In a headline that dominated Twitter’s trending page on October 27th, 2022, Elon Musk was to complete a deal to buy a 9.2% stake of the social media platform for $44 billion, installing himself as its leader. This came after months of back and forth — with Musk first announcing he would buy and privatize Twitter in April, then attempting to walk away, alleging he was “misled”, then finally (after a lawsuit), completing the transaction. Since the deal closed, Musk has been at the forefront of Twitter’s issues, both within its offices and on the platform itself, commonly sending out polarizing tweets. Now, five months later and after many controversies, Musk has finally turned his attention to generating revenue.
Twitter’s Acquisition and Early Controversies
From the beginning, Musk’s role at Twitter was noteworthy. Financing the deal was itself an issue, as Musk was responsible for paying $46.5 billion in equity, resulting in him selling twenty-two million shares of Tesla for $3.6 billion. He also collected thirteen billion in loans from banks, and received equity from nineteen companies, firms, hedge funds, and even a Saudi prince. There were still multiple gaps in funding that were covered by unknown means.
Post-acquisition photos of Musk strolling into Twitter’s headquarters with a kitchen sink were followed almost immediately by stories of his aggressive reorganization strategy. Reports of hundreds of firings and lay-offs swirled online, alongside ex-employees receiving underwhelming severance packages. Former Verge correspondent and tech journalist Casey Newton alleges that, at the height of Musk’s purge, a workforce once topping 7,500 fell to a meager 2,700.
Many were put off by Musk’s abrasive and seemingly reckless nature set on creating “Twitter 2.0”, especially investors. By November, fifty of the top one-hundred had abandoned the site due to Musk’s actions. Companies like Chevrolet, Ford, and Chipotle “issued statements about halting Twitter ads”, while others would “cease advertising on the platform” for a “significant period of time”.
Users were also deterred by his antics, including his campaign to release the “Twitter Files”, an attempt to prove that Twitter’s old management had intentionally stifled conservative voices. He would further catch flak for prohibiting users to link other social media networks. Perhaps intended to increase dependent traffic on Twitter, this isolationist move continued to push users away.
Musk’s Twitter Blue — a premium subscription service originally workshopped prior to his involvement, but officially launched in November — was integral to attaining Twitter 2.0. His plan was to generate half of Twitter’s total revenue through its subscriptions, a reported $3 billion goal for 2023.
The Present State of Twitter
As Musk has now fully privatized Twitter, he does not need to answer to investors or a central board. Reporters must instead follow a paper trail to find information about the company’s inner machinations and finances. A recent investigation by The Information revealed that only 180,000 users in the US bought subscriptions as of mid-January 2023. The US claims just over 60% of the world’s Twitter population, placing the worldwide subscription figure at around 290,000. With these estimates, the company is projected to earn less than $30 million from subscriptions, a far cry from the $3 billion in revenue Musk hoped to generate from Twitter Blue.
At the time of his purchase, Musk faced multiple uncertainties, including the profitability of the acquisition itself. Musk stated prior to his takeover that he “does not care about the economics of owning Twitter,” instead invested in promoting an “arena of free speech.” Musk may have overestimated Twitter’s economic value, betting it could be transformed into a self-driven revenue stream through advertisement and user subscriptions.
Musk may also have underestimated how competitive acquiring advertisements on social media platforms truly is. Projections in Twitter’s user traffic show a downturn in the coming years, prompting advertisers to invest less into the platform, instead looking elsewhere for more secure investments. Across social media, other platforms are growing, with Facebook projected to add 2.8 million users by 2024, while Instagram expects fifty million. Combined, they are expected to generate $79 per user in ad revenue, and gross $134 billion in 2024. Large advertisers may see these platforms as more secure, investing more heavily in ads than on Twitter.
In order to raise additional revenue, Musk is likely to have to both raise Twitter Blue’s cost while returning advertisers to the platform with a new model that works. Some new changes to the subscription service are a higher-priced variant for ad-free experiences, as well as a $1,000 monthly bill — along with $50 for every additional account — for businesses to receive a coveted gold checkmark, reserved only for official accounts. According to Digitaltrends’ Anita George, the legacy checkmarks from celebrities will be taken off sometime in the future, forcing them to buy Twitter Blue to maintain their legitimacy. There is also the opportunity for creators who advertise in the replies of their tweets to receive ad revenue, though they must also be subscribed to the service.
This exchange has not been productive for Twitter. The company has suffered a decline in ad revenue of around $600 million, and is projected to lose fourteen million users in 2023 — ending steady user base growth since at least 2019. Users — especially in the US — are crucial to the success of Twitter. Average annual revenue dropped from $5 billion in 2021 to $4.4 billion in 2022, coinciding with the user trends from the chart above, where user growth rates slowed compared to that of 2020-2021. With more users deterred from the platform, the less overall revenue Musk can generate from user-driven features like checkmarks. According to Insider Intelligence’s Jasmine Enberg, more users may begin to leave the platform next year as they face “technical issues and the proliferation of hateful or other unsavory content.” Musk’s acquisition alone caused the closure of 1.3 million accounts globally, with around 877,000 deactivated and 479,000 suspended. The drop in users also deeply damages Musk’s goal of $3 billion in annual ad revenue. As more users leave due to frustrations with both the website and Musk, advertisers are willing to invest fewer resources. Already, more than five hundred have abandoned their campaigns on the site. A key goal of Twitter should be to reverse this trend and reinvigorate the platform by bringing back users en masse.
The rollout of subscriptions was a survival tactic to soften the pullback losses caused by dwindling investors. Meanwhile, Musk’s sporadic rulings in the past few months may foreshadow a dark future for not just Twitter, but social media altogether. By empowering users through subscription-based verification, misinformation is unchecked and incentivized. Other platforms — most recently Meta Verified for Instagram and Facebook — have adopted this model, charging upwards of $10 for a coveted checkmark. Meta Verified’s model is remarkably similar to Twitter Blue, with interface features once available for all users now reserved solely for those who subscribe. For Meta, this means more protection for accounts, direct account support, and exclusive stickers for Instagram stories. Like Twitter, Meta Verified combines these features with the promise of “verification”.
As of March 30th, businesses are still resistant to putting ads on Twitter and users are not increasing. Media agencies like IPG and Horizon have not yet encouraged users to return after advising them to suspend their accounts after Musk’s acquisition. The “red light” of investment businesses saw when Musk took over is now only “amber”, but as more mistakes and changes continue to drive both investors and users away, one can only wonder what economic consequences await the platform.