Elon Musk’s $44 billion Twitter bet is selling innovation on debt | So Good News


Firing top executives at Twitter and building a sink in its San Francisco headquarters was easy for Elon Musk. Now comes the hard part—paying off a $44 billion acquisition of a struggling social media company.

“Have a good time” Musk wrote His 112 million Twitter followers took the company personally after the deal closed on Thursday night. Soon after, executives began firing the company’s CEO, Parag Agrawal, and others. A company meeting was announced for all employees on Wednesday. Soon after, a statewide meeting was called and quickly adjourned. But this was only the beginning.

Over the weekend, Musk began spreading misinformation on Twitter about alleged abuse of Paul Pelosi, the husband of House Speaker Nancy Pelosi (D-Calif.), with racist slurs and memes on the platform and reports that Musk plans to fire employees and face charges. anywhere Starting at $4.99 up to $20 per month for users to keep their verified status.

In just a few days of Musk’s ownership of the platform, the world got a taste of two great flavors of the billionaire, which could be seen in the future – the charismatic entrepreneur and the agent of chaos. But Musk also faces some difficult math: His acquisition left the company with $13 billion in debt in the online ad market, which didn’t record its first profit until 2018; estimated annual interest payments are approximately $1 billion. As Reuters reported last week, Twitter suffered its worst user loss since the start of the Covid-19 pandemic. At least one major advertiser — General Motors — has stopped advertising on the social media site.

“Musk described his desire to own Twitter primarily as a desire to see Twitter return to a freer and less self-regulated platform,” said Paul Barrett, deputy director of the Center for Business and Human Rights. New York University Stern School of Business. “I’m sure it’s going to happen in some way, we don’t know the details yet, it could take Twitter back to the future, which means it could go back to being even more toxic, more divisive. the place where it happened”.

Whether this makes Twitter more effective is, to put it mildly, an open question.


Founded in 2006, Twitter lost $221 million last year on $5 billion in revenue, 89 percent of which came from advertising. In the company’s 16-year operation, there were only two successful years – 2018 and 2019.

Musk’s acquisition of Twitter, a controversial, controversial and sitcom-like affair that began in April, has many tech industry observers questioning whether he can make the company profitable. Even Musk has admitted that he paid too much for the site, which he may try to fix by laying off and cutting back millions in payments to senior employees.

“Welcome to hell, Elon,” Nilai Patel of the Verge wrote Friday, noting that Twitter’s business is based on content moderation, removing nasty, hateful or otherwise objectionable tweets that drive consumers away from the ads that make up most of its revenue.

Frustration with content moderation appears to be what drove Musk to buy the company. A self-described free speech absolutist, he allowed former President Donald Trump to return to the platform. However, he may already be burdened by the need to please advertisers. On Friday, Musk said a content moderation panel would meet before the company reinstated anyone who started Twitter like Trump or changed its policies. In an effort to reassure advertisers, Twitter has promised it won’t become a “free-for-all hell.”

But he himself is now stress-testing this promise. In addition to Musk’s tweets about Pelosi, there’s also Bloomberg documented a 1,300 percent increase in the N-word on the site since the news of the purchase.

Basically, business observers have had a hard time seeing how an engineering master who specializes in manufacturing batteries, electric cars, and reusable rockets will fare in a world of social media, where one’s focus is Twitter and the playground. its competitors.

“I think one of the reasons Twitter has struggled financially over the years is that reputation,” Barrett said, referring to the toxic environment on the platform in the mid-2010s before the company adopted stricter moderation practices. “I think if Twitter had used more self-regulation earlier, we would have seen it taken over by a bigger tech company.”

Elon’s Elon

The Twitter acquisition advanced new, smaller-company-disruptive technologies for Musk, who amassed a $223 billion fortune and made himself the world’s richest man. Both Tesla and SpaceX have cracked old and rich markets dominated by established firms like Ford, Toyota and Boeing with electric cars and reusable rockets.

With Twitter, it is instead buying an established company whose new technology — Twitter — has been unable to disrupt the online advertising business owned by Google and Facebook for the past two decades.

Twitter has always struggled as a commercial enterprise. Its divisiveness and vigilance created ambivalence among advertisers, Barrett said. In other words, advertisers don’t want to see their ads for soap or children’s toys next to a racist meme. And ads are where the majority of Twitter’s revenue will come from – 92 percent in 2021.

Furthermore, Musk’s interest in a subscription model for verified users depends not only on those users’ willingness to fork over cash, but also to stay on the site — something that may not happen if content moderation standards are weakened.

“I don’t think people are going to pay a significant amount of money to get on Twitter.” Barrett said. “In my view, implementing a subscription model would dramatically reduce Twitter’s user base and, by definition, reduce its ability to charge for advertising.”

Other analysts said it was too early to give up on Twitter or Musk, given his past success. “The Elon of Elon, he does what he does, and you can’t count him out,” said Charles Matthews, a professor of entrepreneurship and strategy at the University of Cincinnati. “The conventional wisdom is that he paid too much, but it’s too early to tell.”

Musk’s modus operandi is to sell a new product that overcomes inefficiencies in an existing market, Matthews said. Take SpaceX’s Starlink satellite Internet services: The advent of small, mass-produced satellites launched on SpaceX rockets — cheaper than competitors — has the potential to provide years of high-cost, slow-speed service. , an affordable global technology. While Twitter may not look like Musk’s other companies, he likes to sell new products in old markets, Matthews added. While Twitter is respectable by Internet standards, it has features it sees—such as the potential for subscription revenue—that others who are wedded to our current conception of Twitter cannot see.

Musk even talked about creating a super app similar to China’s WeChat, called X, that would include Twitter, Starlink and other services.

“Entrepreneurs don’t limit their thinking to evaluating possible outcomes like ‘normal’ people,” said Peter Phillips, a professor of finance and banking at the University of Southern Queensland in Australia, who has studied Musk’s past innovations. his colleague Gabriela Pohl.

Musk may see an opportunity in so-called “Web3” services, a third tier of the Internet built around decentralized nodes connected by blockchain technology, which is more immune to bots and malware and may be suitable for securing payments with cryptocurrencies. (On the other hand, Musk has called Web3 a “marketing buzzword,” which might be counterintuitive.)

“Somewhere, in addition to the social media phenomenon we call Twitter, we think the positioning of Twitter as a problem-solving center drove Musk’s decision,” Phillips said. “Time will tell if he pays too much.”

Thanks to Lillian Barkley for copying this article.


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