Well, Elon’s first week running Twitter has gone worse than I expected. I said last week that I thought the platform would be pretty much unchanged in 1-3 months and then effectively dead within a year. Now it’s looking like it’ll be pretty different in 1-3 weeks and effectively dead within six months. (Nice job, Elon. You spent $44 billion to bring back the fail whale.)
Elon, it seems, is on tilt.
I’ve played a fair amount of poker over the years. One thing you sometimes see at the card table is a pretty good player who, once they’ve lost a good chunk of money, starts trying too hard to win their money back very fast. Bad luck early begets bad decisions late.
In April 2022, Elon Musk offered to take Twitter private at $54.20/share. It wasn’t immediately apparent whether this was an overpay, an underpay, or a fair price. The stock had traded in the $60s just six months earlier. Tech stocks hadn’t begun to crater across-the-board quite yet.
It seems to me that, when Musk made that offer, his plan was pretty straightforward. Twitter was widely regarded as a poorly-managed company. It was far more influential than profitable. Musk figured he could buy the company outright, spend a year or two adding new monetization features and fixing the most glaring inefficiencies, then take it public again and turn a nice profit. He’d be declared a hero in the business press and the tech press, adding another layer to the legend of Elon Musk. (“Elon Musk: the man who saved Twitter, and made money doing it!”)
I doubted at the time that it would actually work. But it’s a plausible story: Twitter is famously poorly-managed. You’re rich enough to buy the whole thing and cut through the red tape. Take it private, fix it up, and flip it for a profit.
But then the tech crash happened. The entire tech economy has taken a beating. Startups, cryptocurrency, big tech and everything in between. It isn’t just Netflix and Facebook that have taken a nosedive. Every company in the sector is down 25-75%. The tech bubble that never burst has finally, in fact, burst.
That means instead of buying a company worth $40-45 billion for $44 billion and then trying to flip it, Elon found himself buying a company worth $15-20 billion for $44 billion. So he tried to scrap the deal. But it turns out he can’t bully the Delaware Chancery Court the way he’s used to bullying the SEC. The deal went through. Elon massively overpaid.
What’s striking about all the chaos of Elon’s first week is that there is no reason for him to rush like this. Twitter is a private company now. He doesn’t need to impress shareholders or Wall Street analysts with his plans for cost-cutting and long-term growth. He doesn’t need to convince advertisers that a massive problem is being solved (quite the opposite! He needs to convince advertisers that the platform is going to stay basically unchanged.). He has to come up with an extra billion dollars per year to cover the debt payments he just added to the company’s books, but he doesn’t have to make up that shortfall immediately.
What we’ve seen this past week has been the actions of a gambler who is stuck $25-30 billion and is desperate to make moves fast and turn things around. The tech crash was bad luck. There was no reason to think in April 2022 that the 18-year bubble was about to suddenly burst. But bad luck early begets bad decisions late. Here we are.
I’m not @verified on Twitter, and I don’t subscribe to Twitter Blue.
I tried to get verified a year or so ago. Application denied. (#bretbug might have made me Twitter-famous, but I guess even Twitter knows that Twitter-fame isn’t real-fame.)
I’ve considered subscribing to Twitter Blue. For $5/month, you can fix the stupid typos in your tweets. I tweet a lot, and my typos really bug me. Every time I notice a typo, I think to myself “for just 5 bucks, you could fix this, dummy.” That seems like a pretty reasonable deal, tbh.
Jason Calcanis (a member of Musk’s billionaire boys squad) tweeted yesterday that, with all the new features they’ll be adding to Twitter Blue, the new price of $8/month will eventually seem “way too cheap.”
I can imagine a situation where Calcanis is obviously correct. But what he isn’t accounting for is the disastrous job that he and his bros have done rolling this thing out. This is probably the worst product rollout since New Coke.
Consider this scenario: imagine Elon waits a month, insisting they’re conducting a thorough product review and developing a long-term strategy for growth, sustainability, and profitability. Then he announces that their first major initiative is to revamp and improve the existing Twitter Blue service. The price will go up from $5/month to $8/month. It will include an additional verification pathway, along with a couple other new features. He also describes how this is going to fit into their strategy to combat spammers and scammers.
I suspect that would’ve gone over pretty well. They would need to come up with a plan for how new-verified meshes with old-verified (as Jason Goldman suggested on Twitter, you can easily solve this by making the check marks different colors). They would need to set the right price point ($8/month, not $20/month). They would need the other features to be compelling. But it all sounds like the type of thing that Twitter-as-we-know-it might do if it was better-managed. Sure doesn’t sound like a platform-ending nightmare.
Compare that scenario to how Elon (And Calcanis, and David Sacks) actually framed their idea this week: (1) Leaked the proposal to scrap the old verification system and start charging power users $20/month for their previously-free verification badge. (2) bargained down to $8/month in a reply to Stephen King because “We need to pay the bills somehow!” (3) Insisted this was a grand populist move, describing the current setup as “Twitter’s lords and peasants system.” (4) Tweeting “you get what you pay for.” (5) Tweeting “To all complainers, please continue complaining, but it will cost $8.” (6) Retweeting David Sacks’s tweet “The entitled elite is not mad that they have to pay $8/month. They’re mad that anyone can pay $8/month.”
This is maybe the worst imaginable way to frame the new Twitter Blue. Musk is effectively saying “hey, I spent $44 billion to own this thing, and have to come up with an extra billion per year to cover the debt payments. We’re all going to have to chip in to make this work. Don’t be cheapskates, alright?” Then he’s describing the power-users who are the platform’s most valuable asset (for free) as elitist snobs who need to start paying to keep the privileges they’ve been given.
Predictably, this has not gone over well. Here’s Nate Silver:
Once you’ve introduced the program as “these verified snobs have to start paying for our product,” reducing the price from $20/month to $8/month doesn’t make it seem like a deal.
The status quo is that Twitter is free, verification is limited-but-free, and verification is designed to manage some of the worst flaws of the site (impersonation, misinformation, etc). Elon is throwing half-baked ideas out there, just tweeting through it, all in a rush to generate new cashflow. It’s a series of compounding, unforced errors, and it’s only going to get worse.
Here’s an idea that I had the other day:
It isn’t clear whether this would work under Musk’s new verification system. But probably would. Musk’s plan is to introduce friction for spammers and scammers by making them pay to set up bulk accounts. That’s a good way to deal with the type of spambots that show up in the replies to his tweets. It’s a bad way to deal with individuals who are motivated to strategically impersonate a single target.
Musk laid off about half of Twitter’s workforce this morning — around 3,700 employees. Even if his plan, on paper, is that Twitter Blue verification would prevent me from saying “hi, yep, I’m the unpopular New York Times columnist who famously quit Twitter in a huff. Here’s some money, please verify my account,” who is going to implement this plan of his? The larger he wants this new mass-verification system to be, the more corners he’s going to have to cut if he also wants to save money on labor costs.
Elon is planning to roll this new verification system out next week. Expect flaws. Expect bugs. Expect exploits. There is a reason why you don’t rush major systemic changes like this. Elon is wrecking the platform he just bought because he keeps trying to make his money back all at once.
Settle down. Go for a walk. Maybe pay attention to one of the four other companies you supposedly run.
Advertisers are already fleeing Twitter. The company’s primary revenue stream is declining. Elon, predictably, has decided to blame “activist groups,” as though he is some sort of cancel culture victim.
This is all a predictable outcome of Elon’s first week of chaos. What advertisers are asking for is assurance that the company will remain basically unchanged. What advertisers are seeing is a 500% increase in use of the n-word, and Musk himself tweeting a fever-swamp conspiracy theory, and Musk announcing that the old verification system is going to be scrapped, details on how they’ll manage misinformation and impersonation TBD, and Musk firing half of the company, decimating the content moderation team.
Of course the advertisers are hitting pause on their advertisements. Elon is on tilt, pissing off the user base, looking like his grand strategy for twitter is to just tweet through it and figure something out.
Again, if Elon wasn’t on tilt, this wouldn’t be happening. All he had to do was slow things down and insist that major, positive changes would come after he and his team had worked through the details of their plan. The only person in a rush to radically overhaul Twitter is Elon.
The irony here is that, in the medium-term, I suspect we’re going to learn that surveillance capitalism becomes a much less effective business model during a tech crash.
There are a couple of books that seem particularly relevant right now.
The first is James Ledbetter’s (2003) Starving to Death on $200 Million: The Short, Absurd Life of the Industry Standard. At the peak of the 90s dotcom boom, the Industry Standard was one of the most successful tech magazines in the business. One lesson from the first dotcom crash is that companies that are shutting down or slashing costs stop spending ad dollars (and stop paying for ads they already purchased once they go bankrupt). We’ve entered a second tech crash, and we haven’t really even begun to sort out what that will mean. But I suspect that advertising-dependent platforms are in more trouble than it seems, because ad budgets are about to be severely cut for the first time in decades.
The second book is Tim Hwang’s (2020) Subprime Attention Crisis: Advertising and the Time Bomb at the Heart of the Internet. Hwang (who, incidentally, is now Substack’s General Counsel) points to all the ways that digital advertising has never lived up to its promise. He draws a parallel between the 2008 housing bubble and the internet advertising bubble, since the vast majority of Silicon Valley companies have built their business models on the shaky foundations of digital advertising.
When I read Hwang’s book last year, the one doubt I had was whether the advertising bubble would ever actually pop. I’ll write a longer piece on this subject at some point, but in the meantime its worth wondering just how much of the internet economy is at risk if digital advertising goes into freefall decline.
Elon didn’t cause the 2022 tech crash. He was maybe the single largest beneficiary of the tech bubble that never burst, but it was just bad luck that he signed a binding agreement to take Twitter private just before the cratering of the entire tech economy.
I wrote last week that the best-case scenario for an Elon-run Twitter would be one where he realized that his only hope for turning a profit lies in waiting out the tech crash. That requires patience and deliberate behavior.
What we’ve seen in his first week is a gambler obsessed with his losses, taking wild swings trying to earn his money back.
It’s an approach that is going to cost him. And it might take down Twitter before an approximate replacement has emerged. So it could cost the rest of us as well.
The best thing Elon can do for Twitter and for himself is to announce a month-long pause and just focus on something else for awhile.
That’s maybe the only way he can minimize the self-inflicted damage.