Threadzilla
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Audio Recording by George Hahn
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?
Bloat
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.
Domains
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?
Self-Inflicted
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.
Unraveling
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?
Downward Spiral
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.
Threat
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.
P.P.S. Want to know how you should be using generative AI at work? Check out our post, How Should Your Business Use Generative AI? and sign up for Generative AI Business Strategy on August 15.
Two thoughts. One: I still don’t get it. Since controlling rules in big corporations, the most accepted KPI for prosperity seems to be cost cutting – instead of business growth. I am not saying that keeping an eye on the cost side of your business wouldn’t make sense. But if you think that method to the very end, cost-cutting also cuts your ability to develop, change and grow (because cost-cutting also avoids risk!).
Second: I came across a report on sexual harassment in the metaverse, recently. And from where I stand, that is the most absurd development in the digital world, ever. Not only that we need to ask how deformed males (chromosomes) obviously are, it is high time to equip the digital space with some effective tools that help to keep these human errors at bay. I’d be interested if AI could help doing so. But I bet it will be canceled as soon as it doesn’t earn, but costs money. #my2cents
A simply amazing analysis
Scott: You’re interesting and NYC myopic at the same time. I check in and read your stuff from time to time. Stay objective. There’s good and bad on both sides. Later.
Great piece, but I have to disagree that “Threads early success had nothing to do with Threads.” I think the word “nothing” is an exaggeration. Certainly at least a small part of its success is its intuitive tweaks of the Twitter format and several other things. But I mostly agree with you.
I don’t know how one can argue on the one hand massive layoffs were a great business decision and then go on to say and that business is collapsing, but it’s nothing to do with the layoffs. I can see how an investor would want that narrative out there. I wonder how many sales and customer success folks left or were laid off and what impact that has had in ad revenue. What does Twitter’ business look like if they doubled down on sales and fulfillment instead of the opposite? It is we’ll known that Twitter is the least valuable ad platform. What if they fixed that with new products? Oh wait, they laid off all their product people.
Interesting and absorbing thoughts with the added bonus of your resisting your need to insert yourself into the middle of the fray. Too little emphasis on the disrupted lives of those poor Twitter folks ( current and former).
Your Warby Parker example is more fitting for the “Dunning-Kruger effect” subsection than the conversation on disrupters… Sure, it has gobbled up plenty of injections (and attention) from venture capitalists in the past decade and a half. But, it’s only projected to *maybe* post a profit in 2025, and only after adding 100’s of brick & mortar locations to its online offerings. A successful disrupter in my book would able to turn a profit on their new model in less time than, say, a newborn can get their first summer job flipping burgers at Wendy’s.
Oh look another Scott Galloway Elon prediction that will inevitably fail once again. How many years in a row have you predicted a Tesla collapse? Every year since 2018?
This is a great insight into what’s happening at the Musk and Meta. Can’t wait to see what Zuckerberg will do next.
This was a well written article.
It was informative, instructive and intelligent.
Now that we know the Professor is using Chat GPT to edit his thoughts … I am going to sign up for it. LoL. Jokes.
What an article! Your observation of the relative fraud-free rate of descent of Elon’s platform is very interesting. I’d love to hear your perspectives on how this affected his other businesses.
Cage match – fight, fight!
What makes anyone think that Zuckerberg/Meta will take content moderation, the spread of misinformation and age hating seriously? And that all the sudden he’ll grow up and think long term about the kind of company Meta is, and then do the work to build/rebuild a company with character? I’m not sure he’s ever demonstrated that he has that in him.
Sorry typo – age gating*
Observing how lack of those things was killing twitter, even before threads.
just a note about user respect – your text is clear and readable, thanks for that; your user comments are teeny tiny and barely readable, maybe a value analysis on the difference between the two and the approach that implies would be a good topic of discussion for your next team meeting
What did you said? I can’t read it
When IT infrastructure and architecture is done correctly (and it was by Twitter before Musk), it can take some time until the cracks start to appear. It’s similar to a car – if you don’t service it regularly, you can still drive it for a while, even years before problems start to occur. Unlike with the car, however, there are no 2 apps that are the same under the hood and there are no same fixes to the same problem.
Twitter started showing cracks here and there for quite some time but they never occurred as obvious as when Musk introduced content throttling (daily cap on number of tweets shown). Since it occurred at roughly the same time as Threads rollout, it made the most damage it could. If Musk hadn’t layed off such a huge portion of its employees, this never would have happened.
The CEOs that didmassive layoffs and that don’t get this will be wildly surprised when something similar starts happening to them. Yes, in the short run, you’ll get a higher profit. But there is a saying in software development – once you we finished building the app, it’s 20% done. The remaining 80% goes to maintenance. And while you can get away without it for some time, you’ll eventually end up crashing without it..
“There has never been a firm in the modern economy that’s fallen this far, this fast that has not been accused of fraud.”
Where is the data on this? I read this to find exactly how far Twitter has fallen but I did not find anything except anecdotal evidence.
Threads outlined just how toxic and ugly Twitter feels to POC, many women and LGTBQ people. There was literally a thread from a Twitter Blue member with tens of thousand of users in my FYP asking would you rather your kid be in the KKK or LGBTQ?
And seriously, what company wants to risk having their ad pop up next to that.
That’s the kind of stuff the ‘we love free speech Twitter’ crowd excited the site has become. Threads feels like Twitter used to be.
Galloway is dead on in that Twitter created an environment that opened the door for Meta of all companies to walk through it. After years of not being able to scale to get a foothold in this space, it was giftwrapped for him.
Your bias is showing on this one even more than usual. I wouldn’t count Elon out just yet.
Prof G, am a dedicated follow of your content and your books, but have to say that occasionally your excellent business analytics become heavily flavored by your political biases. In all your discussion of Twitter, FB, and “content moderation”, you never addressed the fact (yes, fact…undeniable and researched by award winning journalists, both previously Democrats) that FB was actively collaborating with the US govt and its agencies to censor truthful, accurate content because it differed from the desired govt / big pharma narrative. Even Zuck himself has now admitted in interviews that truthful content was censored. Ironic how those on the left shout at the top of their lungs about the absolute necessity of free speech….until someone says something counter to their views. Musk exposed massive infringement of our first amendment rights, and it seems odd that you don’t find that noteworthy.
100% this 👆👆👆So refreshing to hear some critical thinking
I don’t doubt that there may be some truth to what you’re saying. But would add that re the censorship examples you mention, they came at an extrordinary time in both public health (the pandemic) and politics. We saw numerous high-profile people willing to tell lies in order to downplay the danger of the virus and the safety/efficacy of the vacines. It was at a time when the Steve Bannon wing of the GOP espoused a strategy of flooding the zone with misinformation as a way of destroying an agreed-upon reality. I don’t love Zuckerberg, but the company faced some monstrous content moderation challenges at the time.
I gave up trying to argue with so called “liberals” (I say so called because they are the literal antithesis to liberalism, they are the definition of herd mentality and they represent the interests and ideas of white bourgeoisie that can never seem to gain enough power when they already control almost everything). It was really a sight to see them flock to defend the pharmaceutical companies reputation and a scientific “consensus” that never existed. And now they will just never forgive Musk not falling in line and reinstating personalities like Trump or Jordan Peterson on the platform as if he was hell bent on turning Twitter into a cesspool of hate and disinformation. That is just too funny. One thing eludes their control and all of a sudden they can hear the fascists coming back. Poor things.
As billionaires play, butting heads like animals, those people who are losing their jobs are human beings. Analysts call for higher unemployment because 3 percent inflation and 3.6 percent unemployment is just not tolerable to the undertaxed and overpaid new masters of the universe. Somehow the Fords, Rockefeller and others managed to get quite wealthy while raising employment and paying enormous taxes. I look forward to Musk and Zuck in the cage, or both of them in the ring with Tyson Fury.
I’m always amused that people seem to be concerned by content moderation on Twitter only now that the platform’s former clear mainstream bias has been for the most part tamed down. These people are really only just bourgeois liberals who are fuming because they cannot determine what is truth and what is not anymore. When people feel the need to say something like “we haven’t decided yet on what constitutes free speech” it only shows their profound class-based contempt for the concept of free speech itself. Underneath their high brow concerns, there is merely a wish they could still punish dissent.
Holmes, liberals aren’t the ones baffled by what is and isn’t the truth. This is why they can ID blatant disinformation and call for it to be represented as such. Liberals also have a basic grasp of civics, allowing them to understand that freedom of speech relates to the GOVERNMENT’S restriction on depriving someone of life, liberty or property because of things they say (outside of very narrow and well-defined exceptions). “Free speech” is an absolute canard when used to intimate that a privately owned platform is somehow obligated to permit and promote disinfo from Russian troll farms, racist and anti-Semitic claptrap from white nationalists and toxic twaddle from rapist sex traffickers.
Allowing your platform to become a home for that trash is a choice, one which the platform’s owners are free to make. Just as the platform’s users and advertisers can choose to employ free speech’s less remarked on but equally important sibling, free association, and leave said platform in absolute fucking droves.
You wrote: ” 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.” You must not be a Tesla owner. Speaking as an OG, I can tell you he may be a brilliant founder, but he’s a crappy manager. Now that he (finally) doesn’t have an electric-car monopoly, his company will shrink to a charger mfr, because he simply doesn’t know or care about after-sale customer service.
The massive layoffs in the tech sector, including those at Twitter, were a direct result of the dramatic increase in interest rates, plummeting VC valuations and retreat from the market. These factors caused the end of “free money” and an overall public market collapse from 16,000 on the Nasdaq in early January, 2021 to a low of nearly 10,000 in early 2023. These conditions decimated Silicon Valley, including the bankruptcy of SV bank, and led to the employment carnage. Musk may have had an impact but only modest in comparison,
I have never understood the Musk cult, he appears to be a hyper confident but incompetent nepo baby who has never really grown up.
His success appears to have been built on luck and other people’s work, like so many of the ultra wealthy. It does not take away from his influence but his incompetence and immaturity, likely will.
His financial situation does not appear to be based on anything more than the value of stock, whereas his debts are real, and increasing. How does he deal with both a crumbling financial position and sociopathic Pinocchio, Zuckerberg?
It’s likely only Meta survives this confrontation.
Anybody that trusts a Meta active user number thinks counting blue cars on 95 is a thing. The EU won’t let Threads in and China probably won’t either. The comment space has been tribalized into critical masslessness. Proving yet again that social media advertising is a turd that can’t be polished.
When writing about Elon, I think it’s important that we acknowledge his Aspergers as a factor in his personality and decision making (he admitted he has Aspergers in a 2015 Rolling Stone interview). During an interview with Walter Isaacson during Kara’s podcast, he also implied that Elon has autism but stopped short of confirming it due to his book coming out. But I don’t hear you and Kara mention it when you are surprised about his outbursts or poor judgement. Of course you are not doctors and it’s not your place to diagnose him, but there is validity to mentioning it. Although Musk appears capable of emotions, there is often more going on beneath the surface for autistic and neurodivergent people. Research shows that autistic people use psychologically exhausting coping strategies, such as “masking” or hiding their authentic self, which can worsen mental health and decision making. Musk’s mother talks about him as a “young genius”, but also a shy and awkward child without friends. Together, Musk has what psychologists call a “developmental history” of autistic characteristics and adverse experiences of not being accepted in childhood. With no guardrails as you mention, and as someone who clearly has no experience running a public platform like Twitter that is fomenting disinformation and conspiracy theories, he’s in a precarious place for himself and society.
I would have said Zuck was more Asbergery than Elon — the former seems to have trouble relating to humans while the latter is petty and gross in a way that is all too human — so this was an interesting perspective. It would be nice to live in a world where we weren’t all so affected by the syndromes, quirks and childhoods of a handful of manchildren but I guess we always have been and always will be.
Great read as always Scott! Spotted a quick typo: On the third line of “Downward Spiral”, “Businesswas sold” was probably intended to be read as “business was sold”.
>Threads got 110M users! Omg!! Elon is done!
This number is oft repeated by Elon haters but . . . Is 110M a lot? I mean, aren’t there 3B instagram users? So really only a small portion even made the jump.
You do Snark with Grace, Style & Wit. And sometimes that obscures the value of the underlying lesson. You gave us a Roadmap so that we could watch the Mano a Mano as it unfolds, and much will be offered in the way of lessons on how to operate in today’s tech environment. It will be both interesting and educational to watch how an environment in which there was essentially “Only One Option,” became – essentially overnight – a rather interesting competition.
Threads has two things going for it:
– Frictionless onboarding (log in via instagram profile and you’re done)
– Highly frictioned off-boarding (can’t delete threads account without deleting your Instagram – large % of threads users would never do this)
My hypothesis is the vast majority of the 110M that joined Threads did it to get a peek. That’s all. While accounts skyrocketed the real proof will be in active users over X time. To your point, no innovation on Threads, but it serves a need for a different persona than twitter can. Time will tell what that persona is, but “anti-Elon” is a good place to start.
Meta is losing young audiences on FB, that’s been known for years. This is nothing more than a push to keep them in the ecosystem and give them a diet-twitter. This will be a niche offering for content moderation junkies with a undeveloped frontal lobe – Who the hell trusts Meta to do this? How quickly we forget their past.
Now excuse me, I have a can of New Coke waiting for me in the fridge.
>The biggest threat to Threads is when we realize it’s owned by Meta.
Yeah, that’s pretty weird how people seem to have forgotten that.