Dick Costolo is out as CEO of Twitter not so much for what he did wrong, but because he didn't do nearly enough right.
"He hasn't been able to come up with a cohesive and successful business strategy that sends Twitter results to the stratosphere," said Dan Olds, an analyst with The Gabriel Consulting Group. "Could anyone have done that? Who knows? But Costolo hasn't done it and he's going to take the hit for that."
Twitter announced Thursday that Costolo, who went from COO to CEO at Twitter in 2010, will leave the social networking company on July 1.
Company co-founder and chairman Jack Dorsey, who currently is serving as the CEO of mobile payment company Square, will serve as Twiter's interim CEO while the company looks for a permanent replacement.
Industry analysts were not surprised that Costolo is out of the top seat at Twitter.
For nearly a year now, investors and industry watchers have been calling for management changes because user growth has stalled and the company has failed to perform well financially. Twitter hasn't posted a profit since it went public in 2013. The company's first quarter revenue for this year came in under analysts' expectations. Twitter reported revenue of $436 million, up 74% year over year, slightly below the previously forecast range of $440 million to $450 million.
In general, the process of transitioning from a private company -- where employee turnover is written off a growing pains and executives don't have investors to answer to and can focus on features instead of financials -- has been a rocky road for Twitter.
Twitter also has had to content with the likes of Instagram and Snapchat, which have grown quickly in popularity, grabbing not only headlines but young users.
"It's a public company so anytime they don't meet investor expectations, they are in the dog house," said Jack Gold, principal analyst of J. Gold Associates. "My take is Costolo just wasn't being supported by the board, and he decided it was time for him to move on. It's not uncommon when companies hit rocky times, especially when everyone is laser focused on financials, rather than long-term strategy."
Brad Shimmin, an analyst with Current Analysis, said having shareholders to answer to is a lot of pressure on a company that is still trying to find its way.
"Now that the company must answer to its shareholders, the questions - like why Twitter has not capitalized on its enviable position -- put to its executive team are of a more immediate nature," said Shimmin. "This points to a number of issues, like a lack of decisiveness, a lack of vision and a lack of execution. The disruptive jolt that comes along with a change in leadership often translates into forward momentum."
The problem, though, is that big headlines about an executive change aren't going to change Twitter's user base and financial problems.
"Twitter's growth has slowed down and they aren't setting the world on fire when it comes to online advertising, so they definitely have some challenges facing them," said Olds. "More troubling is that while they've had huge numbers of people sign up for and try Twitter, a large portion of them abandon it soon thereafter. Twitter needs to become easier to use and make it easier for users to find timely conversations that they're interested in."
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