Paid-for blue ticks and tiny tweaks won’t make Musk’s Twitter profitable
Tech companies have made massive layoffs as a looming recession dents their bottom lines. At the same time, Elon Musk is trying to prove he can make Twitter profitable, writes Andrew Brown
In April last year, Elon Musk created an earthquake by becoming Twitter’s largest shareholder after acquiring a 9.2 per cent stake in the social media giant. Whilst his initial attempt of acquisition didn’t go to plan, in October he finalised a blockbuster $44bn company takeover, an interesting move given Twitter’s tentative market position and financial situation.
Twitter’s new dawn was marked by a somewhat turbulent start which began with an exodus of thousands of employees from the company, including longstanding board members who were promptly given their marching orders. Putting aside his chaotic first weeks at the helm, let’s unravel what Musk is trying to do with Twitter, and the challenges he needs to address to reverse its fortunes.
The first challenge is financial. Simply put, Twitter hasn’t posted a profit since 2019, and its losses amounted to $1.14bn in 2020 (falling to $221.4m in 2021). In October, Musk said the platform was losing about $4 million per day. Whilst Twitter remains popular with journalists, celebrities, and politicians, its inability to turn a profit could prove unsustainable in the long-term.
On top of this, $12.7bn of Musk’s takeover was financed by a consortium of financial lenders, creating headaches for Twitter in the form of annual debt interest payments estimated to be in the region of $1.5bn, creating even more financial pressure.
To address this, Musk has tried to monetise blue tick status, with users paying for $7.99 per month. Despite reservations about whether users would be willing to pay for a largely cosmetic change (it does offer some functional benefits), we shouldn’t underestimate the potential appeal of this status to the Twitter community.
More interesting is his proposal to use games and quizzes to leverage user profile data. Greater access to user data could enhance Twitter’s targeting algorithm and improve the accuracy of its advertisement service. Having seen the effectiveness of Meta in leveraging user data to generate revenue, it’s not surprising that Musk might pursue a similar strategy.
Musk’s second challenge will be bringing back users who have flocked to other platforms, such as Mastodon (a rival platform which has surged in popularity since November). Forecasts suggest Twitter will lose over 30 million users in the next two years, with many of those coming from British and U.S. markets. Twitter is still listed as the fifth most popular platform on YouGov, effective monetisation is contingent on a growing user base – so Musk will need to buck this trend.
Revamping the platform’s functionality is another aspect of his approach. Launching encrypted DMs will align Twitter more closely with market standards, whilst speculation he is planning to model a new video offering around Vine suggests Musk is looking to leverage the explosion of short-form videos led by TikTok and Instagram.
But whatever these changes, there is no denying that many still hold genuine concerns over the new direction of Twitter and the reinstatement of controversial figures and political commentators. Whatever the arguments over freedom of speech or how much traffic they generate, over 500 advertisers have paused their funding in response, and they will certainly be weighing on the mind of the Twitter chief.
Musk clearly has business acumen but he faces an uphill battle to make Twitter a sustainable venture again. Not only has he inherited an unenviable financial situation, but he faces a tough demographic challenge, with Millennials and Gen-Zers increasingly turning their attention elsewhere.
Musk has identified opportunities to modernise the platform and generate revenue. But to succeed, he’ll need to go beyond functional tweaks and offer a new vision for the platform. If he can, the second era of Twitter could be quite remarkable, but fall short and he may prove that the famous blue bird might have already sung its swan song.