Shortcuts / 05 May 2022

Elon Musk’s takeover of Twitter

The world’s richest man, Elon Musk, stunned the business world when he launched a $44 billion takeover bid for social media giant Twitter. So in this Squiz Shortcut, we take a look at the backgrounds of Twitter and Elon Musk, how this transaction came about, and what’s next for the platform Musk calls a digital “town square”.

Who’s this Musk bloke?
You know – it’s Elon Musk… He is one of the big characters of our time. He has a lot going on, but essentially he’s a successful/unpredictable businessman with a big Twitter habit.

Gimme some facts…
We’ve already done a Shortcut on Elon Musk himself (and the link is at the bottom of the email…), but to recap the highlights: he was born in South Africa in 1971, graduated from high school in Canada, moved to America in 1992 and finished 2 degrees in physics and economics at the University of Pennsylvania.

He’s a smart cookie?
Yep – he’d been into computing as a young kid back in South Africa and actually sold his first video game when he was just 12yo. After he finished his undergraduate study he planned to go on and do a PhD. But at the time the internet was becoming a thing and he wanted to have a go.

What did he do?
It was 1995 when he launched his first company called Zip2 in partnership with his younger brother Kimbal. That was a digital city guide for newspaper giants like The New York Times – and they sold it to the US tech company Compaq for US$400 million.

Not a bad chunk of change…
Definitely not… He used his small share of that money to invest in his next big idea – something called X.com, which later became PayPal – an online payments system that allows you to pay for things via a secure internet account.

How did that turn out?
He only lasted a year as CEO before he was kicked out over strategy and execution disagreements – but he ended up with somewhere between US$160-180 million when it was sold to eBay in 2002.

What came next?
Musk then moved on with electric car company Tesla – it’s a big deal now as one of the world’s most valuable companies – but it wasn’t so much then and Musk described it as a passion project.

He seems to have a few of those…
He does – like space services and tourism company SpaceX, which now has big contracts with NASA. Then there’s satellite internet service Starlink which is growing strongly. And he’s also been a champion of the cryptocurrency industry.

So he’s a busy man….
He sure is, but not too busy to tweet regularly to his 84 million followers…

What does he tweet about?
Everything from serious mission statements about why he’s bought Twitter and how it should run to funny memes – and there’s a lot in between. He also got into hot water from regulators when he tweeted that Tesla’s share price was too high, which broke all the rules about communicating with the market.

Was he penalised for that?
Yep, but it didn’t seem to put him off his game…

So talk me through the basics on Twitter.
For Twitter users and lurkers – and for many not on it – it’s a divisive platform. It was launched in March 2006. It started with Odeo – a podcasting platform that allowed users to record and listen to podcasts, but that fell over when Apple moved into podcasting.

How did Twitter come about?
After Odeo, co-founder Evan Williams and his computer programmer mate Jack Dorsey went on to create an SMS-based communications platform – one that was public rather than a direct digital communications system.

Please explain…
So SMS stands for Short Message Service, and back in the day, they allowed users to send and receive messages of up to 160 characters. And that’s how Twitter was born – there was a 140 character limit – and in the early days, it was just ‘twttr’ with no vowels.

What was the first tweet?
Dorsey sent the first tweet in March 2006 saying “just setting up my twttr.” It started to grow into a public online venue and by September 2011 Twitter had 100 million users, and it was floated on the stock exchange in 2013.

And it’s been a pretty big deal ever since?
Yep – Twitter became part of some significant events. In the early 2010s, there was a big popular movement called the Arab Spring where people across the Middle East started protesting against their longtime leaders and poor living standards. And they took to social media companies like Facebook and Twitter to voice their concerns.

And then there was Donald Trump…
Yep – the former US President used Twitter to great effect to communicate his message, target his enemies and galvanise his supporters – until he was permanently banned after the 2020 election and the riots on the Capitol. Twitter said there was “the risk of further incitement of violence”.

With great power comes great responsibility…
That’s for sure. Twitter bans posts that violate its standards on violence, sexual content, privacy, harassment, self-harm and other concerns. If you do this, you’re asked to take the post down and if you don’t you’re banned from the site.

How does it all work?
A lot of Twitter’s moderation happens automatically through an algorithm. Those algorithms also promote or demote posts in the feed. And Twitter labels some posts that contain misleading or disputed claims about political content or COVID, for example.

What’s users’ consensus on that?
Twitter’s content moderation has received a lot of criticism – as have ‘bots’ or automated accounts controlled by robot software that are programmed to spread misinformation.

Are bots a big problem?
Well, just to give you a sense of how powerful they are, a reputable study reckons they could have altered 3% of the vote in favour of Donald Trump in the 2016 election.

That’s pretty significant. So how does Twitter make money?
Like most online ventures – advertising. It has long struggled to find an advertising model that works for it, and another big criticism of Twitter is from users who don’t like how ads pop up in your feed even if you don’t follow the company.

So it hasn’t made much money?
Nope – last year, it reported a loss of US$221 million, and when co-founder Jack Dorsey stepped down as CEO in November 2021, he was criticised for Twitter’s poor finances.

Who was handed the reigns?
That would be Parag Agrawal. He was the company’s Chief Technology Officer – and just 5 months later, Elon Musk has swooped in.

Ah, yes. Take me through that saga…
Elon Musk became Twitter’s biggest shareholder when he accumulated a 9% stake in the company in early April and he was invited to join the board. He originally signalled that he would do that and sign an agreement stipulating that he could not own more than 14.9% of the company’s stock.

How did the company react?
Several of Twitter’s board members took to the platform to congratulate Musk. And Agrawal tweeted that the company and Musk had been chatting for weeks.

But then Musk changed his mind?
Yep – things went off course when Musk informed the company on 9 April that he would be rejecting its offer to join the board.

So he’s a bit unpredictable…
He sure is, and in the following days, Musk tweeted several criticisms and suggestions for the company. He also asked his followers, “Is Twitter dying?” and suggested Twitter should convert its San Francisco headquarters into a homeless shelter “since no one shows up anyway”.

Which left everyone very confused…
It did, and then there was the bombshell move on 14 April when Musk offered to buy the whole company. His proposal was that he would buy out stockholders in a cash deal valued at US$43 billion and take Twitter private.

But Twitter’s board said no?
They said more than no – they adopted a ‘poison pill’ to ward off Musk. What that means is shareholders could purchase shares at a discount if any shareholder exceeds 15% ownership, which would effectively dilute the billionaire’s stake.

So what did Musk do next?
On 19 April, he put his financing plan to regulators, which involved US$25.5 billion in debt and $21 billion in equity financing against his Tesla shareholding. Musk then had a meeting with the Twitter board who unanimously approved the sale on 25 April. It was valued at about $US44 billion (A$66 billion) and the company will be made private.

What does it mean for Twitter to be off the share market?
So when a company is public, it’s governed by all sorts of disclosure rules so investors – whether they’re buying one share of millions – have enough information to make an informed decision.

What about a private company?
Those rules don’t apply. The benefit of public ownership is they get access to capital from a much wider pool of investors, and when it’s private, it’s a much smaller group.

So what’s Musk’s vision for Twitter?
He says Twitter should be a forum for open, free debate and wants less content regulation and more debate “within the boundaries of the law”. He says that “for Twitter to deserve public trust, it must be politically neutral, which effectively means upsetting the far right and the far left equally”.

What about the financials?
Musk says Twitter has “tremendous potential” which he wants to unlock. We’re not sure yet how he intends to run it, but moving away from the ad model is something that’s got the big blue tick from former CEO Jack Dorsey.

What could an alternative revenue raiser be?
There’s a suggestion that there could be a subscription model where superusers pay to get extra features – but the transaction isn’t expected to close for 3 to 6 months so it’s a big watch this space.

And during that time there are sure to be more twists and turns…
That’s a pretty safe bet..

Squiz recommends:

Profile on Aussie Tesla chair Robyn Denholm Australian Financial Review

Live updates on Musk’s Twitter acquisitionThe New York Times

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