Twitter: What does the future entail under Elon?
🤷♂️ What is going on?
Elon has finally acquired Twitter for $44 Billion, making it one of the largest tech acquisitions of all time. Having massively overpaid for this acquisition (by ~$19 billion), he is in a desperate scramble to realize positive returns.
📝 What are Elon’s plans for Twitter?
From offering subscription plans to financial services, Elon has made grand promises about Twitter’s future.
Blue Tick subscription plan: Until Elon took over, blue ticks were reserved for “active, notable, and authentic” users (e.g., journalists and politicians). Now, anyone can earn a Blue Tick by paying $7.99/month. In doing so, Elon aims to diversify Twitter’s revenues beyond Ads that still comprise > 90% of the revenues.
Reviving short-form videos on Twitter: Elon plans to revive Vine, Twitter’s short-form video platform that became popular in the early 2010s. Not a surprising move. As mentioned in my previous piece, short-form videos are increasingly driving user engagement across different social media platforms. Twitter needs to capitalize on this opportunity to acquire users, increase engagement and boost the number of user data points it collects.
Fintech Platform: Twitter already has a rudimentary financial platform in place — users can tip their favorite content creators via cash or crypto, and content creators can provide exclusive content for a fee. Elon aims to double down on this creator economy, processing and taking a percentage cut of each transaction.
“Now we can say, ‘Okay, you've got a balance on your account. Do you want to send money to someone else within Twitter?”
As users engage with creators and have some cash balance on their Twitter accounts, Elon naturally aims to build a peer-to-peer network where users can send and receive funds from one another.
“Get extremely high yield on your balance. Then why don't we cash into Twitter? Great, that sounds like a good idea. Then add debit cards, checks and whatnot.”
For the long term, Elon envisions Twitter venturing into a digital banking model where users can deposit money to earn yield, get debit cards and engage in other banking services.
🧐 Consulting Sidebar: Commentary on Elon’s Strategy
🔨 Blue tick subscription plan needs tweaking
The blue tick subscription plan is a great way to build a recurring cash flow. But, it is difficult for Twitter to generate substantial revenue from subscriptions alone. Even if all 420K verified users paid $7.99/month, Twitter would only generate $40 million/year, a drop in the bucket compared to $4.5 billion in annual revenue.
Making matters worse, verified and non-verified users are unwilling to pay for a blue tick. According to them, the benefits (e.g., the ability to edit tweets and receive a customized experience) are “not worth” the cost.
To ensure mass adoption of the blue tick subscription plan, Twitter needs to make a few tweaks:
Make some existing features exclusive: As live commerce and social audio grow in prominence, businesses and creators increasingly utilize Twitter Space and Live to engage with their followers. In 2019 alone, over 115 brands on Twitter hosted live events with > 80 million viewers. It is a no-brainer that Twitter should make Spaces and Live exclusive to blue tick users, monetizing from 2 million business and creator accounts that promote through these channels.
Create additional features to make the plan worth $8/month: Twitter had a terrible user experience for years. Unsurprisingly, users have turned to third-party providers to perform actions that are not readily available on Twitter (e.g., tweet scheduling and competitor analysis). In fact, 200k paying subscribers use Hootsuite just to schedule tweets. Twitter must build and make these tools exclusive to blue tick users, directing revenue back onto the platform.
There is plenty of room for Twitter to experiment with its subscription plans. Over time, it could create a tiered pricing plan with more sophisticated features available across a range of price points. For now, however, Twitter should get the fundamentals right to increase the take-up rate for its revamped blue tick plan.
📈 Growing Ad revenues, Twitter’s beating heart
Due to the limited number of signals it collects on customer behavior, Twitter cannot target ads as granularly as TikTok, Meta, and Snap. This has created two significant issues:
Limited ad-targeting capabilities have negatively impacted Twitter's ability to scale its advertisers base. For instance, Twitter's advertiser base has remained stagnant since 2016 (~130k), whereas Meta's advertiser base has doubled over the same period (10M vs. 5M).
Small businesses primarily focused on driving ad conversions shy away from Twitter due to its inferior ad-targeting capabilities. As a result, large-scale advertisers drive most of Twitter's ad revenues (~85%), creating a business concentration risk.
Let’s briefly examine how Twitter could address these issues:
📹 Short-form videos increase the number of data points collected from users
Data is the new oil. Platforms that can successfully collect and monetize customer data will succeed in the long term.
TikTok, for instance, collects 100s of micro signals on users — “whether you scrolled past a video, paused it, re-watched it, liked it, commented on it, shared it, and followed the creator, plus how long you watched before moving on” (Source: Prof G). As a result, TikTok has enhanced its content recommendation algorithm and ad-targeting capabilities, exponentially increasing its user engagement and ad revenue over time.
Short-form videos are a great way to drive engagement and build a data arsenal. Elon has made the right decision in bringing short-form videos onto Twitter, a move Meta and Snapchat completed over a year ago. This way, Twitter strengthens its ad targeting capabilities, helping it onboard more small businesses onto the platform and diversifying revenue concentration risk. More importantly, short-form videos open another avenue for Twitter to generate revenue — via short-form video ads.
Nevertheless, monetizing from short-form videos is a difficult task. Unlike photo/text ads, short-form video ads have high production costs, discouraging advertisers from promoting via this medium — an issue Meta is currently facing. Twitter could work around this by allowing marketers to advertise photo/text ads on short-form videos instead — similar to banner ads on FB/IG reels. This way, Twitter lowers the barrier of advertising via short-form videos and encourages a higher uptake rate from advertisers.
💰 Payments Processing
For Twitter to successfully roll out its financial services, it must create a vibrant content-creation ecosystem. Twitter already has a super follow feature that allows users to access exclusive content from creators for a fee. However, this feature’s takeup rate has been low (only 0.05% of the US user base used this feature during the testing phase).
Elon plans to overcome this issue by introducing a video-paywall feature (similar to Only Fans), a strategy, in my opinion, that would cause more harm than good. Such a transition would result in a surge of pornographic content on the platform, negatively impacting Twitter’s brand image, which is already hanging by a thread. Additionally, it would also deter advertisers from promoting on the platform and pave the way for more spam content on Twitter.
Instead, Twitter should focus on becoming the go-to podcast platform for creators and listeners alike. Why podcast?
Attractive market: Podcasting is a rapidly growing market ($153 Billion at ~31% CAGR by 2030) with high engagement (users listen to 5 shows per week) and retention rate (~70-80% of users will stay till the end of each episode).
Fewer competition: Other social media platforms are not in/moving away from the podcasting space (e.g., Meta), making the market less competitive
Great starting point: Twitter is in a great position to monetize this growing market (roughly 45% of Twitter's user base is composed of monthly podcast listeners) as other social media platforms move away from the podcast space (e.g., Meta).
Ideal alternative to an Only-Fans model: Podcasting has no downsides associated with an Only-Fans model while enabling Twitter to have a decent shot at generating high user engagement (e.g., users would donate to podcasters they follow) to build financial services upon eventually.
💭Departing Thoughts
Elon’s strategy, from a business perspective, is sound. He needs to bring Twitter on a path toward profitability, which entails creating recurring revenue via subscriptions, rolling out short-form videos to expand advertising revenue, and eventually enriching a content ecosystem to build a fintech platform.
But the execution is as important as, if not more important, than strategy. So far, Elon’s execution has not been great. He has confused users with his constant launching and relaunching of blue tick plans. His “free speech” rhetoric has increased the risk of fake news being perpetuated on the platform, and the list goes on.
It is still early to comment on Elon’s handling of Twitter. But, over the course of 2023, I hope to see him steer the company to deliver on his strategy, which holds great promises for a more profitable Twitter.