Why Twitter is an easy target for outsiders like Elon Musk eager to change

Another year, another wealthy executive tries to take over Twitter.

This time is different, of course, as the wealthy suitor is Elon Musk, the erratic tech superstar who boasts the world’s greatest fortune and legions of fans and haters.

But Musk’s effort to buy Twitter and ‘unlock’ its potential makes him the latest in a long line of people who have kicked the company’s tires since its launch in 2006, sparking new excitement. and speculation, to leave empty-handed.

“It looks like Twitter has been on sale for a while. It’s just that no one wanted to move forward because of the challenges,” says Mandeep Singh, technology analyst at Bloomberg Intelligence.

Facebook founder Mark Zuckerberg reportedly tried to buy Twitter twice in its early years. Google, Apple, Disney and Salesforce reportedly considered offers in 2016, but backed out. (Former Disney CEO Bob Iger later said in reference to the platform, “The badness is extraordinary”).

In early 2020, hedge fund Elliott Management took a stake in Twitter and pushed to replace then-CEO Jack Dorsey, blaming his lack of focus for the company’s slow growth and weak stock price. .

Now it’s Musk’s turn. Tesla’s CEO launched a hostile takeover bid last week that sent the company’s board and management into crisis mode. With Musk’s advance getting more serious by the day, Twitter will be forced to deal with its longstanding issues like never before.

Used by politicians and journalists, but failing to penetrate more widely

Since Twitter went public in 2013, it has only posted an annual profit twice, in 2018 and 2019.

Analysts say this reflects Twitter’s fundamental business struggle: to get people to use its service and to get advertisers to spend their money on it.

Facebook and Google have carved out the lion’s share of online ad dollars by allowing brands to target people based on their interests and what they’re looking for. Twitter, on the other hand, has been unable to convince many advertisers that it’s worth inserting itself into the site’s quick and often acidic reaction to the day’s events.

Twitter dominates political discourse and shapes the news, thanks to its grip on politicians, world leaders, celebrities and journalists. But its popularity is limited. About 80% of American adults don’t use Twitter. Overall, it does not rank among the top 10 social networks in terms of monthly users. (Facebook and YouTube are the most popular platforms.)

Twitter has 217 million monthly active users – a fraction of the nearly 3 billion who use Facebook each month and even less than Pinterest, at 431 million.

It also failed to capture users’ attention and retain it for long periods of time. While the average TikTok user spends 48 minutes on the short video app and Facebook users spend 33 minutes on the site, Twitter users spend around 10 minutes a day on the platform, according to recent estimates from ‘Angelo Zino, analyst at CFRA Research.

“The engagement levels aren’t there,” Zino says. “If they’re not in the eyes and ears of the user, clearly advertisers won’t be investing as much money in this platform as they potentially could.”

Twitter brought in $4.5 billion in advertising revenue last year, compared to $115 billion at Meta, the parent organization of Facebook and Instagram, and $28.8 billion at YouTube.

While Twitter has been successful in attracting big brands around big news moments, it hasn’t attracted the smaller advertisers who form the backbone of Facebook’s ad business, says Bloomberg Intelligence’s Singh.

“[Facebook has] breadth of advertisers, while Twitter is highly concentrated among big brands. And that’s why Twitter works well when you have big events like the Olympics or an election,” but struggles at other times, he says.

And while other social networks share similar issues, Twitter’s long-running battle to fight harassment, abuse and spam — what Disney’s Iger called “nastiness” — may also weigh on its outlook. growth, according to some critics.

“I know a lot of people who say, ‘I use Twitter because I need it for my job or to promote the work I do, but I get on it and get out of it whenever I can.’ “, says Ellen Pao, the former CEO of Reddit and a technology investor.

Can audio chats and subscriptions help Twitter break out of its niche?

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There is a new urgency to address these issues. After Elliott Management began campaigning for change two years ago, Twitter struck a deal with the hedge fund that included aggressive growth targets. By the end of 2023, it aims to reach 315 million daily active users – up from 192 million in 2020 – and at least double 2020 revenue to $7.5 billion.

To achieve these goals, Twitter is rolling out product updates, from live audio chats to subscription services for power users to the long-requested edit button.

This accelerated pace is a big change for the company, which spent years before deciding to double the length of a tweet.

But despite all this work, Twitter is lagging behind. It added users but not at a pace to hit its goal of 315 million by next year. And like other companies that rely on digital ads, its revenue has been squeezed by Apple’s recent privacy changes, which make it harder to target smartphone owners with ads.

This has left some observers wondering if Twitter can ever succeed as an advertising-dependent business.

“There’s a lot more to do than just improve the product,” says CFRA analyst Zino. Twitter “is just a niche offering” that may never reach the scale of other social media companies, he says.

While Musk says his interest in Twitter isn’t to make money, he has floated the idea of ​​looking more at subscriptions, including getting rid of ads for paying users.

A new buzzword: “decentralized”

Others say more drastic changes are needed. Dorsey, the former CEO of Twitter, argued for a “Decentralized” Twitter. The idea is, essentially, to make Twitter more like email: a communication service that other developers and companies can create products to access. Consider Google’s Gmail and Microsoft Outlook.

When Dorsey stepped down in November, he handed over the reins to then-chief technology officer Parag Agrawal, who also favors decentralizing Twitter. The company supports a project called Bluesky which works towards this goal.

This week, analyst Ben Thompson argued that Twitter should be split in two. A company would manage its basic service. Another would build apps and advertising. The main service provider could also let other companies create their own Twitter apps, as was common when the company started. Thompson says it could take pressure off Twitter over the rules it sets about what people can post and could move its business model away from reliance on advertising.

All eyes are now on the Twitter board

But Musk’s appearance on the scene put everything about Twitter’s future in question.

“It’s a distraction from work,” said Pao, the former CEO of Reddit. “A distraction from doing the work of running the business and making a product and trying to deal with all the hate and harassment that people are going through using the product.”

In his first few months as CEO of Twitter, Agrawal, who is relatively unknown outside the company, juggled the pressure to meet goals set by Elliott Management and a newborn baby at home.

Now he and the rest of Twitter’s management must come up with a plan to respond to the company’s newest threat – someone who also happens to be one of the platform’s most influential users.

The board’s decision to adopt a so-called poison pill, which would make it harder and more expensive for Musk to try to buy more of the company, suggests he is unlikely to accept the deal. Billionaire’s offer of $54.20 per share, at least in its current version. form.

But the board will have to explain why, given Twitter shares closed Friday at $48.93.

“As a board member, you can’t deny that there’s a much higher bid than where the stock is currently trading,” Bloomberg’s Singh says.

If Twitter rejects Musk’s offer, he says, it will have to give “a really good reason and really show shareholders your plan in terms of how you think the company will be better off on a stand-alone basis, which none of the previous CEOs have known how to do it.”

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