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1 Weird New Metric Twitter Investors Should Watch

By Adam Levy - Mar 23, 2016 at 4:00PM

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Twitter changed its timeline, and investors should hope users don't change it back.

Image source: Twitter.

The reverse-chronological timeline is on its way out for most Twitter (TWTR 2.25%) users. Twitter has completed its rollout of an algorithmic timeline that surfaces tweets based on how likely Twitter thinks you are to engage with them. Users can opt out of the new sorting algorithm by diving several submenus deep into the in-app settings. But Twitter says only a handful of users have taken the initiative to turn off the new feature.

The company told TechCrunch the opt-out rate is in the "low single digits." For Twitter investors, this opt-out rate could become of increasing importance, as an algorithmic sorted timeline could help Twitter maximize the value of each user. Hopefully, management provides further insight into users' response to the change in future earnings calls.

Twitter takes control
Twitter isn't the only social network messing with its feed. Facebook's (META -0.76%) Instagram also announced that it's changing its feed to feature the most interesting posts first. Unlike Twitter, Instagram won't be offering the option to revert back to reverse chronological order.

While both companies say the changes are to provide a better user experience every time someone opens the app, there may be ulterior motives as well. To be sure, seeing the most relevant and interesting tweets first is often a better experience for more casual Twitter users. But CEO Jack Dorsey previously noted that efforts like "While You Were Away" failed to drive meaningful engagement, retention, or user growth.

The changes to timeline allow Twitter to exercise complete control over the content users see on its platform. Such control will enable it to squeeze businesses that want to take advantage of its sizable audience. While Twitter may not have as many users as Facebook or even Instagram, 305 million users is still a very large and attractive audience for advertisers.

The Facebook model
Businesses have complained for years that Facebook's News Feed algorithm has resulted in less organic reach for their posts. They've also accused Facebook of using its algorithm to promote the type of content (e.g., live video) it wants to feature more of. Of course, Facebook denies these accusations, despite clear evidence. Still, can you blame the social network?

Facebook's efforts have panned out very well for investors. The company now has 3 million active advertisers, and both ad engagements and average ad price grew last quarter. Now, Facebook is going to apply the same model to Instagram, and Twitter is hoping for similar success with its new timeline algorithm.

In fact, Twitter's connection to breaking news and timeliness could actually benefit its algorithmic sorting. Businesses looking to promote their content or products will more likely get drowned out by more relevant posts from news outlets and friends. That results in both a better timeline for users and lower organic reach for businesses, forcing businesses to buy more advertising to maintain their reach.

Additionally, if tweets at the top of users' timelines are all interesting, users will spend more time browsing them. That includes sponsored tweets, which means ads become more effective. That could allow Twitter to increase its average ad price.

But Twitter is threading a fine line. Users have come to use Twitter to keep up with the news -- particularly breaking news -- and follow along with time-sensitive events. If Twitter drowns out those tweets too much, more users will revert back to the classic timeline, which nullifies any of the benefits mentioned above. That's why investors must pay attention to any comments management has to say about users switching back.

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