Elon Musk is a genius. Is that enough to save Twitter?

There are two basic takes on what Elon Musk is doing at Twitter: either’s he’s trashing the whole thing, or he’s a strategic genius with a plan so far-reaching that we mortals can’t see it yet.

I’ll explain why, even if he is a genius, Twitter won’t be the mechanism for realizing his genius.

The immediate problems

Three big things are happening at Twitter right now. Let’s look at each one and what the consequences are:

• Charging for verified user status. Musk has proposed to charge verified users $8 per month (his original proposal was for $20, but he reduced it). No other social network charges for verification. Right now the main purpose of verification is for famous people and big brands to prove that their tweets are really from them and not from fake or satirical accounts. Musk is also proposing to boost tweets from the verified accounts relative to tweets from the rest of the user base. Many verified users have threatened to leave over this charge; in the future, you won’t be able know whether an imposter has taken their place. The proposal also implies a two-tier system with famous people tweeting and the hoi polloi reacting. The likely impact of this proposal will be to reduce the last remaining conversational elements of Twitter and render it into a platform for outrageous announcements by famous people. A far as revenue goes, there are approximately 400,000 verified accounts on Twitter now — and it’s free. It’s inconceivable that more than 250,000 of those accounts will become paying subscribers. This means a maximum total revenue of $24 million per year. Given that Twitter lost $1.136 billion in 2020 and $221 million in 2021, this is unlikely to make a big difference in profitability.
• Reducing content moderation. Twitter is now committed to “free speech,” which means a lot more nastiness without consequence. Advertisers generally prefer to advertise in places without potential for racism and conflict like this.Posts with the n-word, a hateful slur for Black people, spiked 500% after the deal closed; a single-word tweet with just that word was retweeted 700 times.
• Cutting 50% of staff. Musk has already fired many top executives including the CEO and the CFO. Now it appears he’s going to cut half the staff. Anyone who has lived through a major layoff like this knows the kind of problems that will follow. Institutional knowledge of systems and how they work will be walking out the door. It’s hard to maintain code when so many of the authors of the code are gone. And it’s hard to maintain ongoing services like supporting advertisers, verifying users, creating new features, and keeping up with changes in operating systems.

The short-term impact of these changes will be a poorly maintained and brittle system with rampant threats and hate speech and far fewer users. The exodus of users will include both ordinary people who are just sick of the hate and famous people who make principled decisions to leave the platform and concentrate on, say, Instagram or LinkedIn instead.

Yeah, but Elon is a genius

Musk’s defenders are reacting to this in interesting ways. The general tenor is, “You don’t understand, this is a guy who turned both a rocket company and an electric car company into huge successes against all odds. He will figure this out. He is the most imaginative and daring entrepreneur of our time.”

As a hard-nosed analyst, I don’t traffic in genius. I look at what actually could happen. Being smart (or lucky) is not an infallible indicator of success — lots of people who succeed once fail at the next thing they try.

Let’s look at the track record. Elon Musk’s ventures also include Solar City (home solar panels), Starlink (satellite internet access), The Boring Company (tunnels under the earth for transit), Neuralink (direct electronic communication with the brain), Hyperloop (fast transit with cars inside tubes with the air removed), and flamethrowers.

Of these, Solar City and Starlink may become profitable eventually, but that’s a ways off. The Boring Company is unlikely to succeed due to capacity and siting issues. Neuralink is a science experiment. Hyperloop isn’t happening and the flamethrowers were a joke. It’s hardly the case that everything Elon Musk touches becomes a success.

Notice, as well, that Twitter is the only one of these companies that is a pure online play. The rest all involve physical objects, manufacturing, and infrastructure. (Musk had a major role in the success of PayPal, but that was decades ago.) There’s no evidence that Musk has expertise in the creation or success of social networks, where his experience in manufacturing and infrastructure is irrelevant.

This tweet I recently received is a good example of those who feel I’m not giving enough credit to Musk’s vision:

Josh, you’re not looking far enough into the future (that’s not like you).

I’ll wager that Elon completely remakes Twitter into PayPal + Instagram + FB + TikTok + eBay. Essentially a western WeChat. Far more opportunities to monetize the traffic than today.

It is quite clear that Musk’s vision is to turn Twitter into something like WeChat, the ubiquitous Chinese social network that is the basis for so much commerce in China. (He calls this future app “X.”) But if half the users and advertisers have left, that becomes a little difficult.

And there’s a fundamental problem here. Twitter, unlike Facebook, allows anonymity — you don’t have to use your real name. But for commerce, you certainly do have to use your real name and prove it is you. That’s a foundational issue for “X” if it is to be a descendant of Twitter.

The real problem is getting from here to there

There is a classic problem in predicting the future. It’s actually very easy to predict the future of technology. The challenge is figuring out the path from where we are now to that future.

If I were Elon Musk and trying to turn Twitter into “X,” I’d build on the installed base of code, the user base of 240 million users, and the social graph (that is, the data about who follows whom). It might take a few years, but since Musk is such a genius, he could in theory reinvent Twitter as X.

The problem is the debt. Under Musk, Twitter owes $13 billion — and it’s losing money. As former M&A banker Drew Pascarella, now at Cornell, told The New York Times, “Technology companies should be left with enough flexibility to pay for new research and development and new levels of innovation.” And this buyout “completely eliminates flexibility.”

Twitter will have to come up with $1 billion a year in debt payments.

If Twitter was generating profits like a firehose, Musk could complete his big plans for it as a huge research project. And if it were a stealth mode startup, it could use cash on hand to finance the R&D. But it is a 16-year-old company with limited growth options, and Musk has not come up with much in the way of short-term revenue prospects to plug the revenue hole. I don’t think Twitter with 50% of its staff gone is going to grow much, although its expenses will of course be lower.

So let’s recap. Under Musk, Twitter:

• Is losing money.
• Has no major additional revenue source on the horizon (the verification subscription will be pocket change).
• Can’t raise money by selling assets, since it has few other than its code and installed base.
• Is about to lose half its employees, making life much harder for the ones that remain.
• Is hemorrhaging users who are unhappy with its new leader and his behavior.
• Owes bankers a billion dollars a year in debt payments.
• Has ambitions to reinvent itself as a mega-app that everyone uses for everything, which will require huge investments in new software, marketing, and partnerships.

Investment bankers are not known to take “but he’s a genius” assurances in lieu of actual cash payments.

If Twitter were debt free, Musk might conceivably have enough runway to turn his brilliance into a way to remake it as something amazing. (I’ve seen little evidence of Musk’s supposed genius for the social network so far, but hey, he might come up with something.) But the reality of Twitter’s situation makes that unlikely.

Musk might even point the way to a future for social networks. But Twitter is not going to make it to that future. It’s going to implode. And Musk can’t do anything about that.