A four-step business plan for Elon Musk running Twitter — Quartz

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Elon Musk may be the richest person in the world, but he still needs investor money to buy Twitter for $44 billion. The CEO (and largest individual shareholder) of Tesla promised to take the social media company private in a deal valuing Twitter at a 38% premium above the share price. Musk is using $21 billion of his own cash, $13 billion in loans and $6.25 billion in loans against Tesla stock.

So far, Musk has revealed few details about how he will boost Twitter’s profitability. (Twitter has only managed to post a quarterly profit a few times since 2018.) Most of the changes prioritize “free speech” by limiting or eliminating content rules, or increasing subscriptions rather than The advertisement. In a pitch deck shown to investors in recent weeks, according to the New York Times, Musk said he would reduce Twitter’s reliance on ads to less than 50% of revenue (from around 90%), while quadrupling Twitter’s user base and revenue to 931 million and $26.4 billion , respectively, by 2028.

A lack of details on how to proceed has not dampened interest in the deal. The CEO of Binance, a cryptocurrency exchange, said he was eager to invest $500 million in the Twitter deal alongside Musk. “We of our friends have heard that [Musk] was looking for third-party investors, and are we interested? We immediately said we were,” Changpeng Zhao told the FinancialTimes. “He had no plan for Twitter. There’s no, like, a business plan. So it was not that kind of discussion.

Eighteen investors, including venture capital firm Andreessen Horowitz, Oracle CEO Larry Ellison, Binance and a Qatari sovereign wealth fund, will provide $7 billion along with debt funding from banks such as Morgan Stanley funding the agreement, according to a May 5 regulatory filing.

If Musk hopes to make a profit on his investment, he will need to give users, advertisers and potential future shareholders a reason to believe in Twitter’s future. Fortunately, Musk has already completed a corporate turnaround.

Twitter’s master plan?

When Musk joined Tesla in 2004, he began charting the future of the beleaguered electric car company. In Musk’s 2006 blog post, “The Secret Tesla Motors Master Plan,” he summarizes his strategy in just four lines:

  • Build a sports car
  • Use that money to build an affordable car
  • Use that money to build an even more affordable car
  • While doing above, also provide zero-emission electric power generation options

A similar four-step plan for the social media company could be guessed from Musk’s public comments on Twitter.

  • Define what freedom of expression means
  • Introduce new advertisers and retain existing ones
  • Make Twitter private and create tools and products
  • Make Twitter public and memorize it on the moon

Let’s break it down.

Define what freedom of expression means

Free speech generally protects citizens against governments, not private companies. So when Musk says he wants free speech on Twitter, it’s not entirely clear what he means. Generally speaking, Musk said Twitter is a censored entity that has too many strict rules about what its users can post on the platform.

But Twitter needs rules (Musk has, at least in theory, adhered to them), without which it would likely be full of spam, hate speech and pornography. These rules not only guide users on how to behave online and signal company ethics, but they are also critically important to advertisers as they assess whether and how to spend their marketing budgets on Twitter amid from a sea of ​​rival platforms. Clarifying what free speech means will be a business imperative: without a clear picture of authorized user-generated content on Twitter, advertisers will simply avoid or even boycott objectionable policies.

Introduce advertisers and retain existing ones

Musk says he wants to reduce Twitter’s reliance on ads – and tweeted that he “hates advertising” in 2019 – but that says more about his future commitment to alternative revenue streams than advertising. The company made $4.5 billion from advertising in 2021, or 89% of its annual revenue.

Assuming the ads stick, there are two dynamics at play here: First, big companies want to appear socially conscious. In 2020, amid the global Black Lives Matter protests, more than 1,000 companies pulled their ads from Facebook over what they saw as the company’s lax stance on hate speech. And a similar ad boycott targeted YouTube over its hate speech policies in 2017. Although no ad boycott lasted very long, Twitter has a relatively small user base, compared to Facebook and YouTube, and it may be easier for big advertisers to stay away.

The second dynamic concerns contiguity. Advertisers don’t want their ads next to spam, hate speech, harassment, pornography, manipulated media, misinformation, or other types of content that Twitter prohibits or restricts. It’s not just a moral issue: When advertisers left Facebook, although most eventually returned, companies like Snapchat and Pinterest immediately took advantage, in part because of their image as a safer environment for people. advertisers.

In recent years, Twitter has instituted stricter rules on misinformation, hate speech and manipulated media. If Musk can convince advertisers that Twitter doesn’t support hate and that their ads won’t be placed next to posts from problematic users, then he has a chance of succeeding without a drastic transformation of the business model.

Make Twitter private and create tools and products

Once Musk appeases advertisers, he can use the company’s new status as a private entity, meaning no quarterly financial reports, to invest heavily in another type of business.

Twitter can pour money into three different revenue streams: advertising (creating better ad products and measurement tools), subscriptions (expanding Twitter Blue’s suite of features for paid users), and creative tools ( adding new ways for content creators to make money on the site, which Twitter can take a piece of). If Musk wants to reduce Twitter’s reliance on ad revenue, he can focus on subscriptions and creators.

The Times report said Musk plans to make $15 million in so-called financial payments in 2023 and $1.3 billion by 2028 without specifying how he would achieve this. Musk (who founded X.com, an online bank that eventually became PayPal, in 1999) could introduce a peer-to-peer payment system like PayPal’s Venmo app or Square’s Cash to the platform. (Facebook currently supports payments through its Messenger and WhatsApp products, but does not charge fees.)

Musk also says he wants to hire engineers, who can build the products he previewed in the pitch deck. In a Tweeter on May 6, Musk said that if the Twitter deal went through, he would focus on hiring “software engineering, design, infosec, and server hardware.” Musk, however, didn’t elaborate on what those engineers or designers would be working on, or why he thinks Twitter needs better servers and better security.

Make Twitter public and memorize it on the moon

“Meme stocks” derive most of their value from hype rather than proven earning potential or future expectations. GameStop, which saw its stock price soar from $18 to $325 in a matter of weeks when retail traders on Reddit and Discord executed a short squeeze in January 2021, is the most visible example, alongside ‘AMC Entertainment, Blackberry, Bed Bath & Beyond, publicly listed companies were boosted by retail investors despite fragile fundamentals.

Musk knows the power of a public figure on social media. After Tesla went public in 2010, his Twitter feed helped make it one of the most popular stocks for retail investors, setting a template for future meme stocks. “I think people recognize that Elon Musk has created a lot of value for his companies by being unhinged on Twitter,” Bloomberg Financial Writer Matt Levine said in a recent interview with the new yorker. AMC CEO Adam Aron now provides a social media presence for his stock fan base.

If Musk takes Twitter public again, he’ll likely have legions of retail marketers ready to invest in Twitter and take it, as they say, “to the moon.” Financial data firm Vanda Research ranked Tesla the second most popular retail stock, just behind Apple, for the first week of May.

Once Twitter goes public again, investors can look under the hood and see if Musk has improved Twitter as a company after all.



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