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Business

A closer look at Twitter's quest for growth

Since founder Jack Dorsey retook the reins at Twitter last July, he has tried to rewrite the company's growth story. But will expanding a tweet to 10,000 characters make Twitter more attractive to advertising clients?

Twitter seems to be ready to say good-bye to its decade-old restriction on the length of messages. Analysts see the move as another attempt to make its service more attractive to users, who like the greater freedom offered by Facebook and other digital platforms.

Twitter is trying to find ways to make it easier to sell advertising space and grow its audience - in hopes that, ten years after its launch, the service might eventually somehow become profitable one of these days.

CEO and co-founder Jack Dorsey posted the company's intentions in a tweet on Tuesday, after the technology news site Re/Code reported the company was thinking about increasing its limits on text from 140 characters to as many as 10,000.

Dorsey wrote that Twitter has noticed that many of its roughly 300 million users have been including screenshots of lengthy texts in their tweets. He indicated Twitter is examining ways to give people more room to express themselves. However, he added that imposing some restraint "inspires creativity and brevity. And a sense of speed. We will never lose that feeling."

Dorsey is probably trying to avoid a backlash among long-time Twitter users who consider the 140-character tweeting limit sacred. At the same time, he needs to respond to company shareholders pining for a bigger audience that would generate more advertising revenue.

Long road to profitability

With 300 million users compared to more than 1.5 billion Facebook users, Twitter doesn't look all that attractive to advertisers debating where to put their money. In 2015, only a fraction of the increase in the company's advertising revenues could be attributed to new customers. Price hikes for ads generated the lion's share of the increase.

Screenshot, Instagram: trumpyourcat

Instagram, which is very popular among teenagers, already has about 400 million users, including around 75 million that use it daily, the company says. It was founded in 2010

In addition, there are more digital competitors ready to grab a piece of the trillion dollar global ad market - for example, Instagram. The photo messaging service already has 400 million users - and they have not yet been "monetized." Instagram has become more popular among teenagers and young adults than Twitter in the past couple of years.

Twitter can't afford to become stagnant, "they need to get bigger if they want to build a more relevant advertising platform," said Topeka Capital Markets analyst Blake Harper.

Downward slide

After a long streak of robust growth that turned it into one of the Internet's hottest companies, Twitter's growth has slowed dramatically during the past year-and-a-half.

Twitter's malaise resulted in the departure of Dick Costolo as the company's CEO last July, and to the return of Dorsey as an interim CEO. Dorsey had been ousted as the company's leader in 2008.

The pressure has been building on Dorsey to take drastic measures to accelerate user growth as Twitter's stock has sunk further below its November 2013 initial public offering price of $26. Lately the shares have been trading below $22, almost 40 percent down from where they stood when Dorsey became CEO last summer.

Twitter HQ in San Francisco

Twitter's headquarters on Market Street in San Francisco

When Dorsey co-founded Twitter in 2006, he imposed a 140-character limit on messages so the service would be easy to use on cell phones that had 160-character limits on texts at that time.

Those text-length capacity limits on phones faded away several years ago as the advent of smart phones enabled people to use other Internet messaging services, but Twitter's restriction on tweet length remained in place. Now it's looking increasingly antiquated.

Analysts divided over turn-around strategy

Wedbush Securities analyst Michael Pachter believes an increased limit on tweets would be a "good, baby step" toward attracting more users to Twitter, and could be done without alienating the service's current audience.

One way to make an increased limit less obnoxious would be to only show a limited amount of text in users' feeds and then leave it to each individual to click on a button to see more.

"Twitter is an afterthought in social media right now," Pachter said. "They need to do something to drive more usage of the service."

Tough competition

According to Morgan Stanley analyst Brian Nowak, the company's "already high ad load, falling user engagement, high ad unit pricing, and rising mobile ad competition" give cause for doubt on whether the company can reach profitability.

Jack Dorsey no doubt knows all of this, and has been trying to work out a strategy to address his company's challenges. But so far, his plans haven't convinced investors, as there are still more sellers than buyers at the stock exchange, and the downward pressure on Twitter's shares continues.

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