With or without Elon Musk, Twitter is overdue a shake-up

Behind a stagnation in users lies a stagnating product

This article was originally published by The Economist on 11 July, 2022.
 

Elon musk’s acquisition of Twitter was to be one of the biggest buy-outs in corporate history. Now it threatens to become one of the ugliest disputes. Twitter is expected to file a lawsuit against Mr Musk this week in a Delaware court, suing him for pulling out of the $44bn deal. Meanwhile the world’s richest man -and the holder of Twitter’s sixth-most-followed account - has taken to the internet to engage in battle by meme.
 

The argument may play out over many months. But whoever prevails in court, Twitter has bigger problems to reckon with. Though it is one of the world’s most talked-about social networks, it has failed to turn that clout into a successful business. Whoever ends up owning the app is likely to press its managers for change.
 

When Twitter’s sale was agreed on in April, Mr Musk’s bid of $54.20 per share looked cheap to some - including Twitter’s board, which at first wasn’t interested. No sooner had the deal been struck than tech markets crashed. On July 11th Twitter shares were trading at under $33, having shed another 10% in value as some investors who had clung on to the hope that Mr Musk would go through with his purchase (despite weeks of evidence to the contrary) threw in the towel. Though Mr Musk claims he wants to cancel the deal because Twitter has more spam accounts than it told him, many detect a simple case of buyer's remorse.
 

For that reason Twitter probably has the upper hand in court. If the judge takes its side, Mr Musk faces a break-up fee of $1bn, as specified in the contract. He would probably consider that a victory. The judge could go as far as ordering the sale to go ahead at the agreed price. There is precedent: in 2001 the same Delaware court ordered Tyson Foods (a firm dealing in real birds rather than digital ones) to complete its purchase of ibp, a beef packer. That deal, though, was worth less than a tenth as much as the Twitter purchase. And no one is sure what would happen if Mr Musk simply defied an order to complete the acquisition. The dispute may yet be settled out of court, with Mr Musk paying a break-up fee greater than $1bn or buying the company for less than the price he agreed.
 

However the saga ends, Twitter’s bosses will face the same puzzle they have wrestled with for years: how to turn their influential product into a more profitable one. Part of the problem is a failure to attract new users - and not of the bot variety against which Mr Musk has, self-servingly but not wholly unreasonably, railed. While Facebook, founded just two years before Twitter, has soared to 1.9bn daily users, Twitter has reached just 230m and is still growing only slowly. Younger upstarts, notably TikTok, have lapped it.
 

Behind that stagnation in users lies a stagnating product. Whereas Facebook and other social apps have continually evolved, Twitter today is a similar experience to when it launched. It had a chance to innovate when it bought Vine, an app which popularised short video four years before any TikTok dance numbers ever saw the light of day, but allowed it to wither. It tried to copy Snapchat’s and Instagram’s disappearing posts with “Fleets”, but the idea flopped and was killed off last year.
 

Lately Twitter has been bolder, with some success. “Spaces”, a live-audio feature, has proved popular enough to largely kill off Clubhouse, the briefly fashionable app that inspired it. And it has pushed into longer-form content with the acquisition of Revue, a Substack-esque paid-newsletter platform.
 

Monetising these and other innovations is the next task, which may prove harder. Over the years Twitter’s revenue growth has been even more disappointing than its growth in users. This year Twitter will account for about 0.9% of worldwide digital ad spending, estimates eMarketer, a research firm. Facebook and its sister company Instagram will account for 21.5%; even TikTok, just five years old, will take a slice worth 1.9%.
 

With the ad market looking vulnerable to the weakening global economy, the company is looking to diversify its sources of revenue, nearly 90% of which come from advertising. It has launched Twitter Blue, a subscription option that gives users some modest benefits (an “undo tweet” button, an easier reading view and a few other tweaks) for $2.99 a month. Mr Musk said he wanted to go further on subscriptions, tweeting in April that Twitter Blue users should have an ad-free experience.
 

Yet an ad-free Twitter would have to cost substantially more than the $2.99 charged for Twitter Blue if it were to bring in as much money as ads currently do. Although Twitter’s annual reports do not break out average revenue per user, they show that the American market last year contributed $2.8bn in revenue, and that in America it had 38m users. That suggests that American users bring in upwards of $6 a month each in ad revenue, on average. And unlike other subscription businesses which can eschew mass audiences in favour of a smaller, subscription-paying one, Twitter needs a large number of users to produce its buzzy content.
 

In its nine years as a public company Twitter has struggled to solve these problems. Private ownership by someone with a high appetite for risk looked for a while as if it might enable the kind of shake-up that Twitter seems to need. Instead the ongoing Musk affair looks like being yet another distraction from the task in hand.