How Much Would A Twitter Paywall Earn For Elon Musk?

Key Takeaways

• Twitter has been losing $4 million a day, which has led to Elon Musk laying off around 50% of their workforce.
• With advertisers leaving in droves, he’s looking for ways to generate revenue away from the traditional advertising model.
• One suggestion has been an $8 a month ‘Premium’ plan, but there have been new rumors surface that Musk may be considering putting the entire platform behind a paywall.
• He would need around a quarter of current active users to stay in order to replace the income generated from ads in 2021.
• The tech sector is becoming an increasingly difficult place for investors, but we use the power of AI to give you the best chance to generate profits, even in tough markets.

Twitter is basically on fire right now. And we don’t mean on fire like they’re dominating their space. We mean on fire like an eccentric billionaire has thrown it on a bonfire of dry wood and newspaper and has just lit a match.

Since his purchase of Twitter finally completed on October 27, Elon Musk has been even more active than usual both on the platform and in the Twitter offices.

One of his first orders of business has been to fire a huge number of staff, with almost half of Twitter employees being shown the door. Some divisions or offices have seen their headcount reduced by up to 80%.

In addition to the HR nightmare unfolding behind the scenes, Musk has also been seemingly workshopping ideas on the fly in attempt to turn the company around and find new sources of revenue.

The problem for Musk is that he has made consistent comments about Twitter becoming the ‘free speech’ platform. Many users are concerned that this will see a reduction in moderation on the platform and a subsequent increase in, for example, hate speech and racist or homophobic language.

Advertisers are understandably nervous of their brand being associated with this type of messaging and they’ve been leaving in droves since the Musk takeover. He has said on Twitter that there has been a “massive drop in revenue” as a result of advertisers pulling their campaigns.

Musk has said that it’s “extremely messed up” and has even gone so far as to threaten to “thermonuclear name and shame” advertisers who refuse to come back to the platform.

Yep, that’ll definitely work Elon.

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Elon Musk searches for new revenue for Twitter

All of this has led to Musk throwing out ideas to replace the lost advertising revenue. Initially he announced an idea to overhaul the blue checkmark verification system. The current system has been used for many years to identify public figures, celebrities, noteworthy individuals and verified journalists.

This helps users of the platform to identify real accounts from fake or scam accounts.

For example, it means users are quickly able to identify whether the account claiming to be Elon Musk and offering 100 Bitcoin in exchange for your credit card details is the real thing or not (spoiler: it’s not).

Under the proposed new system, the blue check mark would move away from being a verification of identity and would instead become a premium version of Twitter. The company has experimented with this already in certain markets with Twitter Blue, but this new system would replace that.

Musk initially suggested the price would be somewhere in the region of $20 per month in the US, with other markets adjusted to reflect purchasing power parity. For this, users would receive priority in search and throughout the platform, as well as seeing half the amount of ads as free users.

The response was not good.

Many accounts (most of them already sporting a blue check mark), were quick to shoot down the idea, with Musk even haggling with famed horror author Stephen King over the price. “$20 to keep my blue check? F*** that, they should pay me!” King tweeted.

Musk responded with, “We need to pay the bills somehow! Twitter cannot rely entirely on advertisers. How about $8?”

Given that Stephen King is one of the most successful authors of all time and is worth around half a billion dollars, we doubt it’s about the price.

Twitter’s financial position

Now that Twitter is in private hands we’re not going to be able to see the books every quarter. While it would be fascinating to see just how much of an impact it is having on the business, for now we’re going to have to be content with ad hoc updates at the whims of Elon Musk.

So far all he’s said is Twitter was losing $4 million a day prior to the mass layoffs. This is likely to have stemmed the bleeding, but it’s uncertain just how much of those costs will persist even after the mass reduction in headcount.

What we do know is that last year Twitter generated $5 billion in revenue, of which $4.5 billion came from advertising on the platform.

That’s a tenuous position anyway, given that advertising revenues are under pressure with a slowing economy and the possibility of an upcoming recession. Even without advertisers running scared from moderation policies, Meta has also announced sweeping layoffs in response to the drop in advertising revenues.

The latest rumor doing the rounds is that Musk is considering putting the entire Twitter platform behind a paywall. So far it’s not certain how seriously this is being considered, but it would be an unprecedented move in the realms of social media.

How much would Twitter earn from a paywall?

But if Musk was crazy enough to go ahead with this, how much would he hope to generate from such a move? It’s fair to say that there would be a mass exodus off Twitter, but would the remaining users be enough in number to keep the platform viable and fix the companies finances?

Let’s take a look at some numbers.

According to Backlinko, Twitter has almost 400 million total users. But not all of them are active. Many accounts on the platform are fake or spam accounts, and many more are dormant accounts from users with duplicates or those who opened an account and never became regulars.

According to Twitter, the company hit 238 million daily active users in Q2 2022. So that’s 238 million accounts who actively use the platform on a daily basis. Not all of those accounts are real people who are going to pay to stay on Twitter.

As mentioned, many of these accounts are spam or bot accounts used to automatically promote various schemes or products or even to actually attempt to scam legitimate users. The number of fake accounts isn’t known, and in fact it’s the disagreement over this number which led to Elon Musk attempting to pull out of the deal earlier in the year.

Before it could go to court, Musk agreed to proceed with the purchase, which means we can only really take Twitter’s word on the estimated number of fake accounts on the platform. According to a request from the SEC, Twitter has stated that only around 5% of its accounts are scams or bots.

The question is, would the scammers behind these accounts pay $8 a month to stay on the platform? Probably, but if there is any form of ID verification then it’s likely that very few of them would be able to qualify.

So, we’ll be conservative and assume that none of them become paying members.

We also need to adjust the user numbers to account for the fake accounts. Assuming they are all active on a daily basis (they’re probably not, but there’s no way to know), that means 20 million accounts coming off the 238 million daily active users figure.

So, we’re down to 218 million accounts.

If Musk managed to get every single one of those accounts to pay $8 a month to stay on Twitter, he’d be laughing all the way to the bank and could drop his “thermonuclear name and shame” without a care in the world.

This would generate almost $21 billion in annual revenue, over four times as much as the company made in 2021, without any income from advertisers.

But that’s not going to happen.

So how many users would Twitter need to retain behind a paywall to replace the income from ads?

Around 50 million.

At that level and with a cost of $8 per month, Twitter would be able to generate revenue of around $4.8 billion a year. Is that realistic? It’s probably a stretch. Twitter is a highly popular social media platform, but there is a proliferation of other free platforms in the marketplace all vying for users attention.

It’s unlikely that they would be able to retain almost a quarter of their users behind a paywall that costs almost as much as Amazon Prime or Netflix.

What does this mean for investors?

Tech is changing. It’s always moving, but right now it’s changing. The tried and true revenue models are being tested, with economic conditions dropping advertising revenue and privacy concerns making it harder for platforms.

Alongside Twitter, other ad reliant companies like Meta, Alphabet and Snap are all desperately looking for ways to diversify their income streams.

It’s likely that the companies that perform the best over the next decade aren’t necessarily going to have the best product offering, but will find the most intelligent ways to monetize what they have.

As an investor, it’s almost impossible to be able to predict who’ll come out on top. Trying to pick and choose individual stocks is becoming even more challenging than it has been in the past.

What we can be more certain of is that the tech sector as a whole will continue to grow and develop, with new sources of revenue and business ideas being discovered all the time.

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