from the seems-doubtful dept
We’re still pretty much in the dark about Elon Musk’s real plans for Twitter. He had talked a little about changing how Twitter’s subscription product worked, and then the only other idea that had leaked was a weird one about trying to charge media organizations to quote or embed tweets. However, late last week, the New York Times published a story with some of the details of what Musk put in a presentation that was sent around to a variety of investors, and somehow convinced some pretty high profile investors to cough up another $7 billion for his Twitter purchase.
And, let’s be clear: there is no way that anyone — especially Elon — thinks that this plan is real or achievable. Musk, somewhat famously, hates business plans, saying that “these things are always wrong, so I just didn’t bother with business plans after that.” And one of the new investors in the deal, Binance CEO CZ made it clear he was investing in Musk, not because of any business plan:
“We, from our friends, heard that [Musk] was looking for third party investors, and are we interested?,” he recounted to the British newspaper. “We immediately said that we are. He didn’t have a plan for Twitter. There isn’t, like, a business plan. So it wasn’t that type of discussion.”
Must be nice to just have people throw billions of dollars at you despite having no business plan, more or less admitting that you’re doing this on a lark, and despite repeatedly showing a severe lack of understanding of Twitter’s current operations.
But, it seems he felt he needed to put at least something together, because, while he told Chris Anderson at TED that he’s not buying Twitter for the economics of it or to make money, at least some of the people he’s convincing to invest don’t want to lose all their money. And, the structure of the highly leveraged deal actually means that Twitter is going to need significant cash flow to service the debt.
Of course, he demonstrated his stated disdain for business models by putting in some details in his plan that make it clear that he thinks this is all a joke. Most notably this included insisting that he expects Twitter’s subscription service, Twitter Blue, to have (one of his two favorite childish numbers) 69 million users by 2025.
But, since we don’t have much else to go on, we do need to at least consider that some of what he writes in the plan, might actually be what he’s thinking. And that’s why this stood out:
Quintuple revenue to $26.4 billion by 2028.
In his pitch deck, Mr. Musk claimed he would increase Twitter’s annual revenue to $26.4 billion by 2028, up from $5 billion last year.
Cut Twitter’s reliance on advertising to less than 50 percent of revenue.
Under Mr. Musk, advertising would fall to 45 percent of total revenue, down from around 90 percent in 2020. In 2028, advertising would generate $12 billion in revenue and subscriptions nearly $10 billion, according to the document. Other revenue would come from businesses such as data licensing.
As others have noted, Musk actually needs the cashflow from advertising to pay for this deal, but also, Musk has long said that he hates advertising. And, many have pointed out that his plans for less moderation (should they ever actually be implemented) would likely drive away some advertisers.
Either way, it’s no surprise that he’d look to decrease the company’s dependency on advertising, and saying so publicly is the kind of thing that Musk would do, since he appears to absolutely crave adulation from the kind of perpetually online dudes who similarly hate advertising (this is not a knock on those people, because I’m one of them myself). And, lets be clear, I am all for any internet company learning how to decrease their dependency on advertising. I’ve spent plenty of time trying to do that myself. So, I think it could be interesting if he actually finds a better business model for Twitter that isn’t so advertising heavy (though, based on the numbers in that presentation, he’d still be growing the ads business in absolute terms, but would be making it a much smaller percentage of overall revenue.)
But, that leaves the big question of what those other revenue streams would actually look like. And here’s where the plan (as much as you can take it seriously) goes kinda weird:
Other revenue would come from businesses such as data licensing.
And here’s where you shout: “WHAT other data?” Twitter really doesn’t have that much other data about users (it has some, but nowhere near as extensively as Facebook or Google). In theory, Twitter could get a lot more aggressive about collecting more data, and tracking everyone’s whereabouts across the web, but people are already pretty damn creeped out by the way that Facebook does that, and it’s already resulted in some pretty large fines for that company. Jumping into the data brokering business like that seems ripe for setting up the company to also face some huge fines, when (as noted) the company needs cash flow coming in, not flowing into government treasuries in the form of paying off fines for failing to protect data.
And then there’s the creepiness factor. Whatever people think of Twitter’s failings around content moderation, people certainly don’t think of it in the same “kinda uncomfortable, but I’ll mostly live with it to see birthdays and wedding photos” feeling that many people feel towards Facebook.
So, sure, in theory Musk could build up Twitter’s data selling business, but with that comes lots and lots of challenges, including an increasingly ridiculous patchwork of laws that seem only likely to get worse — and the almost certain result of pissing off lots of users who, sure, hate ads, but the type of person who hates online ads tends to hate online tracking and companies selling off their data even more. (And that’s not even getting into the fact that Facebook really isn’t even selling data, it’s merely better targeting ads, meaning that the selling of data for Facebook is really just increasing the ads business, not a separate line of business.)
Things would get a lot more complicated for Twitter if it’s actually “selling data.”
And, again, all of this is fine. I have no doubt that Musk can think up some new ideas that maybe will work, and maybe will align incentives better overall, and make this whole deal possible. But, so far, it seems that all of his ideas don’t seem particularly well thought out to even begin to grapple with the second order effects of those decisions.
And, hey, if that works for getting people like CZ, Marc Andreessen, and Larry Ellison to throw billions of dollars your way, awesome, wonderful. That’s great. But, it at least feels a little bizarre that anyone should pretend that Musk has any real idea of what he’s getting into here. Currently, he’s an emperor with no clothes, and we should call that out; not pretend that we can see some magnificent threads because of a devotion to the belief that if Musk is standing there naked, it must be because he’s actually wearing some space-aged invisible nano clothes.
Filed Under: advertising, business models, business plan, data, elon musk, selling data