Upheaval Roils the Social Media World
Two of America's otherwise hugely successful entrepreneurs have discovered that they are not immune to the consequences of hubris. Elon Musk, founder of Tesla and SpaceX, who swallowed up Twitter, is finding it indigestible. Mark Zuckerberg, believing he sees the future, has embarked on a transformation of Meta Platforms, the renamed Facebook, that is draining the company of billions of dollars and has caused its market value to plunge by 70% over the past year. Meanwhile, TikTok, owned by the Chinese company ByteDance, has rocketed in popularity with Gen Z, making Twitter, Facebook, and Meta's Instagram seem so last decade.
Setting aside further complications – and they have cascaded – Twitter poses a financial challenge that makes us wonder whether the impetuous Musk ever pushed a pencil. After months of indecision, he had made an offer to buy Twitter for $44 billion, then backed out, was sued by the company to force honoring the deal, and decided to go ahead with the transaction rather than defend the lawsuit in Delaware Chancery court where he probably figured he'd lose.
Part of the buyout was leveraged, which means that Twitter was made to take on some $13 billion of the $44 billion in order, effectively, to buy itself for Mr. Musk. Had he used that pencil on only the back of an envelope, he would have realized that the annual interest alone runs to about $1 billion for a company that last year generated about $630 million in cashflow. Going in, Musk has structured a Twitter that does not have enough to pay its lenders.
The situation immediately worsened: advertisers began to pull out. Musk's proclaimed purpose in buying Twitter was to champion free speech, to lift the ban on those users who had violated company standards, most notable among them being Donald Trump. Envisioning their ads showing up alongside screwball QAnon conspiracy theories, white supremacist screeds, anti-Semitic hate messages, and perhaps Russia disinformation undermining the U.S. (Musk has allegedly spoken with Putin), big name corporate advertisers cancelled or suspended their accounts, causing what Musk confesses is a "massive drop in revenue" that has made the financial shortfall critical. He blamed "activist groups pressuring advertisers" even though no changes had yet been made to relax content moderation and re-admit banned accounts. "We've done our absolute best to appease them, and nothing is working", Musk candidly reported to investors.
One week at the helm, he has keelhauled half of the company's 7,500 employees, with a number of key executives quitting. Those left are grumbling about a Musk edict that they return to working at their offices 40 hours a week. Five dismissed employees filed a federal lawsuit accusing the company of violating federal and state law by giving almost no advance notice of a mass layoff.
Musk, remaining staff, and people he has brought in from his other companies are huddling to come up with ways to make more money, such as raising the price of subscriptions to $7.99 a month that allows users to post longer videos and podcasts, and a verification service that certifies for a few that users are in fact who they say they are. “We need roughly half our revenue to be subscriptions”, says Musk, a lofty ambition considering that only 10% of the $5 billion in 2021 revenue came from other than advertising, and subscriptions were only a part of that.
Now the Federal Trade Commission has signaled it might step in owing to several top privacy and security executives resigning. The agency is concerned whether Twitter is still in compliance with a 2011 consent decree that requires the company to undertake security and privacy reviews of software changes and new features. The FTC has the muscle to invoke fines in the hundreds of millions if its consent decrees are violated.
Who would have predicted that enormously profitable Meta Platforms (Facebook), with a 3.5 billion customer base, a number almost half the population of the planet, could ever have a problem? Yet the company's stock price plummeted by a stunning 71% this year, a loss of some $800 billion in market value since its peak just last year in September.
Digital advertising is off across the Internet and Facebook, Instagram, WhatsApp, and Messenger are not exempt. Apple made privacy changes that prevent those Meta apps from accessing the user behavior on Apple-made phones that was key to fitting advertising to consumer targets more precisely. These are significant impacts, but the primary cause is that founder and CEO Mark Zuckerberg has chosen to transform the company, spending billions in pursuit of a personal vision of the future that has investors spooked.
Zuckerberg believes that we will live in the metaverse, an immersive realm accessed by wearing virtual reality headsets… Click to continue reading