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CEO Dick Costolo is helping Twitter IPO take flight

A seasoned executive with a substantial corporate track record, Costolo was exactly what Twitter needed three years ago when he took the helm of the troubled start-up.

November 06, 2013|By Jessica Guynn
  • Twitter CEO Dick Costolo is shown with the company's logo, a blue bird, during a seminar in Cannes, France.
Twitter CEO Dick Costolo is shown with the company's logo, a blue bird,… (Sebastien Nogier / EPA )

SAN FRANCISCO — Dick Costolo doesn't fit the profile of a typical tech start-up chief executive.

He's not a twentysomething college dropout. He didn't start Twitter Inc. in his dorm room. And he doesn't wear a hoodie.

At 50, with a balding head and square-rimmed glasses, he's a seasoned executive with a substantial corporate track record — much like Eric Schmidt, the "adult supervision" who helped Google Inc. co-founders Larry Page and Sergey Brin turn their search start-up into an Internet moneymaker.

Although not a company founder, Costolo was precisely what Twitter needed three years ago when he took the helm of the troubled start-up. And now many analysts say he is exactly what the company needs as it heads into one of the most important days in its short business life.

On Thursday, shares of the social network are expected to begin trading under the symbol TWTR on the New York Stock Exchange in the most hotly anticipated technology debut since Facebook Inc. in May 2012.

"Great companies have multiple founding moments, and Dick brought another to Twitter with his leadership," Twitter co-founder Jack Dorsey said.

It hasn't always been easy.

A motivational poster that used to hang on the wall at Twitter said, "Let's make better mistakes tomorrow."

When Twitter moved into splashy new digs in June 2012, Costolo packed up all the company's artwork but left that poster behind. The message to the troops was clear: Twitter had no more room for error.

"He does come off as a grown-up," said Max Wolff, chief economist and strategist at ZT Wealth.

But more important, Wolff said, "he put Twitter on the path to being a revenue story as opposed to being a public phenomenon."

It's a dramatic turnaround for Twitter, whose future just a few years ago was anything but promising.

Twitter has lofty ambitions of writing the first digital draft of history in short, rapid-fire messages that ricochet around the world. But the underlying technology was being crushed by the weight of swelling traffic.

Management strife and internal squabbling had gotten so out of control that a score card was needed to keep up with who was in charge.

In Silicon Valley, where it's a badge of honor to burn the midnight oil, Twitter employees were known as 9-to-5 clock punchers. And the company seemed lost on the notion of how to make money.

"For a while, if you were going to try and wipe out one of the Internet franchises in Silicon Valley, Twitter would be the one," said Ben Horowitz, a venture capitalist and pal of Costolo. "You knew that if you attacked them, they would have trouble responding."

Now, he said, "Twitter is one of the last ones you would go after." The credit goes to Costolo, Horowitz said.

Costolo brought management stability to Twitter in part by creating a management course there and teaching it himself.

He helped Twitter define what it is (a global town square or, as he sometimes puts it, "the pulse of the planet"), and set the direction for how the product would evolve to make Twitter easier and more intuitive for people to use.

He recruited key executives and poached top talent from competitors.

Costolo instilled discipline and a new work ethic by coming back to the office after dinner and working side by side with employees who stayed late.

He also made sure that the company fixed the massive technical issues causing service outages while keeping Twitter up and running, a feat he compared to "laying down new track as a train is barreling down the track."

Most important, he was instrumental in devising a new form of advertising, the most successful of which is the "promoted tweet." It looks like a regular tweet, but advertisers pay for it to appear at the top of users' streams of updates and in search results.

He also set Twitter's sights on the most lucrative advertising market — television — and positioned the service as the second screen on which TV viewers discuss what they're watching.

"It wasn't a silver bullet, but a lot of lead bullets," Horowitz said.

Still, Twitter faces challenges that will increase in difficulty as a publicly traded company.

Growth among U.S. users has slowed to a crawl. Twitter's losses are widening as it invests money in expanding internationally, where many analysts wonder whether it can succeed. Three-fourths of Twitter users live overseas, but only one-fourth of its revenue comes from overseas advertisers.

Twitter does not yet have the scale or nearly the success that Facebook had before it went public last year. Facebook reported an annual profit of $1 billion and revenue of $3.7 billion before its initial public offering of stock. Twitter reported a net loss of $79.4 million on revenue of $316.9 million in 2012. As for users, Facebook has 1.2 billion compared with Twitter's 232 million.

And the pressure to sharply grow its popularity and revenue and turn a profit will only intensify from Twitter shareholders.

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