Last year was one that Twitter (NYSE:TWTR) investors would like to forget. While the greater Nasdaq eked out a near-6% gain, shares of the microblogging network fell 36% in 2015.
Twitter's huge potential as a wide-scale social-media network was put to the test last year, with many now feeling that the service will be relegated to a niche product. Twitter has long been faulted for being hard to use and difficult to decipher. Would abandoning its signature 140-character limit help the company reverse its poor growth trajectory? Re/Code reported Jan. 5 that sources say Twitter is considering a 10,000-character limit and Twitter CEO Jack Dorsey had an interesting response that supported more text.
Dorsey tweeted a screenshot of a (1,317-character) response saying in part that the 140-character restriction has "become a beautiful constraint, and I love it! It inspires creativity and brevity. And a sense of speed. We will never lose that feeling. We've spent a lot of time observing what people are doing on Twitter, and we see them taking screenshots of text and tweeting it. Instead, what if that text...was actually text? Text that could be searched. Text that could be highlighted. That's more utility and power."
Twitter needs to do something to spark growth.
In Twitter's third-quarter conference call, the company reported 307 million worldwide monthly active users, or MAUs -- not including SMS Fast Followers -- good for 8% year-on-year growth. For comparison, Facebook (NASDAQ:FB) reported year-on-year MAU growth of 14%. Not only did Facebook trounce Twitter with MAU growth, the company is also working from a much-larger base that now exceeds 1.5 billion MAUs.
Facebook's faster growth from a larger base signifies that Twitter's slowing user growth appears to be more of a problem with the service itself than an industrywide issue. Further lending credence to this is Facebook-owned Instagram, which reported 400 million MAUs as of the company's last conference call, up 25% from December 2014's 300 million announcement.
According to Re/Code, Twitter is looking to expand its character limit longer than 140 characters. Citing a release coming in Q1 2016, Re/Code reports Twitter may allow users up to 10,000 characters per tweet. And if that figure sounds eerily familiar, it's because that's the same character constraints the company has for its Direct Message feature, which it expanded in mid-2015. There's a trade-off, of course, as longer-written tweets propagate the site, it could turn off the core user that desires speed over verbosity. However, the increased character limit could increase Twitter's effectiveness as a conversational outlet, and not just a distributional one.
As a comparison, Instagram has a 2,200-character limit in captions, allowing users to fully describe their adjoining photos, while Facebook has a massive 63,000-character limit. The interesting thing, however, is how these character limits affect the real customers of these social-media networks: advertisers.
Advertisers follow eyeballs
As a result of tremendous (and increasing) scale, and a shrewd move to host video natively, Facebook's been able to charge more for ad placement instead of placing more ads. A report from analytics firm Socialbakers found the company's News Feed is only 3% ads. This shows Facebook's tremendous restraint when it comes to advertisements, carefully avoiding the "monetize now" mind-set that sunk former social-media juggernaut MySpace.
Facebook is only now starting to monetize Instagram in earnest after buying the company for $1 billion in 2012, and advertisers are flocking to the site, with eMarketer projecting the percentage of U.S. companies using Instagram (71%) will exceed those that use Twitter (67%) next year. This shows that ad dollars follow eyeballs, and any expansion of characters should be monitored for their effects on user engagement and user base growth.
For Twitter, the key question is: If an increase in character limits leads to more engagement from new or formerly disengaged users more than it discourages the current power users, could it be value accretive for the company? In the end, I do think longer character limits will make it easier for new users to communicate and understand what's going on, and thus, a good move for the company.
Jamal Carnette has no position in any stocks mentioned. The Motley Fool owns shares of 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.