Elon Musk's takeover of Twitter, now rebranded as "X," marks a controversial and transformative phase for the social media platform, with Musk's vision shaking up its foundation. In the year since the acquisition, Musk has been at the center of debates about free speech, content moderation, and the financial valuation of the company, stemming from significant operational changes including layoffs and policy shifts. Despite the mixed reactions and a significant drop in the company's reported valuation, Musk's track record suggests a strategic plan aimed at evolving Twitter into a broader "everything app," aligning with his long-term business philosophies. In this Article, we unpack why Musk may be making certain decisions and read between the lines one year on from his acquisition of Twitter.
"I have developed a view in life, to not second guess Elon Musk."
Marc Andreessen, Co-Founder of Andreessen-Horowitz
Twitter? You Mean X?
Once upon a time, there was an app called Twitter; a platform for sharing thoughts, engaging in social commentary, and reacting to the intricacies of a complex and often divided world. Today, Twitter is no more, and instead we have X.
While I say this with a touch of humor, it is true that Twitter (at least the Twitter we all grew up with) really is gone. X, its “replacement,” however, remains very much a part of the social fabric, albeit with significant changes. This article aims to explore and understand X a year after its acquisition by Musk. We’ll delve into the platform's evolution over the past twelve months and forecast the trajectory Musk envisions for our beloved digital aviary in the coming years.
Note: For those well-versed in Twitter’s backstory and the Musk acquisition, feel free to leap ahead to “Fried or Scrambled? - An Analysis.”
Once Upon An Egg: The Birth Of Twitter.
The story of Twitter began in 2006, dreamed up by Jack Dorsey, Biz Stone, and Evan Williams. Known for its concise content, the platform soared to prominence, setting itself apart with an iconic 140-character limit in an era of often-verbose social media content. Its ascent from a modest start-up to a global communication hub was nothing short of extraordinary. From 400,000 tweets per quarter in 2007 to a staggering 500 million tweets daily by 2013, Twitter's growth was explosive, boasting approximately 330 million monthly active users by the first quarter of 2020.
Similarly, Twitter's financial journey reflected its expanding user base, with revenues climbing from $28.3 million in 2010 to $3.46 billion in 2019. However, consistent profitability eluded the platform for years due to substantial operational costs, particularly from content moderation efforts. It wasn't until the final quarter of 2017 that Twitter announced a profit, turning the tide on $2.6 billion in accumulated losses over a decade with a $91 million gain.
Despite these successes, the 2010s saw Twitter increasingly mired in controversy. The platform, once heralded for delivering real-time news and fostering open dialogue, became ensnared in issues of misinformation and harmful content. A notable Stanford University study highlighted the proliferation of over 1.4 million misleading tweets during the contentious 2016 U.S. election cycle.
Twitter's content moderation policies often drew intense scrutiny, balancing precariously between accusations of censorship and calls for greater responsibility. In 2018, the company's removal of millions of fake accounts was largely met with media and political approval. Still, it ignited backlash and conspiracy theories regarding its treatment of certain political figures and content creators. Some critics argued that Twitter was overreaching in censorship, while others, like Amnesty International, contended it wasn't doing enough to protect vulnerable groups. Additional research from PNAS suggested a bias within Twitter's algorithms favoring right-wing content, while other researchers have concluded that Twitter’s community of mostly young and educated users have given the platform a powerful position in supporting progressive voices.
In this complex tangle of digital ethics, Twitter grappled constantly with preserving its founding principles amidst the necessity of free speech and the challenges for responsible moderation, and quite often, it didn’t strike the right balance..
Bird Of Prey: The Musk Acquisition.
In 2022, the business world raised its eyebrows (though not too high) when Elon Musk, the trailblazing force behind electric vehicles and space ventures, revealed his intent to acquire Twitter. This $44 billion transaction was more than a change of hands; it promised a new trajectory for Twitter's journey. Musk, a proponent of classically liberal values like free speech, scientific inquiry, and open trade, voiced his criticism of Twitter's content moderation under its previous leadership. In a candid moment with TED, Musk shared:
I think it’s very important for there to be an inclusive arena for free speech. Twitter has become, kind of, the de facto town square. So it’s just really important that people have both the reality, and the perception that they are able to speak freely, within the bounds of the law.*
*Transcribed from an interview, some pauses & filler words omitted.
Musk advocated for transparency, suggesting Twitter's content moderation and algorithms should be open to public scrutiny to avoid any opaque practices.
Per Reuters, the deal's financial backing came from Musk's pocket and a banking syndicate led by Morgan Stanley, with $13 billion in debt financing complementing Musk's $33 billion in equity. Despite the massive figures, Musk told TED:
This is not a way to sort of make money. My strong intuitive sense is that having a public platform that is maximally trusted and broadly inclusive is extremely important to the future of civilization. I don’t care about the economics at all.*
*Transcribed from an interview, some pauses & filler words omitted.
As expected, the transaction became a hotbed for public and media commentary. The spectrum of opinions ranged from enthusiastic supporters celebrating Musk's commitment to "liberate" Twitter, to stark opposition fearing the implications of his control. A third, more light-hearted group humorously noted that Musk didn't need to spend billions to access Twitter—as he could've “simply downloaded the app for free.”
Despite the chatter, the deal almost collapsing, constant public commentary, a humorous moment with a kitchen sink, and regulatory scrutiny from the EU and US, the acquisition moved forward. On October 27, 2022, the metaphorical keys to Twitter's headquarters were passed to Elon Musk, marking the start of a new chapter for the little blue bird.
The Eagle Has Landed: Life After Elon.
On his first day, Musk dismissed several top executives, including CEO Parag Agrawal. Within the initial week, he had reduced Twitter's workforce by approximately half. Not long after, an ultimatum was presented to the remaining staff, resulting in hundreds more departures.
Musk then turned his attention to what he perceived as Twitter's core issues. A notable early change was the revamping of the verification system. The blue check mark, once reserved for "Notable" individuals, was made available to anyone willing to pay for it, a move Musk justified as a step towards objectivity.
Controversy wasn't far behind; Musk reinstated accounts like that of former US President Donald Trump and faced a backlash when he attempted to block a user tracking his private jet. This culminated in a public poll where a significant user base voted in favor of him stepping down as CEO. By mid-2023, Linda Yaccarino had taken the reins, with a focus on building "Twitter 2.0."
The surprises continued when Musk renamed Twitter to X.com in late July 2021, erasing an estimated $4 billion in brand value and struggling to win brand adoption from the platform's user base, (according to Harris and Ad Age polls).
Amidst user discontent and competition from Meta's Threads, the valuation of X plummeted from the original $44 billion to $19 billion within a year. The advertising revenue, vital to the platform's financials, suffered, with Reuters disclosing a 50% year-on-year decrease in sales.
Today, the future of X is a topic of wide speculation. Musk has hinted at ambitions to morph it into an "everything app," akin to international models like WeChat. As we continue, our aim is to dissect the tumultuous journey of this social media titan and uncover insights amid the upheaval.
Fried or Scrambled? An Analysis.
To this day, many are incredibly confused by Musk's acquisition of Twitter, and possibly even more confused by the rebrand to “X.” But given Elon’s penchant for the dramatic as a way of both obfuscating reality and seemingly poking fun at authority or mainstream culture, to reduce this series of events to simply “Elon is an idiot” underestimates his intelligence & the potential strategic moves behind not only the acquisition, but the journey to get there.
That’s not to say Elon doesn’t make mistakes—he’s human, he’s fallible—but he tends to act with purpose in all other areas of his business career, so it stands to reason that he is doing so here too.
WHY BUY TWITTER?
First, there was his moral/social argument: Twitter is a public square, public squares should be free places to exchange ideas, no matter the circumstances.
We should take Elon at face value here; it’s very on-brand. Ideologically, Elon is somewhere on the spectrum of a classical liberal, and if you are a classical liberal then you understand the importance of free speech and discourse: that it allows ideas to grow, shape, and form, and allows ideologies (good and evil) to be questioned vigorously. In the 21st century, this idea has come under fire as people seek to protect marginalized populations from what they see as harmful speech. Generally, Elon disagrees with that, so there is a sense of “Vanguard” in Elon buying Twitter. During the acquisition, it was noted by his biographer Walter Isaacson that Elon was egged-on by friends and loved ones who shared his views.
But what about the business angle? Musk is, after all, a tycoon, not a philanthropist. If you look at Musk’s interviews over time, he has often made mention of a—so-called—”everything app” that could handle much of our day-to-day social & commercial lives. He was discussing these ideas as far back as PayPal. It is clear from his own words that Twitter is the venture that could help this idea become a reality. An app which executes that vision successfully would be worth a lot more than the “poultry sum” Elon paid for Twitter. So there is a clear business argument to be made.
BUT WHY SO MUCH CHANGE? EVERYONE IS QUITTING.
When Musk bought Twitter, he made a significant amount of radical changes and either directly or indirectly forced out a number of Twitter employees from the “old guard.” To many outsiders, this was tantamount to insanity, but to seasoned business people, this was a blend of vigorous internal management, mixed with Elon doing what he does best.
Firstly, let’s look at Elon’s history. He has a habit of either starting companies that work radically differently from regular ones, or taking over projects that are doing fine, and drastically restructuring them to increase their chance of success. To a degree, that is what he did with Tesla. Tesla was an electric car startup with some good base technology but limited success in its early years. Musk, an initial investor in the project, convinced the board to have the CEO (and original cofounder) step down from the position, and stepped into the role himself. From there, he orchestrated the company we know today which—despite criticism from all sides—has achieved something that literally would have been thought of as impossible 20 years ago: starting a new car company in the USA, with cars manufactured in the USA, making electric cars that are “sexy,” and actually getting customers.
To achieve that, he upset a lot of people. But those who came to Tesla and stayed were diehard believers in the vision. That is exactly what has happened at Twitter. When Musk took it over, it ceased to be “Twitter” and became “X,” a new company with a radically different vision. So people left, and based on Elon’s history, that is exactly what he hoped would happen.
BUT HASN’T HE FAILED? IT’S ONLY WORTH $19 BILLION NOW.
That $19 billion figure was plastered all over the media to much fanfare when it came out recently. But something struck analysts the wrong way. That question was: Was Twitter ever worth the $44 billion to begin with? Remember that “worth” is an intangible human/cultural derived number that is different to all people.
When Musk bought Twitter for $44 billion, Snap, a social media company with similar metrics, was only worth around $15 billion… that hasn’t really changed. So one could argue that Twitter was heavily overvalued at the time of purchase and has now settled down closer to its intrinsic value (to use a Buffettism).
So if Musk bought a heavily overvalued company, doesn’t that make him a bad businessperson? Well, again, value is a somewhat personal thing, and Musk believes that Twitter under his watch will become a much larger and much more powerful company than it ever could have been under the old leadership, so from where he’s sitting, sure he may have paid a little more than he would like to (which may explain why he initially walked away from the deal after seeing the underlying financials), but he expects its valuation in the future to be worth much more than the $44 billion he paid for it, and miles more than the $19 billion it’s worth today.
Also, the release of the $19 Billion number was unusual as public companies are usually very careful to obfuscate their true values, so for Twitter to let $19 Billion out of the bag with such ease seems to have an ulterior motive. So here’s another take. Musk is a man built on targets; it’s how he inspires his workforce. Hit X crazy target by Y date. They often miss, but crazy targets do work to motivate a team. Therefore, it’s perfectly possible that Musk wanted to publicly state the actual value of Twitter today, readjusted for its intrinsic value now that all of the dust has settled, and then use that floor to drive the team to build, invest, and grow the value of the business.
I could be wrong, but if I were a betting man, that’s what I would wager.
Over Easy: Closing Thoughts.
People love to hate Elon Musk; just the other day I was overhearing a conversation on a bus with two people spewing all sorts of nasty commentary about him, and people who should be his champions, like green-energy-focused politicians such as AOC and Bernie Sanders, can’t get enough of slagging him off.
But the reality is, when Marc Andreessen recently said in an interview, “I have developed a view in life, to not second-guess Elon Musk,” he meant it. Everything Musk touches seems to radically change the industry it is in; and if I were you, I wouldn’t second-guess Musk either.
Whether you like him or not is entirely irrelevant; “Musk will Musk” with or without our approval, it’s just what he does. For X, it’s open season in the media, because the media are there to make commentary, and tend to have a very short-term perspective when they do. But for the long-term focused amongst us, I would recommend some quiet contemplation on the matter, because given his track record, it stands to reason that there is logic behind what Musk is doing at Twitter, even if we can’t see it yet. And after all, it’s only been a year; let’s cross this bridge again next November and see what else has happened. Until then, wait, watch, and enjoy the changes that will unfurl as Musk, and X, find their new rhythm.
"The only rules are the ones dictated by the laws of physics. Everything else is a recommendation."