Twitter’s attention has been well and truly captured by one of its biggest attention seekers, and all it took was $44bn (9x revenue) from Elon Musk, reportedly the world’s richest person.
There are plenty of concerns about the acquisition and what it means for “democracy”, some overblown, some not. Will Musk welcome back Donald Trump? How will he handle privacy on a platform that is often used by journalists and others to make confidential connections? How will his supposed commitment to free speech and hostility to moderation pan out with regulators and advertisers, and will it turn Twitter into (even more of) a cesspit of hate and misinformation?
The answers remain mostly unknowable, other than that Musk’s track record suggests he may not be the best custodian of what he describes as the internet’s public town square.
We can, however, make some slightly more informed speculation about where Twitter could go commercially. It is after all, often spoken of in the same breath as Meta and Google, two information behemoths that have also had a radical impact on the way the world talks to itself, but generate many, many times the revenue and profits.
To compare the two most similar businesses: Meta’s Facebook had almost 2bn daily active users at the end of 2021 and, while Meta does not split out Facebook revenue, even assigning it conservatively at 50% of the company’s total revenues gives us almost $60bn a year. In contrast, the 16-year-old Twitter’s most recent full year results recorded just over $5bn in revenue, while the company is targeting 350m DAUs, that is daily users it can actually monetise (its current figure is significantly lower, 217m). The contrast is even starker in terms of profits with, again, half of Meta’s net income coming out at just under $20bn, compared with Twitter’s adjusted figure of just £273m. Not a real tech profitmaker at all and, on pretty much every measure, Twitter is one tenth or less the size of Facebook alone. Surely, Musk’s has a plan to fix that? To put Twitter up there where its profile suggests it belongs, among the world’s most valuable and profitable tech companies?
I’m far from the first person take a look at his options, but I do have some thoughts on the possibilities and pitfalls involved in different paths, and what they say about the fundamentals of what Twitter is, as a platform and a business.
Double down on advertising
There are basically three ways for Twitter to boost ad revenue: Get more users, sell more ads, sell those ads for more money. None are easy.
Twitter is growing, but it’s been around almost as long as Facebook. The conclusion has to be that not everyone is interested in Twitter’s core product, and that there is a ceiling on growth to which it may be close, and which could even be brought crashing down by allowing a free rein to more toxic users.
More ads? There are both supply and demand issues here: Supply in that Twitter users have proved pretty vocal about their sensitivity to changes, and more ads in the timeline are unlikely to be popular, and might risk driving away users entirely. When it comes to demand, the bigger platforms offer more scale and, for the most part, more data on their users.
More expensive ads? Again data is an issue. But, more fundamentally, how are you going to get advertisers to pay more for Twitter than they need to spend on Facebook when the environment you’re offering is basically the same? Sure a quality news organisation might be able to argue there is something inherently more powerful about appearing alongside its reporting, but the quality of the average Twitter feed is variable at best (and, again, only likely to get worse with less moderation).
The other clear issue with this is that Musk’s stated focus on free speech at (almost) any cost is likely to hamstring Twitter’s advertising business. Advertisers are seen as a key pressure point for activist organisations, fighting harmful and potentially dangerous content online, and that pressure is unlikely to decrease. Nothing might be more likely to increase that pressure than letting Trump back on the platform.
Subscriptions?
The media market ying to its advertising yang is an even more complex beast when it comes to social media.
Google claims YouTube Music and YouTube Premium between them have 50m subscribers, but that is a) a tiny proportion of YouTube’s 2.6bn users and b) for a service with a lot more in common with Spotify or Netflix than it does with Twitter. Twitter’s own experiment with a paid service hasn’t exactly had long to bed in, but it has mostly been met with indifference if not ridicule – and wasn’t always aimed at power users.
Now, of course, there is the option to simply put up a paywall around the whole thing. But – given how many people are already talking about leaving Twitter simply because Musk is buying it – that seems like a risky proposition. More fundamentally, putting up a paywall will make people question the value of the service, something few businesses built on addictive attention and curated user generated content will like. Again, news organisations can make a direct pitch about value, and look at how many have struggled to make subscriptions work.
Something in between?
There are a couple of slightly interesting and vaguely similar options that seem to fall somewhere in between the normally very separate worlds of ads and subscriptions. The first is a straightforward “pay-to-tweet” option. Want to reach the audience you’ve built but we control? Give us some money. Others have pointed out that this might make people think before sending bad tweets, but might also simply lead to different thresholds of badness based on how much money someone has. I can also imagine this option being pitched extremely cheaply, so low that it’s barely noticeable, but there are a couple of barriers there too. For one, only a small proportion of Twitter’s users actually tweet much, so their bills might end up looking a little more prohibitive (unless they are, as mentioned, rich in the first place) and, two – as with every online business – the tricky part is getting anyone to hand over their card details in the first place.
The other, similar path that is more appealing but equally unlikely to happen comes from a social network largely seen as a failure. Tumblr was a Twitter and Facebook peer that had a deep but often overlooked impact on internet culture. It is best known as one of the businesses bought by Yahoo! and subsequently mismanaged, in Tumblr’s case mainly because they didn’t understand the culture of its users. Bought for more than $1bn, it was eventually sold to WordPress owner Automattic for a figure reportedly under $3m.
Tumblr is not likely to make a comeback, but its recent launch of a new paid product does provide an amusing lesson in tailoring monetisation strategies to your users. Called Tumblr Blaze, the service allows users to simply insert their posts into the streams of thousands of other users for a small fee. No targeting, no-guaranteed impressions, and no real commercial imperative, just an option to put your weird posts in front of thousands of other users. I’ve no way of knowing how much money Tubmlr is making from this so far, but quite a lot of users (ie those receiving the promoted posts, not just posting them) actually seem to like it.
It sounds, of course, a fair bit like promoted Tweets. Except virtually no one seeing a promoted Tweet on Twitter actually wants to. That’s partly because Twitter’s underlying culture is very different to Tumblr’s, but also because promoted Tweets from the start have only ever tried to match Twitter’s environment, not the culture. It’s probably too late for Twitter to come up with something similarly well tailored and liked that also makes money. But wouldn’t it have been great if it had?
Stuck in the middle
In the end, the truth is Twitter may be at roughly the place it was always going to be. It is sitting at the upper end of the classic problem of online economics. Lacking the scale to be a dominant player in digital advertising, and lacking the specificity and quality that enables it to charge users in any meaningful way to use it.
Presumably, Elon Musk knows this. And, given the structure of the deal, that presents a problem. The loans he is using to part-finance the acquisition come with a hefty annual interest bill, one which seems likely to dwarf Twitter’s profits and which will, at some point, need paying back. When Musk said earlier this month that the deal was “not a way to make money”, he wasn’t kidding. Probably.
