Bracing For A Recession, Twitter Cutting Costs & Moving To Subscription Based Model

Elon Musk isn’t losing time revamping twitter. One of Musk’s first moves at the company was the firing of four key executives, as well as the dismissal of the entire board of directors, with plans reportedly in the works to lay off thousands of employees.

Although the company had already planned a major staff reduction, Edward Chen, a data scientist formerly in charge of Twitter’sTWTR
spam and health metrics and currently CEO of Surge AI (a content moderation start-up), told the Washington Post the proposal cited in the media to cut roughly 75% of employees was unimaginable. He said it would put users at risk of hacks and exposure to child pornography and other offensive content.

Still, with a recession looming, tough decisions must be made and Musk is moving quickly to make sure the social media company isn’t reliant as much on advertising revenue, which tends to tank during an economic downturn. At the same time, he is dramatically cutting costs to try and get Twitter’s margins moving rapidly upwards.

Despite being a private company, the billionaire did convince Twitter co-founder Jack Dorsey to roll his nearly $1 billion 2.4% stake in the public Twitter into the new private Twitter, and Saudi Prince Alwaleed confirmed that he also rolled his $1.9 billion position into the company, making him the second largest shareholder. Alwaleed and Kingdom Holding now own approximately 4% of Twitter.

In addition, Musk convinced a number of high-profile investors to put billions in the company, so he is under pressure to make changes quickly.

One proposed change which didn’t go over very well with users was a planned implementation of a $20/month charge so that high-profile users can keep their blue check mark showing that they are a verified account. In essence, it’s a way to avoid fake news because consumers and the media can quickly find out if the comments are from the actual person.

Musk defended the $20/month charge but later back-tracked to an $8/month charge after a backlash from some users, although he did note that the cost would vary by country. A survey sent out by Jason Calacanis, a longtime start-up investor who encouraged Musk to buy Twitter, asked how much they would pay to have the blue check mark. Of the 1.9 million who responded, more than 80% said they wouldn’t pay anything. The second most popular was $5/month, which got 10% of the votes.

Many people will have an adverse reaction, even those who can well afford it like author Stephen King who tweeted on 10/31 “$20 a month to keep my blue check? Fuck that, they should pay me. If that gets instituted, I’m gone like Enron.”

“We need to pay the bills somehow! Twitter cannot entirely rely on advertisers. How about $8?” responded Musk. The Information’s Jessica Lessin responded with an article saying, “I’m far more interested in leaving that emotion aside and focusing on the business rationale of charging Twitter users $8 a month to be “verified” and for other features, like seeing fewer ads. Many commentators have pointed out that this subscription tier isn’t likely to net Twitter much money. There are 423,700 users verified currently. If they all paid, that would be $41 million in new revenue.”

“We need to pay the bills somehow! Twitter cannot entirely rely on advertisers. How about $8?” responded Musk. The Information’s Jessica Lessin responded with an article saying, “I’m far more interested in leaving that emotion aside and focusing on the business rationale of charging Twitter users $8 a month to be “verified” and for other features, like seeing fewer ads. Many commentators have pointed out that this subscription tier isn’t likely to net Twitter much money. There are 423,700 users verified currently. If they all paid, that would be $41 million in new revenue.”

However, Musk seems to be targeting a more broad adoption of the monthly fee, tweeting “Twitter’s current lords & peasants system for who has or doesn’t have a blue checkmark is bullshit.”

Five Thirty Eight political writer Nate Silver had a similar reaction to Stephen King. “I’m probably the perfect target for this, use Twitter a ton, can afford $20/mo, not particularly anti-Elon, but my reaction is that I’ve generated a ton of valuable free content for Twitter over the years and they can go fuck themselves,” he wrote on Twitter.

Musk is also planning to convert the $4.99 premium service called Twitter Blue, which has a function allowing you to edit your tweets 30 minutes after posting them as well as test new features before they are rolled out, into a required subscription for those who want to keep their verified status. He reportedly told employees to get the program in place by November 7 or they are fired. The price point on the revamped service is set to rise from $4.99/month to $7.99/month.

Another issue Musk is facing is getting advertisers on board. Both Havas Media and Interpublic GroupIPG
have told their clients they should temporarily stop advertising on Twitter due to concerns over the company’s ability to monitor its content.

Also weighing heavily on Musk’s mind must be data which was exclusively reported by Reuters on 10/25 that heavy tweeters—which account for less than 10% of users but 90% of all tweets and half of global revenue—have been in “absolute decline since the pandemic.” This came from an internal document entitled “Where did the Tweeters Go?” which was obtained by Reuters.

Heavy tweeters are defined as those who login six or seven days a week and tweet about three to four times a week. Unfortunately, news, sports and entertainment, all attractive to advertisers, are in decline amongst English-speaking heavy tweeters while cryptocurrency and “Not Safe For Work,” NFSW (which includes nudity and pornography), are rising rapidly for this group. Adult content comprises 13% of content on twitter and is not popular with most advertisers.

This is certainly a challenge short-term as Musk has said that anyone previously removed from the service for violating its rules won’t be allowed back onto the platform until the company has a clear process in place, which will be at least a few weeks.

He said, “Twitter’s content moderation council will include representatives with widely divergent views, which will certainly include the civil rights community and groups who face hate-fueled violence.”

This may be leaving ad agencies and advertisers scratching their headsas to what the product will look like and which advertisers it will be attractive to. Elon Musk is very quick to change course so it may be wise for advertisers to sit on the sidelines to wait and see how the social media platform evolves.