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Time to Stick a Fork in Elon Musk’s Twitter: It’s Cooked

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By David Whitehouse

Unless you have taken a conscious decision to avoid them, the world’s main social media platforms are probably deeply imprinted into your consciousness.

Their omnipresence makes it seem that they are part of the permanent natural order of things. In reality, social media platforms are fragile constructs. Elon Musk’s takeover of Twitter and the radical changes to the company’s business model which he is trying to implement are exposing the limits of their durability. 

Twitter was already “seriously distressed” by the massive leveraged buyout debt it couldn’t support before Musk took over, says Vicki Bryan, founder of bond research provider Bond Angle in Houston and a contributor to the Smart Karma platform. Musk has “worsened chances for Twitter to recover sufficient ad sales, its only credible revenue source, much less boost them to profitable levels,” she says.

This has been compounded by “draconian” layoffs which have “weakened operations, increased the company’s legal jeopardy, and darkened its prospects for viability,” Bryan argues.

The nature of the platform limits the amount of information that is valuable to advertisers. Even a casual social user of social media will notice that YouTube has a much sharper idea of what content you are actively looking for and what products you might therefore want to buy. Twitter interactions are more random and harder to interpret than which videos you search for and watch.

Major Twitter advertisers including General Motors, Cheerios, and Lucky Charms have paused their spending since Musk took over. Those which are still plugging away risk being scared off as the lack of moderators means that content becomes increasingly no-holds barred. According to Axios, only 11% of the staff previously responsible for content moderation are still at the company.

There is also nothing to suggest that the casual user is going to want to pay for a blue tick. The original point of these was to distinguish prominent posters, for who the risk of impersonation was real, from the rest. There was also some intangible prestige attached to having the tick, but that disappears as soon as everyone can get it.

Many of the people who carried out the blue tick verifications at Twitter are no longer there, but Musk wants about 50% of revenue to come from users who are willing to pay to provide his platform with content. There is nothing in the company’s history to suggest that is realistic: Twitter had 2021 revenue of $5.1 billion, 89% of which came from advertising.

There’s “every chance Twitter will fail,” says Roger Kay, analyst at Endpoint Technologies Associates in Massachusetts. “People seem to forget how fragile social networks are.”

Ghost of Platforms Past

Kay questions how many people still remember AOL, MySpace, or Friendster. Early interactions might bring an interesting new sense of freshness, but the quality of conversations tends to fall over time. Eventually, social media platforms can become “cesspools” which are abandoned by the mainstream.

He recalls that one of the earliest social media platforms, The Well in San Francisco, has relied on channel moderators to keep it from going off the rails. The platform was founded in 1985 and since 2012 has been owned by a group of its members. It started out necessarily local because modems were dial-up at the time, and users had to pay AT&T connection fees, which were prohibitive for anyone outside the local area, Kay says. “It was a great social experiment, and, because it was local, many people met outside the bulletin-board forum. But The Well never made money.”

Facebook is less interesting than it was, but has not died because it has become something of a communications utility, Kay says. “Twitter, however, never reached that scale. It has always been a kind of specialty platform for the cognoscenti.” The economics were “crappy” from the start, and now they’re a good deal worse, he adds.

“As far as I could tell,” Kay says, “Twitter brought out the worst in everyone. At most, people humble-bragged and portrayed a curated version of their lives. At worst, they stalked people, flamed anyone with differing beliefs, and fought endlessly in a snark-race to the bottom.”

Losing as many employees as they have is in itself enough to make it unlikely the firm will survive, says Rob Enderle, principal analyst at the Enderle Group in Oregon. Musk has begun to shift resources from his other companies, such as technical resources from Tesla and money from SpaceX in the form of unneeded advertising. That makes it “increasingly likely Twitter and many of Musk’s other companies will fail,” Enderle argues. 

‘Battle for Digital Control’

Some still believe that Musk can turn it round. The new owner is cutting costs, and if earlier advertisers abandon the platform, new ones will take their place, says Richard Smith, Florida-based CEO of Finiac, which provides investment portfolio analysis tools. “Twitter is still an irreplaceable social media platform,” Smith says.

Musk himself has warned the company may not survive if it can’t find new revenue sources. The motivations for the world’s richest man in buying the platform may not be purely financial. “What people don’t realize is that Twitter is not just another business,” for Musk.

The new owner, says Smith, sees Twitter as “a cornerstone of an existential battle for the future. The battle is a battle for control of digital identity. It’s a battle between a centralized digital future where corporate and political elites control the narrative and a less centralized future where individuals still enjoy a measure of autonomy and control over our digital selves.” 

Musk may see himself as a digital activist, but that doesn’t mean that his business is going to survive. It’s hard to really mess up a company which has little or no gearing. As debt increases, the margin of error shrinks. Musk used $13 billion in financing to buy Twitter, far exceeding the company’s existing gross debt of $5.25 billion. The company is now reported to need $1 billion a year just to meet debt-service payments.

Twitter’s governance risk under Musk is “highly negative,” Moody’s wrote at the end of October. The rating service on November 18 withdrew its ratings on Twitter’s debt, which had been on review for downgrade, saying that there is now insufficient information to assess. Bloomberg News has reported that banks are now trying to offload those loans at steep discounts, with offers as low as 60 cents on the dollar. Usually it might take a couple of years, a failed business plan, and missed targets to generate big discounts. A few weeks of Musk was enough.

Personality Traits

Musk’s personality, Kay says, is part of the problem. Successful people, he notes, often harbour the fallacy that they are good at everything. “Musk obviously has some blind spots, but he’s blind to them. He doesn’t know that he’s not particularly skilled in social graces. He’s not a good host. He’s an arbitrary, snarky, defensive little man who outgrew his britches long ago.”

None of that necessarily matters, of course, unless your business model depends on maintaining a big tent of advertisers and users paying for verification. Kay doubts that Musk has the necessary skillset. “Try to imagine him as a maître d’, welcoming people to his exclusive restaurant. He would have to be polite, warm, welcoming, and gentle, none of which he actually is.”

“The bulk of users will not pay a monthly fee for their checkmarks,” Kay says. “Without strong ad sales, they’re cooked.” 

David Whitehouse is a freelance journalist in Paris.

Author: David Whitehouse

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