Is the bird free?
Elon is the new owner of Twitter, and since the deal was finally completed last week, he’s wasted no time in getting involved in every detail area of the company. He’s focused on doing things his way. Let’s be clear, it is now his company and toy, and he can do whatever he wants with it. But, to buy the company, he’s had to use not just his money but that from partners and banks, and that creates a huge problem for him.
So, let’s unpick some of the issues that Elon has created for himself. They are anything, from the issues relating to the quality of the product and experience to its over-reliance on advertising in its generation of revenue. And let’s not forget about the toxicity of some of the users, who hide behind anonymous accounts to troll, dox and spread hate speech.
All that said, does Twitter have the potential to become something greater than it currently is? Yes, but that will mean Elon stepping out of his bubble and looking and what works and what doesn’t in real life.
So, the issues …
Funders
To complete the deal, Elon has had to use the equity he has together with additional debt financing from lenders to cover the cost of the deal.
It is reported that $13 billion of debt will be financed by banks, who only this week said that they are preparing to keep $12.7bn Twitter debt on their books until early 2023, which could lead them to incur huge losses. That is already bad for the bank, but with the debt and the rise of borrowing, Twitter is now likely to pay ‘roughly $1 billion a year in annual interest payments — more than Twitter’s total profits for 2021.’ Just think about that annual interest payment before anything else to keep the firm afloat!
All this, together with the fact that banks are yet to see a clear strategy, creates a challenging situation for Elon, who has put himself front and centre in owning the company and turning it around.
To make it into his global town square, Elon is going to need a lot more money than he thought he did, which is going to be difficult. After all, unlike with Tesla and SpaceX, here he is selling a service, a channel of communications with limited experience for the end users just yet!
Advertisers
One of the biggest issues for social media companies is their addiction to advertising money. For many, Meta included, their revenue streams come exclusively from the income they generate from advertising.
According to estimates from eMarketer, in the US alone, advertisers ‘are on track to spend $65.3bn on networks such as Facebook, Snap and Twitter this year, a year-on-year increase of just 3.6 per cent.’ All that sounds good, but it is ten times slower than in 2021. Yes, a lot of money, but there is a downward trend in this service spending as businesses are looking at better returns from their investment. Advertisers are refocusing on where they put the money they use to reach their audiences.
Those that know me to know that I am suspected of advertising on digital and social channels. I have always found the metrics they use to highlight success to be shocking. Engagement on Instagram of two or three percent and people celebrate. Yeah, but what about the 95% of the spent money? Yeah, exactly.
So in this situation what does Elon Musk do? He decides to restructure Twitter into an entity that establishes the perception that there is a rise in hate speech on a platform where businesses spend their valued advertising money.
Advertising income for Twitter is nearly their exclusive revenue stream, so rather than engage them and keep them onboard while he redesigns the firm, he opts to make them nervous. The money reacts with many now opting to money their spend elsewhere, to which Elon then write a grovelling Tweet.
As Scott Galloway points out, ‘advertisers have a choice.’ Advertisers are opting for stability. They are not signing up to his view of what a communications ecosystem should be with limited moderation.
Elon is making the restructuring of Twitter even harder because he is trying to please too many audiences.
And while he maintains his belief of freedom of speech, he is failing to realise that the world has physical and cultural borders and Twitter is a global company.
Staff
Just recently, Elon announced in no uncertain terms that he’s going to be trimming down the size of the workforce, most probably to satisfy the requirements of the lenders that have helped him buy the company. Oh, and the fact, maybe, that revenue from advertising is dropping.
Numbers being leaked range from a reduction in the workforce from 50-70% worldwide. Crazy numbers.
Staff have already received emails telling them not to turn up to work, and USA class-action lawsuits are already being filed in California against this mass firing.
Regulators
Yes, the law. We know Elon’s view on regulators. He and the SEC have form, and to a certain extent, that was a modest situation compared to what might be coming his way given what’s at stake with Twitter and the influence of the platform.
The EU has eyes on him, as does the US, specifically on national security matters given that the channels was bought with foreign investors.
It was reported by the Washington Post that “terms of the deal give large foreign investors access to confidential information about the social media platform.”
Haters
The platform is changing. As much control as Musk has, there needs to be a realisation that the platform is where it is because of the lack of innovation that took place and the decision not to focus the platform on relying solely on advertising revenue.
Twitter has not done as much as it could have to manage the discourse that takes place on the platform. Yes, it has moderation tools, but it has failed to see that the platform is accessed across international jurisdictions, where Elon’s definition of free speech is different.
Misinformation and hate continue to spread and such content has increased since Elon took the platform private.
A report by Forbes suggested that content moderation tools were being limited, highlighting the gap that exists between Elon and current and prospective funders. The question now is if Elon will realise that the opinions of businesses matter.
Super App
Elon is onto something here with turning Twitter into a super-App like the ones that exist in Asia, such as Grab, Go-Jek, WeChat and AliPay. These Apps have been designed as a gateway for conversation and commerce, and they work.
Dwell time in these apps is high as they deliver anything that you generally want. As a result, they capture a lot of data on your activity that is used ti keep you further engaged and deliver other services relevant to your behaviour.
The thing here is that the super-App started in Asia, and now you have Elon, who is trying to do something that Meta has not been able to achieve.
Even if it does achieve this and so brings in new users, who spend more time on the platform and money through it, it will not be innovative, an issue that Twitter is facing.
What he has to realise is that he needs to separate his views from the reality of running his past companies.
Having a global town sounds great, but in every town square, there are things that are moderated.
Twitter is a global tool, and Elon needs to realise this in how he and his team aim to redesign it, especially if he wants to avoid any issues.
