivalry began to heat up. In August 2012, and at the end of that year Instagram cut off its Twitter cards, preventing its photos from being optimally showcased on Twitter. That led users to repost pics on Facebook rather than Twitter and helped build up the photo-sharing app's ecosystem at the expense of Twitter.
In its path to 300 million users, Instagram has borrowed, accidentally or not, from the syntax Twitter made popular, such as the "at" sign and the hashtag.
Oddly enough, there is little that Instagram does that Twitter can't do, as the latter can be just as easily used for posting photos or videos as sharing links or tweets. The difference has to do with each one's purpose. Instagram's early popularity was due to its unique filters, which allowed users to adjust their photos in a number of ways. Although those have fallen out of fashion, the app has continued to grow being used mostly as a way to trade ordinary photos.
Photos > words
Instagram has succeeded where Twitter has faltered for three primary reasons.
As any Facebook user knows, seeing and sharing photos is perhaps the best feature of social networks. It's a simple and enjoyable way to stay connected with friends, and probably the biggest reason for Instagram's success. Twitter, on the other hand, uses 140-character tweets as its main currency, which often provides a clunky and awkward user experience when the viewer is faced with irrelevant tweets and self-promoting posts. Though Twitter allows users to post photos and videos, that is not the main draw of the site, so Instagram tends to attract those types of posts.
Instagram has also won by embracing simplicity. It's avoided much of the jargon that makes Twitter intimidating for new users, which is an inherent benefit of photos, and it seems to understand its purpose better. Comments are easier to read on Instagram, while on Twitter they come with their own tweet box taking up unnecessary space. Twitter also encourages users to follow as many accounts as possible, but doing so can clog timelines with unwanted posts. Because of its link with Facebook, Instagram makes it easy to follow Facebook friends and seems to be equally driven following friends and asymmetrical connections like celebrities.
Finally, Instagram has won by allowing its purpose to evolve. Just as the site's core feature -- filters -- has declined in value, the use of it to simply repost images -- a technical violation of the service -- with funny captions has become popular with some accounts doing this drawing over 5 million followers and becoming "Instagram celebrities." Traditional celebrities, too, have found a home on Instagram. Media-savvy Kim Kardashian West, for instance, currently has 34.9 million followers on Twitter and 44.7 million followers on Instagram, recently posting several of the same images to each. The popularity of celebrities on Instagram is a sign that people are abandoning Twitter for Instagram, and that Twitter is unable to fill one of its core competencies -- connecting people asymmetrically to share information. And Instagram is a hit with younger people. Sixty percent of Instagram users are under 35 while only 44% of people on Twitter are in that category.
How Twitter can come back
Twitter has made it clear that it isn't interested in considering Instagram a rival. Co-founder Evan Williams said he doesn't care "if Instagram has more people looking at pretty pictures." But despite Williams' protests, ad dollars will follow the eyeballs that have migrated to Instagram if Twitter doesn't fix itself.
To turn itself around, Twitter has to follow Instagram and let itself evolve. Instagram gained fame at first for its photo-filters, but it has become primarily a photo- and video-sharing app. Management is not attempting to stuff it with unnecessary features, and, notably, some Instagram celebrity accounts are violating the service's rules by posting other people's content, but they've been allowed to do so anyway because this is an evolution of the app's purpose and adds to its popularity.
Similarly, Twitter had its coming-out moment during the Arab Spring, when it was used to report real-time news, but over the long run the timeline's reverse chronology has proved more of a hindrance than a benefit. Unlike Facebook, Twitter doesn't use an algorithm to deliver the most important news to users, and the user experience is subsequently noisy and a major weakness of the site. Innovating the platform to make it easier to use and more valuable for users is what the company must do if it wants to regain relevance. Management may be taking a step in that direction with the launch of Project Lightning, but we won't know its impact until it gets released. Lightning will group live events such as the Oscars or breaking news in a curated fashion with photos and videos so users can easily access information about specific events. Twitter is also trying to solve its chronology problem with the While You Were Away function, which attempts to select important tweets to show users, regardless of time.
E-marketer recently predicted that Instagram's display ad revenue will quintuple to nearly $3 billion in 2017, topping Twitter along the way and demonstrating the power of an attractive and growing social network. Unless Twitter can find a way to give its users value, or its membership and stock price will continue to flounder.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns and recommends Facebook and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.