In this article, we look at the immediate challenges ahead for Twitter with Elon Musk now at the helm, plus we look at some of the likely ways that he could start adding more revenue.
Billionaire Elon Musk recently became Twitter’s largest shareholder after acquiring a 9.2 per cent stake in the social media company. Twitter then invited Musk to join its Board. Musk, however, announced that he would not be joining Twitter’s Board. Instead, Musk launched a hostile takeover bid, offering to make Twitter Inc private in an unsolicited deal valued at $43 billion. Musk offered to pay $54.20 per share in cash, 38 per cent above the price in the hope of winning-over shareholders. Twitter looked set to resist by adopting a ‘poison pill’ strategy (where the target company dilutes an acquirer’s voting shares). After threatening to cut Board members’ salaries to $0 if he was able to acquire the company, on April 25 Twitter’s Board accepted an offer from Musk to buy Twitter for $44 billion. Musk now intends to take the company into private ownership and has indicated that he plans to make many changes, which is one of the reasons why Musk buying Twitter was met with a mixed response as those within the company feared cultural change and job losses.
On successfully buying Twitter, Musk said that “Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated.”
Musk also commented “I also want to make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating the spam bots, and authenticating all humans. Twitter has tremendous potential – I look forward to working with the company and the community of users to unlock it.” Concern has been expressed by many about what too much ‘free speech’ could mean for the company.
However, former Twitter CEO Jack Dorsey thanked Musk and current Twitter CEO Parag Agrawal for “getting the company out of an impossible situation” and said that taking the company back from Wall Street (public ownership) and the ad model (mostly funded by advertising) was a good move.
Although Musk is optimistic about Twitter’s future, many are wondering how he can add more revenue. To achieve this, Musk’s Twitter must tackle many other challenges. These include:
- Musk’s view that Twitter has done too much to control its platform, and that there needs to be more free speech could make advertisers nervous. Twitter currently relies upon advertising for 90 per cent of its revenues. If more free speech means less restrictive moderation and potentially toxic content, advertisers may fear that their brands may be tarnished by association and stop ad spends with Twitter.
- Some brand managers have criticised Twitter as becoming a less engaging and interesting platform over the last year where a high expectation customer-service perception can easily lead to complaints and trolling.
- Even though Twitter has a daily user base of 229 million people, the company hasn’t generated significant profits in nearly nine years as a public company and share values have lagged behind those of rivals.
- Ongoing, stiff competition from other social media platforms (e.g. TikTok) and their visions for the future, e.g. Meta providing new potential advertising ideas for companies.
- The unusual nature of the deal to buy Twitter, i.e. more cash than the typical buyout and more debt than Twitter may be able to cope with. This, combined with the underwhelming profits, and the dangers of free speech and its deterrent effect on advertisers could threaten the company’s ability to pay off the high debt and interest payments.
- No other current meaningful source of revenue other than advertising, meaning that the company may have to continue with its current model for longer. No real revenue source changes coupled with nervous advertisers could create huge risk.
- Fears for Tesla. For example, some people have expressed concern that Musk’s Twitter deal and the work needed to make changes and create more revenue could take his attention away from Tesla. Also, Musk selling Tesla shares and putting them up as collateral for personal loans to raise cash means that Tesla’s value may now be linked to Twitter’s. This could mean that any problems with Twitter, e.g. caused by the wrong kind of “free speech” or trouble paying back debt could mean Musk drawing even more on Tesla stock, thereby creating more risk for Tesla.
Adding Revenue To Twitter
However, it’s not all doom and gloom. It’s worth remembering some of the things that the deal has going for it. For example:
- An established global platform with huge user numbers and influence.
- Elon Musk’s track record at launching successful companies (PayPal, Tesla, and SpaceX), and his positive personal brand values, e.g. adding some excitement and interest and a focus on innovative ideas and the future.
- A better than expected number of monetisable daily active users / mDAU figure (despite the error), good projected growth figures, and a recent jump in net income (due to $1bn coming from the sale of Twitter’s mobile advertising unit MoPub to AppLovin).
- With this in mind (plus Musk’s dislike for traditional advertising models) and his intention to make changes, there are several ways that Twitter’s revenue could be improved. These include:
- The enhanced product features, open-source algorithms, spam-beating and authentication changes building trust among advertisers (and attracting new ones) while creating new revenue opportunities.
- Crypto advertisers, knowing about Musk’s liking for cryptocurrencies, buying more advertising with Twitter.
- A focus on subscription concepts like Blue. This subscription service, launched in June 2021 in Australia and Canada (Twitter’s first subscription service), offering a set of special features and perks to subscribers. Musk’s Tweets have also signalled a possible offering of the Twitter verified blue checkmark, and ad-free interface and additional edit capabilities bundled with the Blue subscription fee.
- New types of experiential and immersive advertising which command higher rates from advertisers (again, remembering Musk’s dislike of traditional advertising).
- Changes to executive pay and layoffs, thereby decreasing costs.
- New ways of monetising Tweets. For example, charging companies fees for embedding or quote-tweeting verified users.
What Does This Mean For Your Business?
Although Elon Musk has succeeded in buying Twitter, there are many challenges and risks to overcome to start producing more revenue and relying less on traditional advertising. In the meantime, Musk needs to keep advertisers on-board and convince them that Twitter will be the home of the right kind of ‘free speech,’ keep Twitter competitive, and start rolling out some fresh ideas, fast. In essence, it’s going to be a case of innovating, segmentation (for subscription-based services like ‘Blue’), adding value, and augmenting Twitter’s product in a way that prolongs its product life cycle. If a shake-up and some new vision is needed, Elon Musk may certainly be capable of providing that, and the hope is that advertisers like Musk’s ideas (as the ex-CEO of Twitter does) and the kind of direction that he thinks Twitter should go in. For Twitter employees and Board members, it looks like being a time of uncertainty and possible bad news employment-wise, although competitors may see Twitter having the world’s richest man with plenty of big business success behind him, a strong personal brand, and a sometimes-unpredictable style as a threat. Twitter’s advertisers will be watching closely for any possible negative ‘free speech’ that could rub-off on their brand and may be preparing possible alternative advertising strategies. Some business advertisers may welcome Musk and new advertising opportunities. With Tesla’s fate now tied-in with that of Twitter, the near future is likely to be worrying. However, as always with Elon Musk, his many different tweets and comments mean that it is hard to say exactly what happens next, and even though the challenge is substantial, it probably wouldn’t be prudent to bet against him succeeding.
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