‘A fool and his money are soon parted’ – after trying to wriggle out of an ill-thought out deal, Elon Musk has finally bought Twitter Inc, the company behind the popular social media network. What does this all mean and how does it fit in with Musk’s business background? Dominic Jackson attempts to unpick it all.
Musk acquires Twitter shares and then Twitter itself
Musk first began acquiring Twitter shares in March 2022, purchasing over 73 million shares or 9.2% of the company. This is believed to have cost him about $2.9bn. Unlike other tech companies, Twitter’s founders held no ‘golden shares’ that would allow them to control the company’s future. Analysts predicted that this would be the springboard for an all-out takeover by Musk.
Musk began posting ostensibly innocent-looking questions such as if Twitter really believed in “free speech” and comparing Twitter to a “town square” with the implication that the platform must allow anyone and everyone to say whatever they want, such as offensive posts or using Twitter to incite violence. This is a classic misreading of the First Amendment to the US Constitution which only states that the US government may not restrict the speech of citizens but private operators such as Twitter or Facebook are free to restrict speech however they choose.
The deal is formalised
Barely three weeks later, Twitter Inc announced that it had agreed to be acquired by Musk for a price of $54.20 per share, in a deal worth about $44 billion in total. This was a 38% premium on 1 April 2022 share price of Twitter. It seemed Musk’s reasons for wanting to buy Twitter were the same ones he had earlier expounded: in a letter to Twitter Inc Chairman Bret Taylor, Musk wrote that “I believe in [Twitter’s] potential to be the platform for free speech around the globe… I believe free speech is a societal imperative for a functioning democracy”. Musk stated that he hoped his most ardent critics would still use Twitter.
Others however questioned Musk’s commitment to ‘free speech’, as he has silenced past critics with threats of lawsuits. One former Tesla employee who was fired for posting YouTube videos documenting problems with Tesla’s full self-driving software also had his doubts. Musk subsequently clarified that “free speech” to him meant “that which matches the law”. He did not however specify which countries’ laws and his words only invite more questions.
Musk has his doubts
Crucially, Musk waived his right to due diligence in the deal; an act he would later regret. He started having second thoughts about the wisdom of the Twitter purchase but the deal was airtight. Musk attempted to pull out, claiming that the amount of spam accounts on Twitter were far greater than Twitter had disclosed to him. Twitter promptly sued to force Musk to complete the agreed purchase.
After a series of embarrassingly weak arguments, including that he didn’t want to proceed with the deal in case World War III broke out, Musk capitulated and agreed to proceed with the purchase. He was almost certain to lose at trial which would have been highly damaging to him. The deal closed on 28 October 2022.
And when you’ve paid the bill, you’re none the wiser
Musk may on paper be the wealthiest person in the world but much of this is tied up in Tesla stock – and he has been selling this off at some rate in order to fund the Twitter deal. Tesla is by consensus hugely overvalued and not so much a technology company as a generic car maker, which Musk did not found.
Now that Musk owns Twitter, it’s unclear what he will, or can, do with it. Twitter’s growth has been anaemic since at least 2015 and by 2021 things were looking no better. Musk’s talk of ‘free speech’ is a thinly veiled appeal to the US right wing who have for years been complaining that their ‘free speech’ is under attack. The reality is that private actors have taken a stance against the use of their resources to disseminate hate speech, foment culture wars and spread misinformation or to harass others.
Twitter banned Donald Trump for inciting the attack on the US Capitol. Musk called this “morally wrong” in May 2022 and hinted that he would reverse the ban. He almost immediately retreated from this, indicating he would set up a “content moderation council” to review decisions such as Trump’s ban. Musk has to keep Twitter advertisers on side since almost 90% of Twitter’s revenue comes from adverts. Almost his first action was to send out a soothing reminder to those advertisers: “steady as she goes”.
Content moderation on Twitter is an essential part of keeping those advertisers happy. Advertisers do not want their messages juxtaposed with frothing racist diatribes or Trump-esque exhortations to violence. Major US car manufacturer General Motors has already suspended its Twitter advertising in the wake of the Musk takeover. Twitter has only had two profitable years in its history (2018 and 2019) and Musk’s leveraged buyout has saddled the company with more debt. Having to sell more shares in Tesla, or the 44% of SpaceX which he is estimated to own, to fund a financial bottomless Twitter pit will not appeal.
Fit of conscience
Content moderation is precisely what enrages the US Republican ‘MAGA’ crowd so much. They feel they have been ill-treated by Twitter and other ‘Big Tech’ operations (and without a hint of irony proclaim this loudly on the same platforms they claim are censoring them). Musk supports them – for now. He will have to choose between them or losing Twitter’s advertisers – and when he inevitably comes down in favour of the advertisers the sense of betrayal amongst his new legion of right wing fans will be intense and possibly expressed via Twitter.
Musk is a heavy Tweeter and Twitter is the most important part of his communication with his fanbase. Imagine if the level of hate directed at him became too much for him to bear. His attempt at delegating this to the content moderation council may not save him, since he has so publicly installed himself as the ‘head honcho’ of Twitter and will have to justify why he either supports or overrules the decisions of the council.
There is also the potential for conflicts with Musk’s other business interests. Musk cares very deeply about his reputation and to the courting of Republican politicians in Texas where both Tesla and SpaceX have significant operations. China might not take kindly to prominent tweets that Taiwan is an independent country and could make life difficult for Tesla – the largest of all Tesla’s factories is its Shanghai assembly plant. If (when) SpaceX encounters another rocket explosion – as has happened with some regularity – its shareholders might not take kindly to Musk being distracted over a matter of Twitter content moderation.
Musk’s big problem is that he understands little about content moderation. Whilst one could argue it wasn’t central to his prior business interests, it leaves him both highly unsuited to owning a social media platform and facing an immense learning curve if he wants to make a (financial) success of that platform.
Could Musk make a success of Twitter?
Musk faces short term as well as long term challenges. Staff morale at Twitter is very low with hundreds of employees leaving. But there are potential reasons for optimism – if Musk can get his management techniques right. As a publicly traded company Twitter was always under pressure from financial markets to continually better its performance. One way it did this was by introducing an algorithmic ranking system for tweets in 2016 – to prioritise tweets it felt users would care about.
It has been argued that this creates confirmation biases (and deliberate controversy and misinformation) because of the need to generate engagement or risk tweets disappearing into obscurity. Engaging content draws users into and back to the platform and hence boosts revenues. If Musk is prepared to tolerate less (short term) growth as a private company away from the glare of Wall Street, he could modify these algorithms to eliminate much of the fury and venom from Twitter as the need to generate engagement diminishes substantially.
Former Twitter CEO Jack Dorsey planned to create an open standard for social media: ‘Project Bluesky’. The idea is that the applications (social networks built on top of the standard) could customise their moderation systems and reduce the impact of algorithms on reinforcing controversy and confected outrage. Users could easily migrate between competing social networks, reducing the ‘lock in’ effect which is also partly responsible for societal ills generated by social media. Although independent of Musk’s takeover it is worthy of continued development.
US commentators Techdirt suggested that, despite popular perception, Twitter had been making efforts to ‘clean its house’ and advocated that Musk should continue with this work. Twitter had also innovated by introducing ‘super follows’ where users could pay a small monthly subscription fee to have enhanced access to influential Twitter users. These may be for example celebrities or industry insiders and analysts.
Although in its early stages, this is a promising feature and additional revenue source. Paid activity is less likely to produce the kinds of behaviour needing to be addressed by content moderation. Some commercial brands on Twitter make their advertising into genuinely useful and interesting content – a US steakhouse used Twitter during the Covid pandemic to disseminate useful advice and combat misinformation – and such content drives both user engagement and the goals of the advertiser. It’s a win-win situation.
The success or failure of Musk’s ownership of Twitter depends on him accepting that his pre-purchase ideas for Twitter aren’t actually that new or original – they’ve been seen and most likely tried before. Social media companies end up moderating content because it’s the only viable way to make a social network… work. The quicker Elon Musk gets this, the more chance he has of both making money off his purchase and making Twitter and social media in general better for all of us.
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