Every day, 187 million people open Twitter for news, entertainment, and a social connection. It is the real-time global communications network that sci-fi novelists envisioned. It is also a catalyst for conspiracy theories, a forum for hate speech, and a surprisingly lousy business.
In this week’s issue of New York magazine (February 1, 2021), I make the case that Twitter’s toxicity and subpar financial results are one and the same problem, amenable to one and the same solution. Fixing Twitter starts at the top — replacing an absentee CEO — and from there, changing the company’s business model. The potential rewards are worth it, both economically and socially.
The Capitalist Case
Since its IPO in 2013, Twitter has underperformed the market, growing its share price at just two percent per year. For years, I’ve advocated for a change in Twitter’s business model for both the good of the commonwealth and benefit to shareholders (Disclosure: shareholder). The need for this change is greater than ever.
Donald Trump’s election — and his prolific use of the platform — smeared Vaseline over the lens of this chronic under-performance. The traffic and engagement that Trump brought to the platform (26,000 tweets and 1,000 tags per minute) helped to reverse the 63 percent downward slide in Twitter’s stock price since its public offering. Tellingly, when Twitter banned Trump’s account, the stock immediately fell, shaving $5 billion off the company’s market cap, before slowly regaining ground.
This one-term “fix” came at great cost: The platform has become what political philosopher Hannah Arendt described as a “temporary alliance between the elite and the mob.” Arendt was talking about the rise of totalitarianism, but she could have been talking about the attack on the Capitol on January 6. All of this — Twitter’s weak financial performance and its toxic content — is the result of a broken business model.
What Should Twitter Do? Own the Space It Occupies
Twitter has let toxic content run amok because doing so is in its interest: The company depends on the engagement it generates. Its advertising-driven model prioritizes time on the platform at all costs, and produces an algorithm that amplifies enragement and polarization. Anyone who has been on Twitter will recognize the compulsion to refresh the page just one more time and get that dopamine hit, hate-reading enemies and enjoying the glorious dunks on everyone else. The algorithm knows it, too: It learns from our every tap and dials up the doom.
Even if an ad-based model did not produce this kind of digital exhaust, it would still be destined to fail by Twitter’s insufficient scale. While the company’s reach is large compared to that of traditional media, it is dwarfed by that of Google and Facebook, which dominate digital advertising. Choking on the dust of a duopoly is a difficult position from which to build a business.
Twitter needs to move from an ad model to a subscription model, with subscription fees for accounts of a certain size. The platform would still be free for the majority of users, but accounts over 200K followers (or even 50K followers) should pay for the audience that Twitter provides them with. This would lead to better financial results because recurring revenue is reliable, profitable, and earns a higher multiple than transaction revenue.
A subscription model would also orient Twitter around its users (rather than its advertisers) and incentivize the company to improve its product. For example, it could provide creators with tools to capitalize on their influence, something an annual development budget of roughly 800 million has thus far failed to accomplish. As a result, other platforms have moved in, such as Substack and Clubhouse.
A payment system is another obvious innovation for Twitter. Recently, Clubhouse announced it would be adding payment processing, and TikTok said it had formed a partnership with Shopify that will eventually allow merchants to sell products directly through the app. Why hasn’t Twitter done this? For one thing, its CEO also happens to be the CEO of a payments company, Square, where roughly 90 percent of Jack Dorsey’s wealth resides. This fact highlights not only a distraction, but also a conflict of interest.
As it builds a business around its users, Twitter should acquire or create its own content. Both Spotify and Netflix’s stocks accelerated once they began investing in their own programming. Twitter is already a destination for news and entertainment content, and if it added its own vertical — high-quality political journalism, for example — it could establish itself as the first truly hybrid social platform, blending user-generated and exclusive material. The company has dipped its toe into these waters before: It aired NFL games in 2016 and pursued a broader array of partnerships with Disney in a 2018 deal. Unfortunately, as investors have come to expect from Twitter, these forays have gone nowhere.
The transition to a new model should not be done under Dorsey’s watch. He has repeatedly demonstrated his lack of engagement with Twitter — on the company’s most recent earnings call, he spoke just six percent of the words in the meeting. According to the New York Times, Dorsey oversaw Twitter’s response to the Capitol insurrection from a private island in French Polynesia frequented by celebrities escaping the paparazzi. Well, isn’t that nice? I wonder if he splits his time between two archipelagos as well as two companies?
Mr. Dorsey’s insistence on managing (or not) Twitter from far-flung retreats should alone make the case for his removal as CEO. I can’t believe I even have to say this: We should remove a part-time CEO.
Twitter’s management, enabled by legacy board members, has demonstrated an alarming disregard for the commonwealth, weak strategic thinking, and an inability to create a fraction of the shareholder value that is possible for the platform. Twitter’s financial weakness gives it a chance for redemption. It’s time.
For the full version of my argument for overhauling Twitter, see my article in New York magazine and watch the latest episode of the Prof G Show.
Life is so rich,
P.S. If you’d like to get really in depth with me on the frameworks and strategies that make today’s corporate giants successful, I’m holding my seventh Strategy Sprint, March 2 – 16. Sign up now. If you lost money on GME (pro-tip, when a billionaire or anonymous Reddit account tells you to “Hold the Line!” it means you are about to get a spear in the chest), or just don’t have the cabbage, you can apply for a scholarship.
News that Twitter is now offering global payments via Strike crypto wallet using the Bitcoin Lightning Network supports the idea of a Square and Twitter combination. Dorsey may or not have a master plan for Bitcoin but some compelling elements are starting to come together
$TWIT closed today at $77. Hope you all listen this wise man!
How is his location relevant? Zuckerberg spent most of the pandemic thus far on Kauai island in Hawaii, same time zone as Tahiti. Remote work means the location is irrelevant, only the time zone and time spent matters.
Additional Dorsey leader malfeasance: Incredible opportunity missed by acquiring and then killing Vine. Hello, TikTok.
Good column. But, rather than try to fix Twitter, pundits would just pivot it to suite their needs. As with FB, the owners will ALWAYS flow with the political wind that feeds ads. Best solution is what always seems to work, competition. More Twitters, let them segment to news, entertainment, snark, whatever. Following each variant would also be a great marketing tool…. what are people who use this form of social media do/want/vote/buy?
Twitter doesnt grow because it is an eco chamber. 10% of users make 90% of the tweets. Most of these users have too much time on their hands. Minority no. of users make too much noise which applifies or shrinks any constructive discussion. Twitter doesnt reflect the real world. It doesn’t capture real sentiments of people but instead applifies sentiments of handful of users.
I read your New York piece first, and unless I misread it you note in it, but not here, that you own $10,000,000 in twitter stock. Is that correct? If so, you are: a. an experienced and very wealthy investor; and b. not being straight here with your online readers. In fact, your aggressive and well connected attempts to move your stock shows a considerable stake in your presumably unbiased opinion (or so I had assumed), and probably a conflict of interest. In short, a no no for you, and a complete undermining of your opinions here for me!
While it is apparent that Scott has a large stake in twitter, I think it is important to remember we are all Stakeholders as well. Twitter affects our lives whether we use it or not. At the present moment our system lacks the institutions to represent most stakeholders. Everything is geared towards shareholders. For this reason as an owner of millions in twitter stock, Scott is leveraged quite differently from most. We live in a society where most people are motivated by the prospects of making a dollar. I do not think you can discount anyone’s opinion for this reason as we’re all doing it. The variables cancel out.
If anything, it makes Scott’s suggestions more poignant, as he clearly has a real stake in the matter.
This makes sense. What do the institutional investors tell you when you make this case? I remember you reporting that The New York Times did not pay attention to you at the time. Some people in the news business seem to ignore its upside. As education engineering replaces teaching in the 21st century, networks like NBCU will become as important to education as UCLA — an alma mater you share with my son and my wife — which will compete with SC — an alma mater of mine — in the content production business. New methods, better content, talent and time will produce entertaining interactive television programming that transforms the learning process. The future is comcastic.
No on will subscribe to this toxic pile of word turd. Twitter is a dead man walking. Twitter will soon join MySpace and Yahoo on the ash heaps of irrelevance lol
I can’t believe anybody bothers reading these comments as the print is so tiny a magnifying glass is indicated. Is this your idea, Prof. G, of good management?
You can increase the font size if you click command + on Mac (likely a similar command on Windows), it’s effectively zooming in
@Kim Thanks for the suggestion, most useful and works beautifully, thanks again.
TWTR exists to support users that have trouble with urge control. It was in the toilet before Trump started using it – It’s entertainment like all of the other sites influencers use including Trump and his braggadocio, AOC and her end-of-the-world jeremiads or maybe Maxine Waters telling people to harass Republicans. Think you’re expecting way too much from a WEBsite created by idiots for idiots in fantasy land. It serves as a simple pastime, just like me looking forward to what my “friends” had for dinner on FB pre-COVID. Besides you’ll get what you want soon enough – AOC wants to make sure that media sources are being responsible and needs to take a look at them for any mention that criticizes govt. Hear she wants to reward the good ones with an annual Winston Smith Memorial award. For godsakes, leave it alone!!! Don’t like it, don’t spend 10 minutes of your time viewing it and another 30 writing about. Free speech works like that – It offends people that don’t agree with the message.
I read the New York magazine version of this and found it to be a mostly compelling case. However, I do have one question about the idea that Twitter would need 15% of its users to pay $10 a month to completely replace its ad revenue. This sounds like a slam dunk, but my experience in running a subscription-supported publication is that a more common ratio of paid users to (active) registered non-paid users is around 5%. This holds true currently for our business and I’ve read others with experience in similar sub-supported content businesses also cite the 5% number. Twitter is not exactly like a subscription publication of course but I would expect that ratio to be even lower for a service like Twitter. Just something worth pondering. I wonder what their internal analysis, using their user engagement data, shows about the portion of users who would be likely to pay. I suspect the portion of all users Twitter management assumes is lower than your 15% figure. But, on the other hand, they would not need to replace all advertising revenue, as they could continue selling ads. And a tiered subscription pricing approach would likely be promising, charging celebs and others with huge followings many times that $10/month at the highest tier.
Scott’s analysis that used to be good has been replaced by a lot of very bubble thinking. Those are Twitter’s official numbers. I’ve worked in tech for almost 20 years and even in this group, very very very few people use twitter. Certain people live in the twitter bubble, especially some media types that lazily use it for stories. but twitter users are an incredibly small group. they tend to be outspoken and take it far more seriously than it is. reality is there are tons of fake accounts and twitter puts out metrics that I believe is misleading intentionally. what should matter are daily active users. anyway….google and you will see the pew data on this that twitter users skew younger and more liberal and thus live in that thought bubble. In short…there’s ZERO chance that anyone would pay to subscribe to Twitter. just a flat out absurdity. Scott seems to be in this thought bubble especially b/c of his connection with Kara Swisher and their views have become further left, more focused in this super wealthy, east coast liberal bubble they live in. Really resulting in poor analysis and not understanding the US or tech. I hope they can come back to their old selves but it unfortunately seems unlikely….
Excellent analysis. There are also more sophisticated ways for users to pay for the opportunity to send messages. We are suffering as a society for having allowed these platforms to pursue maximum audience at the expense of nearly all other considerations. People post, and re-post, garbage and face no consequences for the harm they do.
I joined Twitter in 2007 and used to be on it multiple times daily, for the last five years or so that has gone first from maybe once daily, then a few times a week, and now maybe once a month. I guess I’m not the only early adopter of the platform exhibiting that kind of use trend. Oh, and I’ve never experienced a dopamine hit by refreshing my Twitter feed either 😉
Scott I feel like for several years now there has been a demand for a social networking platform to use a subscription based model. Or at the very least provide a premium service to subscribers. I see this model used in more traditional media even though they have gone digital. We certainly expect to pay for TV and many of us prefer the premium version of Spotify. We identify that those media streams have content of a higher value than advertising alone can support. With this in mind it seems statistically obvious that Twitter and Facebook are loaded with this kind of valued content. Is big tech misreading the market or is our data really that valuable?
If a subscription based model would cut out most of the BOTS I would advocate for it. I have depended on Twitter for news from the ground. Especially when it pertains to the issues of Native tribes. Tribal elders and chair people are completely censored in the mainstream.
YES! Both corrections are long overdue: business model & CEO.
Scott: I listen to u avross channels. This theme is repeated enough now😬👍 Jack D must go!🙀
Serving as a platform for creators to run their various channels is really interesting- and they just acquired that Substack competitor. But they’ve been total shit at integrating bought companies.
Thoughts on Twitter acquiring Clubhouse? Seems like they are very compatible and could create something unique
Scott, just wanted to say thanks for the event last night with Josh Brown. You were awesome. I think you should write your next post emphasizing what you said during the event, regarding all of the billionaire a–holes who were telling small investors to “hold the line.” Shame on them all.