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Is Elon Musk killing Twitter? How bankruptcy might not be the end

Last October, Elon Musk completed his move to acquire Twitter after a short legal brawl, but the joy of the move was short-lived. Having fired the top brass the same day, Musk moved on to firing more than half of Twitter’s staff, and bad news kept poring out of the San Francisco headquarters quite regularly. 

As we enter the New Year, the situation hasn’t changed much, and Twitter continues to be in the news for all the wrong reasons, like not paying rent for its office spaces and employees being forced out of buildings by landlords, The New York Times reported. The question that crosses one’s mind is if Musk is out to kill Twitter once and for all.

Intelligence Squared, a platform known for organizing debates, took up this question and set up a debate between KARA Swisher, the editor-at-large at New York Magazine, and Anthony Scaramucci, managing partner at Skybridge capital and former communications director at the White House. 

Neither Swisher nor Scaramucci have a personal or professional relationship with Musk, even though they have met and interacted with the now Twitter CEO on multiple occasions.

Here's a look at various aspects of the effects Elon Musk's takeover has had on Twitter. 

Active users

Musk’s actions have allegedly led to a drop in usage among active users, who usually contribute a lot of content to the platform, and is forcing users to give competitors, like Mastodon, a try, Swisher said while stating that Musk's leadership was leading to Twitter's downfall.  

Comparing it to a proverbial town square, Scaramucci argued that Twitter, since Musk’s takeover had more active users and was at the center of many important events, whether it was the FIFA World Cup or the FTX debacle. 

Journalists could cover nuances of a story thanks to Twitter while people get updates about people they follow from the platform. Twitter Spaces turned out to be an effective medium and preferable over ClubHouse. When Musk himself joined Twitter Space, more than 100,000 people were in attendance listening and asking questions, Scaramucci said while defending that Musk wasn't killing Twitter.

Return of banned accounts

Swisher pointed out Musk-led Twitter has allowed 60,000 accounts previously suspended back on the platform to “improve the conversation”. Worse still, the decision to allow these users back seems to have been made single-handedly by Musk, instead of a council that was supposed to be set up. 

Scaramucci argued that by bringing people back, Musk was giving them a platform to voice their opinions rather than shut them off. This way, he was bringing them back into the social contract. He added that when individuals speak, think and speak freely, it creates economic innovation. 

Loss of revenue

Swisher strongly argued that Musk was indeed killing Twitter after his arrival blew off $5 billion in advertising revenues for the social media company, which was significant for income in the pre-Musk days. His plans of launching the paid subscription model of revenue generation hurt corporate clients more as users faked companies after paying $8 a month and got verified checks to their fake usernames. 

Scaramucci added that large corporations were risk averse and did not want to advertise on Twitter due to what Musk was doing. 

Twitter’s valuation drops

Swisher also pointed out a report that the Bank of America and Morgan Stanley who lent Musk money to finance his Twitter deal have now halved the Twitter debt on their books, which means the company’s equity has been wiped out in just two months after Musk has arrived at the helm of the affairs. 

Scaramucci ceded that Twitter’s valuations were down but argued that the company was far from dead and could see a revival in the coming months and years. Instead with a more active user base, the company was more vital than ever. 

Could Twitter go bankrupt? 

Swisher pointed out that Musk first spoke about Twitter's potential bankruptcy. While it is likely that Musk, the world’s richest person, will not let it happen, he had many wealthy friends who could put money into the company if it came to that. 

However, she warned that if the loan ended up on Wall Street, it could be bought by someone else, who would want Musk out before he could fix what he had broken at Twitter. She argued that although Twitter got a lot of attention from politicians and the media, it wasn’t a great business when compared to other social media outlets, and with Musk at the helm had turned into a lousy business. 

Comparison with Tesla, SpaceX

Scaramucci’s faith in Elon Musk to revive Twitter comes from his other companies, Tesla and SpaceX, staring at bankruptcy in 2008. Back then, it was Musk’s leadership that steered them away to levels that made him one of the richest people in the world

He said that Musk may have started on the wrong foot with Twitter trying to give away verified badges for a fee but, having realized his mistake, reversed his decision. In the long run, Scaramucci expects Musk to get things right at Twitter. 

Swisher, however, argued that too much faith was being put into Musk’s ability because of his history. Musk was good at making cars and rockets, but that does not mean he will be good at media too.

Twitter being a media company puts him in a very different situation, and his ideas to ‘unlock its potential’ are retreads of what many orders have suggested in the past. In fact, Musk has been unable to execute them properly and has made the site more erratic as of now. 

Swisher also referred to Steve Jobs as a true visionary who stayed in his lane and did great things. Musk, on the other hand, does not seem to have a clue about what he is up to. 

Musk’s vision for Twitter

Scaramucci, an investor, had access to a Powerpoint presentation for Musk’s vision for Twitter, which said that he wants to broaden the social media base and make it more inclusive. Going forward, Musk wants Twitter to become a ‘super app’ much like WeChat, which is used in China by users for social media, making payments, and personal communication. 

Swisher, however, said that ‘super apps’ have not worked in the U.S. before, and even the likes of Apple and Amazon have tried to do it and failed so far. It might be working in China, but the U.S. was a different market, and people would trust Amazon or Apple with their payments but not Twitter.

Moreover, people used different apps for different purposes, like Snapchat for communication and TikTok for entertainment. Like Facebook usage has dropped, Twitter under Musk is heading the same way. 

Twitter: Unassailable or Obsolete?

Due to its ability to connect people to events happening globally, Scaramucci said, Twitter had found a niche for itself in the past 15 years of its existence and become an indispensable part of our daily lives. Even if Musk failed in his mission to turn the company around, he would leave, and someone else could steady the ship. 

With Musk planning to ring in many changes in how Twitter looks and behaves, users could be worried if the sudden changes would keep the platform usable. Swisher thinks that if the user experience dips and people find it hard to use Twitter, then it is likely that competitors will make something easier to use, shifting the user base away. 

Swisher was pessimistic that the company could survive the Elon storm and compared his management style to building a rocket while it was in flight. Worse still, his decisions were taking the rocket on a downward trajectory, and Musk was single-handedly making the decisions. Swisher would not be surprised if Twitter soon became part of the graveyard of internet companies such as AOL, AIM, Yahoo, and MySpace, which were great at one time but have become obsolete over the years. 

Impact on Musk

The time Musk spends at Twitter also affects his other ventures, such as Tesla, Swisher argued. The EV-making company had seen a steep decline in its valuation, with Twitter serving as a larger distraction for Musk, the CEO, than when he was just a prolific user of the platform.

The competition in the EV market has grown, and Tesla is ceding its market share, which took years to build, very rapidly. The mass firing of staff at Twitter is also resulting in class action lawsuits and which are likely to be the biggest ones in Musk’s life. 

Scaramucci quoting Warren Buffett that a high-quality business can endure a bad management team or terrible decisions to set the tone of his defense is a strong indicator of what’s happening at Twitter. 

The debate was published across various podcast platforms today.

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 1/20/2023

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