Elon Musk has upended Twitter's business. Here's how he could fix it

By Clare Duffy, CNN BusinessUpdated: Tue, 22 Nov 2022 19:23:32 GMTSource: CNN BusinessMuch of Twitter's ad sales team has been fired or pushed out. Large companies from General Mills to Macy'

By Clare Duffy, CNN Business

Updated: Tue, 22 Nov 2022 19:23:32 GMT

Source: CNN Business

Much of Twitter's ad sales team has been fired or pushed out. Large companies from General Mills to Macy's have paused advertising on the platform, with more potentially following suit after new owner Elon Musk's decision to restore the account of former President Donald Trump and other controversial figures. And any cursory scroll of the platform will likely show you fewer big brand ads.

That would all seem like horrible news for a business that generates the lion's share of its revenue from advertising. But Musk may not care.

The Tesla CEO has previously said he "hates advertising" and, as Twitter's owner, professed a desire to make the company more reliant on subscription revenue than advertising dollars. Twitter has always struggled to turn its outsized influence in media, politics, and culture into a highly successful advertising business. And without needing to please advertisers, the billionaire would be freer to implement his "free speech" vision for Twitter.

"I've always thought that a move to a subscription business would make sense for Twitter ... it's never been a great advertising platform," said Larry Vincent, associate professor of marketing at USC's Marshall School of Business. Twitter's advertising business has long been smaller than that of rivals like Facebook, in part because it didn't offer the same level of user targeting.

To successfully overhaul Twitter into a thriving subscription business would be to buck the trend of many other media properties that have struggled with the model. And Musk's attempts right out of the gate have faltered. An updated, $8-per-month version of the Twitter Blue subscription service that allowed users to buy a verification checkmark had to be halted after just two days when it was abused to impersonate prominent people (notably Musk himself), businesses, and government agencies. Musk initially said he would relaunch the service on November 29, but on Monday suggested he might further delay it "until there is high confidence of stopping impersonation."

Some industry watchers have also questioned whether, given Twitter's somewhat niche status as a relatively small platform used largely by members of the media, politicians and academics, such a subscription service could be widely adopted. Even if all 217 million daily users Twitter reported having at the end of 2021 signed up for Musk's $8 per month subscription, the annual revenue would still be less than a quarter of the size of rival Meta's.

Still, some industry insiders have reason to think he can pull it off. "Twitter over the last month has been far more entertaining than Netflix and easily worth $8," Roy Price, the founder of Amazon Studios, said in a tweet Saturday. Salesforce CEO Marc Benioff said in a tweet, "don't underestimate" Musk. And Twitch co-founder Justin Kan tweeted that he thinks Twitter is "likely to survive just fine (and potentially thrive!)" in part because, unlike some high-profile users who have announced their departure from the platform, most regular users likely don't care about who's leading the platform and how.

Indeed, Musk's shift away from advertising and toward a subscription model could work if Twitter can survive having its entire revenue decimated beforehand, keep its systems up and running, avoid violating laws around copyright infringement and hate speech, and also remain in good standing with Apple and Google, which control the app stores on which Twitter depends.

The stakes to pull it off are significant for Musk. After borrowing billions of dollars to finance the Twitter takeover, Musk is up against the clock to turn what was already a struggling business into a company that can generate enough cash flow to pay back his debt. He may also risk his reputation as "a gifted and audacious entrepreneur who made Tesla work against widespread doubts and naysaying," said Robert Breuner, professor of business administration at University of Virginia's Darden School of Business.

Twitter's ad woes

Whether he likes advertising or not, the business made up 90% of Twitter's revenue prior to Musk's takeover and replacing it won't be an immediate shift.

In the wake of the chaos at Twitter in recent weeks, there has been talk of brands quitting the platform out of concern that their ads could end up next to objectionable content. But that may not be the only or even primary reason advertisers have walked away — or why attracting new ones could be tricky. Advertisers are also likely on edge about Twitter's stability, as users and former employees raise concerns that the mass exodus of staff could leave the platform vulnerable to glitches and outages.

Brands may also be miffed that many of Twitter's ad sales employees who managed their campaigns have been fired or pushed out, including after another round of layoffs and exits Monday.

Large digital platforms "have experienced professionals out there who develop relationships with these advertisers," Vincent said. "When you let go of a staff that was as veteran as Twitter's and there's no one there to respond to those [brands], you basically reduce the value of the ad platform."

By bringing Trump and other controversial figures back to the platform, Twitter may have greater appeal to the right-leaning advertisers that do business on alternative platforms like Trump's Truth Social. While there is a market to advertise to "people buying gold, people buying survivalist home kits, guns and weapons," Twitter has long been known as a more politically neutral, if not somewhat left-leaning, platform and may struggle to attract such companies, said Michael Serazio, a communications professor at Boston College.

Life beyond ads

Musk is also going to have to contend with potential pressure from regulators, as well as the app store operators at Apple and Google, if he wants to succeed in turning Twitter's business around. A group of US senators has already called on the Federal Trade Commission to investigate Musk's Twitter over potential violations of the company's 2011 consent decree. And Europe's Digital Services Act may impose limits on just how free Musk's "free speech" Twitter can be.

In an op-ed published in the New York Times last week, Twitter's former head of trust and safety, Yoel Roth, who left the company earlier this month, said the company's failure to adhere to Google and Apple's app store rules could be "catastrophic." The app stores have previously removed social media apps for failing to protect their users from harmful content, and Roth suggested that Twitter had already begun to receive calls from app store operators following Musk's takeover. Over the weekend, the head of Apple's app store, Phil Schiller, deleted his Twitter account.

Most importantly, Twitter will have to keep users invested in the platform if Musk's subscription strategy is going to work. And it's not just existing users — Musk will also need to attract new people to the platform, which has long struggled to break out of its niche status and grow its user base, by ensuring it's filled with must-read content.

In the weeks since Musk took over Twitter — which was immediately followed by an uptick in hateful content — there has been much hand-waving from users about moving to other platforms, and several high-profile accounts have announced their exits, including director Shonda Rimes and model Gigi Hadid. But it's not clear that there has been a broad drop-off in the user base; instead, Musk has claimed in tweets that platform usage is at an all-time high.

So long as Musk can keep Twitter functioning properly despite having fewer employees, many users will likely stick around, perhaps even more so following the return of controversial accounts that tend to make news with incendiary comments on the platform. Musk himself has pointed out that even as people fret about the demise of Twitter, they're doing it on the platform itself. And the billionaire has proposed making it easier for creators to earn money on the platform, which could also drive usage.

Even still, there is no guarantee that continuing to capture the online world's attention will translate into subscription payments or other revenue growth.

"Even as both Musk and Trump are driven by the gravity of the attention economy, it doesn't mean that they'll be able to cash in on it," Serazio said. He said Musk likely made the decision to restore Trump's account because "it was going to cause headlines, it was going to cause attention," adding that "the attention won't save Twitter ... but I don't know that [Musk] has any other strategy other than the attention economy, even if he doesn't know how to profit from it."