Elon Musk’s takeover of Twitter has set a new standard for disruption. Without meaning to do so, Musk has made Twitter into a soap opera, casting himself in the lead role. The central premise of the show seems to be, “what insane thing will the billionaire do next?”
Despite having around 240 million users, Twitter is tiny in comparison to Facebook, Instagram, YouTube, TikTok, and Google. But Twitter punches above its weight.
Twitter derives its power and value from three communities that depend on it: politicians, celebrities, and journalists. Politicians and celebrities love that Twitter enables them to broadcast directly to approximately 240 million people without any gatekeepers. Journalists love that Twitter gives them an opportunity to build their personal brands while also revealing a consensus about which stories are newsworthy and which are not. For the rest of the 240 million users, Twitter provides the illusion of direct access to VIPs who would otherwise be beyond reach. Trolls love Twitter because its algorithms give their content disproportionate weight in the conversation.
While it is tempting to characterize Twitter as a public square, the company is a profit seeking business with priorities and business practices that have frequently undermined democracy, public health, and public safety. This was true for many years before Musk took over.
We should not be surprised at how quickly and easily Twitter fell apart; its flaws have been clear for years. Twitter has required thousands of hard working people to keep the site running imperfectly. In his first two weeks of ownership, Musk fired many of those people and ignored the best practices for operating internet platforms. He appears to be winging it, supported by a team of venture capitalists and Tesla engineers who are either clueless, unwilling to challenge Musk, or both. How big a problem that is—and for whom—remains to be seen.
Reactions to Musk at Twitter are nearly as extreme as the new owner’s behavior. On one side you have Schadenfreuders who rejoice at the notion of the world’s richest man vaporizing $44 billion in the most outrageous and public way imaginable. On the other are people who depend on Twitter—politicians, activists, celebrities, and journalists—many of whom view Musk’s actions as a threat to democracy and public safety. They are not wrong. Musk’s notions of free speech seem to apply mostly to him. He has lashed out at Kathy Griffin and others who have mocked him. He has revealed a sympathy for Vladimir Putin and the far right. According to a whistleblower, foreign agents were working inside Twitter before Musk acquired the company. There is no reason to believe Musk prioritizes the public interest.
The original design of Twitter was elegant in its simplicity: a blank 140 character space optimized for broadcast messaging. The company positioned its platform as a site for microblogging, and the conversations that developed captured the public imagination. Monetization of microblogging proved to be a challenge, so the platform evolved in steps to its current model of unmediated broadcast to a mass audience. Monetization improved, but never matched Twitter’s unique audience and cultural significance. As a result, many people, Elon Musk among them, imagined they could do better.
Today, the issues are very different. On current course and speed, Musk may break Twitter in ways that cannot easily be repaired. In the absence of aggressive regulatory intervention, which seems unlikely, there is no way to force Musk to change course until the company declares bankruptcy.
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Bankruptcy is a very real possibility. Musk justified the Twitter layoffs by saying the company is losing $4 million a day. The headcount reductions will make a huge difference to the expense side of Twitter’s income statement, but Musk’s actions have alarmed some advertisers, which may offset the expense savings.
The debt that Musk took on as part of the go-private transaction has an interest burden of approximately $1.3 billion per year. Servicing it requires Musk to generate cash flow far above historical levels. Peak EBITDA in recent years was $993 million in 2019, while the most recent quarter before the acquisition saw negative EBITDA, which makes me wonder what the lenders were thinking.
Twitter faces an existential crisis. Bankruptcy would not normally be a showstopper for a company at Twitter’s scale, but Musk’s approach to managing Twitter creates risk that goes far beyond insolvency caused by an inappropriate capital structure. Musk may be tempted to monetize Twitter’s data in manner that would have been unthinkable to his predecessors and remains so to users. The platform may not survive.
For the people who care most about Twitter—the politicians, activists, celebrities, and journalists who practically live on the site—life without Twitter is hard to imagine, but they need to do so. Replacing or replicating Twitter would be much harder than it appears. Journalists have flocked to an open source platform called Mastodon. Mastodon’s advantages include distributed governance and federation. The platform is actually a federation of individual servers, each with their own rules. The downsides of Mastodon include a kludgy interface, lack of scalability, and privacy issues. Politicians and celebrities have been slow to embrace Mastodon, recognizing that the platform was not designed for their use case: unmediated broadcast to hundreds of millions of users.
Politicians and celebrities crave a Twitter that works like the pre-Musk one, but with less hate speech, disinformation, and conspiracy theories. The challenge there is that advertising business models like Twitter’s depend on attention and hate speech, disinformation, and conspiracy theories are particularly effective at generating attention and profits. A “safe” Twitter based on advertising would be much less profitable. And one based on subscriptions would likely be far smaller. Even if you assume Twitter is not damaged beyond repair, there is no evidence that Musk would sell at a price that would enable a “safe” Twitter. Starting one from scratch would be challenging for many reasons, but mainly because of the difficulty of building a mass audience for a safe product and finding the capital to finance it. People with money may reasonably conclude that the value of a “safe” Twitter does not justify the risk inherent in trying to create one.
This leaves us with two real risks we did not imagine a few months ago: life without the Twitter so many have come to depend on and an end game filled with privacy and national security risks. So much for the notion that billionaires are always brilliant and wise.