The jump of users who have come to see the chaos means little while the advertisers flee.
You know things are going wrong in a business when theories swirl that its new owner is trying to bankrupt it on purpose.
Intentionally or not, Elon Musk’s half-baked product launches and the destruction of Twitter Inc.’s workforce have led to chaos that could prove ruinous. In the last 24 hours, he has touted a possible bankruptcy and seen key executives resign. Politicians and brand impersonators who bought blue badges for $8 have gone viral before Twitter can suspend them. Nintendo’s Mario annoyed Twitter users for almost two hours before his “verified” copycat account was removed.
On Friday morning, Twitter seemed to have changed course and suspended the $8 blue badge initiative. Maybe everything was too chaotic. Or perhaps the departure of senior compliance staff has made it much more difficult to certify new products with the Federal Trade Commission. An internal lawyer for Twitter warned engineers Thursday that they had to resolve FTC compliance themselves or face legal action, according to a memo published in The Verge.
The attorney added that Musk’s personal attorney, who currently heads Twitter’s legal department, had said that Musk was taking risks because he “puts rockets in space.” [and is] without fear of the FTC.”
How much upside is there in all that risk taking? Little bit.
Remember that if all of Twitter’s original 400,000 verified users paid Musk’s $8 subscription fee, that would equate to about $40 million in revenue a year. That’s a fraction of the $1.2 billion Twitter made in second-quarter sales, about 90% of which came from advertising. But Musk has inexplicably said he wants half of the company’s future revenue to come from Twitter Blue, which is currently considered one of the most confusing and unfortunate product launches in history. (Meanwhile, banks are trying to shed Twitter’s buyout debt for as little as 60 cents on the dollar.)
Musk’s biggest mistake has been driving advertisers off Twitter with his behavior. No matter how many millions more people turn to Twitter to gasp at the chaos, Musk could really bankrupt the company if he can’t turn around his faltering relationship with brands.
Several big names such as General Motors Co. have suspended their ads on the site, concerned that hate speech and misinformation would proliferate under Musk. Twitter executives struggled to sell ad slots for 2023 at a major ad conference in May 2022, due to all the uncertainty surrounding the potential Musk deal, according to a thread of tweets by Angelo Carusone, who heads the watchdog. Media Matters for the United States.
Fortunately, hate speech and misinformation did not flood the site after Musk’s purchase, according to several studies. Misinformation was hardly an issue during the US midterm elections.
But Musk has still messed up the situation, and in a variety of ways. By eliminating much of the company’s advertising team, he ended the important personal relationships his executives had with big brands. A common misconception about online advertising is that the entire business is powered by algorithms and machine-executed programmatic auctions. That is not the case. “Transactions are digitally driven, but relationships begin with the [global ad sales] leadership,” said Matt Scheckner, president of Advertising Week, a conference organizer for the advertising industry. “All of that equipment has been wiped. … The part that [Musk] lost is the human connection.”
Those relationships are especially important because Twitter ads aren’t as performance-driven as those on Google or Facebook. When a pharmaceutical company like Eli Lilly & Co. buys space on Google, its ads appear in search results related to a medical problem.
But on Twitter, brands buy ads to promote and create general awareness of their products. Of course, Eli Lilly has less incentive than ever to buy ads on Twitter after a parody account with a blue badge went viral this week.
Musk himself has admitted that Twitter is “vulnerable” because “70% of our advertising is branded,” according to a memo he sent to employees. That memo cited economic risk, but failed to mention that brands could resist both a failed product launch and the billionaire’s erratic behavior on the site, such as tweeting a conspiracy theory about the attack on Paul Pelosi or tweeting that Americans should vote for the Republican Party during the midterm elections.
Musk’s efforts to fix his relationship with advertisers have also not gone well. On Thursday, he held a Twitter Spaces public call, a live audio discussion that anyone on Twitter can listen to, with dozens of major brands including Warner Bros. Entertainment and Nike Inc.’s Jordan offering assurances that Twitter was making sure they didn’t If there were “bad things” next to the ads, he said Twitter was also working to help make the ads more relevant and targeted to users.
While Musk didn’t elaborate on how Twitter would do that, in a separate meeting with employees Thursday he said the company would combine the technology that powers its recommendation engines for ads and tweets, which have so far operated separately.
Yet this is precisely what the company’s outgoing lawyer warned against: Twitter cannot move forward with new products that process user data without special approval from the FTC. The regulator has said that it is following recent developments on Twitter with “deep concern”.
Musk can go ahead with his plans anyway. Not only has he “fired rockets into space,” as his attorney put it, but he has received slaps on the wrist and little else from the Securities and Exchange Commission for his past transgressions.
That won’t stop the flow of losses that will come when advertisers, who really don’t need Twitter as much as Twitter needs them, take their money elsewhere. On Thursday, amid the chaos, Musk was promoting the increase in active users on his site.
“Twitter usage continues to rise,” he tweeted. “One thing is for sure: it’s not boring!” But it may not last long.
Parmy Olson is a columnist for Bloomberg Opinion who covers technology. A former reporter for the Wall Street Journal and Forbes, she is the author of “We Are Anonymous.”