The following opinion first appeared in The Wednesday Briefs 110 – 6 April 2022. Access to The Wednesday Briefs is free but requires a password. Subscribe to populyst for access.
Tesla does not advertise in the media. That is true if you ignore the free advertising that Elon Musk gets by tweeting daily on Twitter. Musk in addition to everything else is a cult leader not only of the Tesla cult but also of the cult of Musk. In fact, the cult of Musk is the primary reason why Tesla is valued more highly than all other automakers combined. Musk sells electric vehicles and space rockets, but he sells first and foremost the public persona of Elon Musk. His purchase of 9.2% of Twitter therefore can be seen as an integral extension of his efforts.
Twitter has become vital to Musk, as vital as it had become to President Trump. Both Musk and Trump have (or had, in Trump’s case) tens of millions of followers and were able to reach them every day at a cost of exactly zero. We noted in the past the absurdity of this “free lunch” anomaly and have long argued that Twitter should invoice certain categories of users, not only in order to generate revenues but also in order to enforce a code of conduct.
We included this graph in The Wednesday Briefs 073 and 046. The x-axis refers to a user’s frequency of tweeting. And the-y axis to whether Twitter is indispensable to him. In our view, Twitter should charge users who fall in the green box, as well as some of the more prominent bloggers (the chart is from 2017 when there were few prominent bloggers; that bubble should extend to the right).
However, Twitter has remained free to all users, bypassing normal market forces and their necessary disciplining effects. Now as tends to occur with all free services, it has been ambushed by reality on two fronts: rogue users and low revenues.
On one hand, Twitter has no financial leverage over abusive users and can only discipline them by banning them permanently (as with Trump) or temporarily. If instead Twitter charged users, it could penalize them for poor conduct by raising their rates, as in “you can misbehave on Twitter but it will cost you money”. Banning a user is extremely blunt and immediately provokes a debate about the right to free speech and about Twitter’s own abusive policies.
And on the other hand, by not charging some users, Twitter has foregone revenues which it sorely needs in order to grow and to profit. As a result, its stock price has been a disappointment since it became a listed company in November 2013. And of course, a low stock price has ultimately allowed Musk to accumulate a large ownership at a relatively low cost to himself. The chart shows Twitter stock since its 2013 ipo with a meager 10% total performance over nine years (excluding its first day bump, but including this week’s > 20% rally). During the same period since 2013, the Nasdaq Composite has nearly quadrupled and the S&P 500 more than doubled.
As far as famous aphorisms, we can add “no good deed goes unpunished” to “there is no free lunch”. To the extent that “free of charge” is a good deed by Twitter, the company is now punished by having to contend with an intrusive largest shareholder, Elon Musk. So far, it has put a brave face on it and has invited him to join the board. It is not too late to do the right thing and to start invoicing users but it is doubtful that Twitter ever will. Every organization has its own immutable beliefs. We may yet see a takeover battle with other parties entering the fray. Everyone loves Twitter but not everyone is a follower in the cult of Musk.
READ MORE >>> Our view in 2017, To Save or Ruin Twitter.
READ MORE >>> Scott Galloway advocated a similar approach in Overhauling Twitter.
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