Last week, Twitter became MySpace: a social network void of innovation being slowly euthanized by Meta. In less than a week, Meta’s Threads registered 110 million users — equivalent to the combined population of Germany and Australia, and the most violent corporate disruption in platform history.
What can be learned?
The business strategy that marked 2023 is not leveraging AI or adopting hybrid work, but focusing on bloat. Specifically how to reduce it. Whether you’re a critic or a stan, Elon’s 80% reduction in the bird’s workforce is the most impactful business decision of the year. The Zuck may have coined the phrase “the year of efficiency,” but it was Elon who inspired the movement. The result is the Nasdaq’s best first half in four decades, fueled by the nitro and glycerin of AI hype and profits increasing thanks (mostly) to cost cutting.
A new generation of business leaders discovered that a firm with a 20% operating margin can see as big an increase in value by cutting costs $1 billion as it can by increasing revenue by $5 billion. For all the complaints from Musk critics about a buggy site “on the precipice of crashing,” he’s maintained a minimum viable product while shedding 4 in 5 employees in six months. The business is running better than it did for most of Twitter’s early years as the “fail whale.” Twitter has held up under the demands of a World Cup, U.S. elections, the collapse of the Valley’s Iron Bank, and a Russian mutiny. There’s also evidence that trolls, bots, and inappropriate content are more rampant. In sum, re content moderation, Twitter sucks. But … it always has.
As I stated at the beginning of the year, Elon didn’t fire 6,000 employees at Twitter, he (effectively) terminated over 300,000 workers across tech. Because every other tech CEO felt they could have the great taste of reduced expenses while avoiding the calories of collapsing revenue. And here’s the rub — and what is so insane about the year at Twitter — the decline in revenue is correlated to its reduction in workforce, but not caused by it. Under adult management, the company could have transitioned from break-even to a tech business with enviable operating margins.
Guardrails and Allies
Elon fired people for arbitrary reasons or no reason at all. He was insolent, even cruel — accusing workers of sex crimes and refusing to pay contractually owed severance. He’s also refused to pay vendors, including the owner of Twitter’s office space and its cloud providers. He’s suing the law firm the company used to force him to honor his contractual obligation to close on the acquisition. And advertisers are still waiting for a cogent explanation of “free speech” according to Elon.
So what happened? The Dunning-Kruger effect is a cognitive human bias that causes us to overestimate our abilities in domains where we have low competence. This acutely affects some in the venture capital and tech communities. Enabled by their public profiles, wealth, and tech bro enablers, these folks shapeshift from one week to the next into geopolitical experts and constitutional law scholars and computer scientists. The less they know about a topic, the more confident their tone. We’re all enablers re Elon. If Zuckerberg announced he was building an EV or multistage rocket, wouldn’t we question the industrial logic?
The misperception about disruption is that it’s a function of innovation or excellence. In fact, disruption is driven by stasis and the incompetence of incumbents. Threads is void of any real product innovation — it’s a stripped-down Twitter clone pushed into the market by a team not much larger than the Prof G Media team. (Memo to self: Challenge team to grow newsletter to 110 million subscribers in a week.) And that’s the thing: Threads’ early success has nothing to do with Threads. It’s a function of the dysfunction at Twitter (aka Elon) and Meta’s monopoly footprint.
Netflix ate cable’s lunch as cable was a fat and happy regulated monopoly, charging hundreds of dollars for several great shows and hundreds of not great shows meant to distract you from paying hundreds of dollars for … several shows. Warby Parker disrupted an industry, sunglasses, dominated by one company, Luxottica, that was also bloated. Market dominance is its own defense, especially in social media, where network effects make existing networks impervious to startups. But Musk’s behavior lowered the drawbridge, and Zuckerberg walked through it without any resistance. Twitter’s implosion is historic. There has never been a firm in the modern economy that’s fallen this far, this fast that has not been accused of fraud.
We’re not only witnessing the unraveling of a firm, but a person. I have written about mens’ need for guardrails. These can take several forms — an office, a girlfriend, regulation, a board. The erosion of Musk’s guardrails as money and sycophants melt whatever better judgment or grace he had has resulted in a reputation experiencing the same trajectory as Twitter’s revenue. If Elon had never downloaded the micro-blogging app he’d be much wealthier and universally revered for his formidable accomplishments. Instead, he’s set a land speed record for hero to villain.
To be clear, Twitter will not go away. Elon remains the wealthiest man in the world and can fund Twitter’s operations, and the interest on its debt, for years if not decades. There’s ample Elon stans and a sizable cohort who don’t care about any of this and have communities or identities on Twitter that work for them. Meanwhile, Threads faces many of the same challenges as Twitter: How do you balance openness and diversity of views with standards of decency while generating sustainable cash flow? It’s a riddle few, if any, firms have solved. LinkedIn? Reddit?
History says the nose of this jet will be difficult to pull up. In 2008, MySpace was one of the most trafficked websites in the U.S., with 115 million active users, generating $800 million in revenue in a year. Then Facebook surpassed its user count and the business was sold for $35 million to Justin Timberlake. Friendster also had 115 million users at its peak in 2008. There’s a learning here: Social media apps do well until Mark Zuckerberg kills them.
Meta’s Meta Opportunity
There’s a bright side to this. If Threads is the new Twitter, there’s an opportunity for Meta to establish itself as the new Meta. A Meta that takes content moderation, the spread of misinformation, and age-gating seriously. That sees its users as more than just data corpses for organ harvesting. There’s an opportunity for Zuck to step back and think about the long term, the direction he wants the business to head. If Meta gains significant market power in another segment of the social industry, government scrutiny will be intense — Threads hasn’t launched in the EU, because Meta hasn’t sorted how to get the Instagram/Threads coupling through the EU’s regulatory system. The Threads/Twitter saga is another proof point for the FTC and DOJ. The biggest threat to Threads is when we realize it’s owned by Meta.
A few weeks ago, Musk challenged Zuckerberg to trial by combat. This is proof that being in your thirties, or even your fifties, and enormously blessed is still no guarantee that your testicles have descended. However, in the cage match proposed by Musk, thus far, the Zuck is kicking the shit out of Elon. I’m rooting for the fists.
Life is so rich,
P.S. This week on the Prof G Pod, I spoke with Mo Gawdat, former Chief Business Officer of Google [X]. We discussed the need to control our response to AI and the four major threats he’s identified — listen here.