What happens with Twitter?

The acquisition of Twitter by Elon Musk is one of the most outstanding news in recent weeks. First, because it was preceded by a long process of negotiation and rupture, with accusations between the businessman and the company. Second, because in the two weeks after taking over, Musk decided to lay off almost half of the workforce worldwide; several of his trusted executives resigned to continue in the company; he established a premium subscription program, with a monthly charge of 8 dollars, which he later regretted; it generated well-founded suspicions about the content verification policy, which has cost it the suspension of advertising campaigns by major advertisers; and even pointed out the possibility of declaring the organization bankrupt.

Twitter is an inexpensive platform. Platforms are business models that simultaneously serve more than one group of users. The emblematic case study of the platforms is the credit card. Through this financial instrument, banks serve cardholders and commercial establishments. The former acquire the card to make purchases and defer payments, in exchange for which they pay admission fees and interest. For their part, establishments sign up as card payment recipients, as a way to grow their sales, and they pay membership fees and a percentage of the value of sales made. Both groups of users are not independent. A large volume of cardholders is attractive for establishments; a large number of affiliated establishments provide acceptance confidence for cardholders. There are externalities between these two groups, since the demand of both is fed back to create value.

It is a mistake to manage a platform thinking that only one side matters. A wrong decision towards one of the user groups has effects on the whole business. The big problem for the platforms is to decide the different prices that must be charged to each group of users. In some cases, it is even necessary to give away one of the products or even charge negative prices, such as the rewards that credit cards give to their cardholders, if this stimulates demand from the other side of the business.

Elon Musk is no stranger to platforms, as evidenced by his foray into PayPal. However, it seems that this previous experience is not helping him to solve the Twitter crossword puzzle. It is true that the company showed clear signs of financial deterioration and operational inefficiency. However, the untimely decision to terminate half of the staff not only resulted in lousy publicity and deterioration of the organization’s reputation, but also appears to have severely affected the company’s ability to perform content verification tasks. to such an extent that a pharmaceutical company suffered a severe financial disaster, due to a problem with an account that spread inappropriate content on its behalf. In other words, a severe security breach occurred, a fact that is unacceptable for the companies that use the platform.

Musk doesn’t seem to realize that his aggressive business style and political stances aren’t good for business. Advertisers, many of them companies committed to integrity and good corporate governance, do not look favorably on the libertine style that is glimpsed on Twitter, and for this reason they have suspended campaigns, aggravating the organization’s financial situation.

Before Musk, there were many questions about the financial viability of Twitter. With Musk, it seems that there will be a redimensioning that will make him lose a lot of money and positioning compared to other competitors in the digital advertising market, it is a context in which social networks face increasing questioning from the highest spheres of power.

@javiernunezmel