A classic tactic for investors is to purchase a popular and successful company, look for a few opportunities for increased efficiency, then sit back and enjoy the profits.
And sometimes, people come in like a wrecking ball, as if to prove the only reason they’ve acquired a company is to show how much they hate it. Unfortunately for Elon Musk, the man who used to be the wealthiest person on Earth, his purchase of Twitter has been an ongoing case study in how to tank market value, ruin a popular social media site, and isolate one’s self in the worst types of echo-chambers that are detached from the reality of most people.
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Where it all Went Wrong: Day Zero
Elon had already started to wreck the Twitter takeover before anyone realized it was a thing that might seriously happen. I’m not quite sure if Elon was drunk, joking, or some combination of those when he offered to buy Twitter for a good 20% more than the shares were currently trading for. If he’d had the cash available, Elon could’ve just quietly purchased as many shares as possible at well below the final price he did pay.
It seems like he also made this realization a bit later, as he then spent a whole lot of time and money in court, trying to get out of the offer he had made. He tried to argue that the data Twitter provided was insufficient for him to do his due diligence, but he was unable to specify which data would satisfy his concerns. Musk was also constantly being humiliated by the fact that he seems largely ignorant about social media realities, from advertising, to bots, and even user expectations of how a site should run. Many of the things Elon tried to complain about in court were fundamental to the nature of the business: anyone with the slightest experience in social media would’ve known about them before offering to put $44 billion on the line.
So in short, the best thing Elon could’ve done was to not make an offer to buy into a field he was clueless about. The next best thing he could’ve done was make an offer closer to the market price, and not 20% higher than that. In retrospect, Elon’s original offer looks like a bit of bragging that wasn’t a serious business proposal. He didn’t think he’d be held to it, but again, people should realize that they will be held accountable for the things they say on social media!
Leading the Tech Bubble Collapse
In 2020, as the pandemic raged on and governments supplied cash to keep the economy moving, tech stocks had one of the biggest bull runs that we’ve seen since the late 1990s tech bubble. It wasn’t all just hype, though, as corporate profits also surged in tandem with stock prices:
That said, there certainly was some hype, and Tesla ($TSLA) was among those companies whose valuations made the least sense. It was in this environment that Elon briefly surpassed Jeff Bezos and Bill Gates to become the world’s richest man, so Musk may have been fully aware that his wealth and status was ephemeral. To make those valuations permanent, Tesla would need to produce and sell as many cars as all the world’s other carmakers – combined.
Alternatively, Musk could cash out at the peak and invest that funny money into something real. Twitter probably looked pretty real, and pretty solid, in comparison. It was still losing money, but it was improving every year and seemed to be on a path to profitability by 2022, or 2023 at the latest.
So although corporate profits did surge, many companies were still overvalued. Tesla and Facebook were the most overvalued of all, so it made sense for their owners to cash in as much as possible to invest in something new. Between Twitter and the Metaverse, it’s a close call on who made the worst bet of this business cycle. Twitter should’ve been the safe choice, but Elon’s active mismanagement of Twitter is also now starting to hurt his investments in Tesla – and his standing in the public eye.
Learning the Social Media Business
So all Elon had to do was take ownership and coast to profitability.
Once again, we could say that’s where everything went wrong.
From day one of Elon’s ownership, it became apparent that his tenure would be marked by spectacle, abrupt personnel realignments, and drastic policy changes that shift from hour to hour. Needless to say, anyone with an understanding of social media would know that these are not good for stability in a field that isn’t stable in the first place.
Major changes to beloved sites have unanimously been met with negative responses from the users. In the case of Digg, this effectively ended the site’s social media legacy and turned it into a rarely visited aggregator for a small pool of newspapers. Before the change, it was bigger than Reddit in every way.
Similarly, Elon’s arrival at Twitter HQ meant a massive change in the employment roster – and major changes for the users of the site. One thing people noticed quickly was that a lot of left wing and anti-fascist posters became banned, at almost the exact same time right wing, racist, and fascist sympathizing accounts were reinstated. Users weren’t the only ones to express outrage: advertisers fled en masse. Few brands want to be associated with a website that bans progressive activism and anti-fascism, but screeches about free speech for klansmen, conspiracy mongers, and anti-Semites.
Banning Competition and Embracing Conspiracy
Of all the missteps on this Twitter journey, the one that seemed to upset the userbase most of all was the abruptly announced ban on links to Mastodon and other social media profiles. From a user’s perspective, being on multiple social media channels is essential to reach a full potential audience – and as protection in case some new guy comes in, takes over, and ruins a social media channel that used to be your favorite! For marketers, it’s critical to be able to link together Facebook, Instagram, Twitter, and Youtube channels in one, hence the popularity of link aggregators like linktr.ee to share all those locations at once.
Luckily for Twitter’s longevity, this ban was quickly reversed and Elon instead “threatened” to step down as CEO by publishing a poll of the users. The people would decide: should he step down?
With 17.5 million votes cast, the answer was a clear YES.
But did Elon learn any lesson from this? Has he learned any lessons at all since he took over Twitter? This is a clear NO.
Instead of reflecting on how his actions have undermined his goals, Elon has surrounded himself with yes men, conspiracy theorists, and social pariahs. He’s been spotted with controversial entertainers, corrupt political figures, and authoritarian elites.
And he refuses to take any responsibility for his part in how Twitter has burned so many bridges and lost so much revenue. He’s suggested there’s a conspiracy against him. He’s suggested that people are actively working to make him fail. He thinks he can silence dissent, ban competition, and control the tone of political speech without undermining the value of the investment he isn’t even close to paying off (don’t get me started on the financing terms of this deal. There are enough shady Russian investors and Saudi oligarchs that the banks look like the good guys here).
The Century’s Biggest Case Study in Failure
Just because Elon refuses to learn the lessons he’s been presented with, doesn’t mean that they aren’t still available. This Twitter acquisition could be studied for years to come as one of the largest and worst business deals in the history of business deals. From the initial offer that may not have been fully serious, to bidding more than market price, to alienating all the advertisers and userbase… it’s just one mistake after another. Each mistake has fully predictable consequences, and there is a whole lot to learn here – for anyone who is smart enough to take advantage of that opportunity.
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