Twitter may be at the peak of it’s innovation. They haven’t really made any substantial improvements in user interface or functionality in a while; hiding replies on user profiles is basically a minor hack. What would be far more useful is marking a user (or hashtag) as “read” temporarily hiding their tweets from your stream (analogous to marking emails as read in your inbox).
But fundamentally, there really isn’t much more Twitter really CAN innovate on. It’s a micro-messaging service. They missed the boat on becoming an identity service; Facebook Connect beat them to it. They seem to have de-emphasized SMS as an interface (at least for the US market) – imagine if they had aimed at taking on BBM and WhatsApp? And they still insist on the 140-char limit, though they could easily allow for a “read more” type extra text (the way it’s done in blog software) or take other simple measures to alleviate the crunch, such as not counting http:// towards the char limit in links, or even allowing links to be metadata the way that photos and video are (the link would still be displayed in-line). You can’t even do simple markup like bold or italic. If links were meta like photos, you could even have a “Recent links” sidebar the way they do for your photos on your profile, but nope.
Twitter has no built-in emoticons, has no elegant way to show a conversation between more than two people, and when you click on the new “view conversation” link, doesn’t show it to you in the original chronological order. Twitter is deprecating RSS which means most bloggers use a plugin to embed tweetstreams; lists are usually not supported.
And of course, as Dave Winer has been saying all along, Twitter isn’t open. You can’t export your data and you can’t really even access older tweets (and did I mention that search is broken?).
It’s also worth pointing out that Twitter’s advantage of the network effect isn’t permanent. Look at what happened to MySpace and FriendFeed. Users will leave if they have a better option; you just need to woo the early adopters like Scoble and make a big splash at SXSW. Plus media attention will be lavish upon any company that has the balls to actually say, “we are out to eat Twitter’s lunch”.
Twitter doesn’t need to be beaten, it just needs to be threatened so it gets out of its comfort zone. Right now it’s chasing after NASCAR and trying to give users tailored content; that’s a fool’s game. Users will never warm to an algorithm’s suggestions – just ask Netflix (or better yet, ask a user).
And Twitter isn’t thinking big at all. What could they achieve if they wanted to? How about aiming for the moon – like becoming a defacto replacement for email?