Digital Transformation Ad Spend Adtech

Should brands be worried about Elon Musk’s proposal for an ad-free Twitter?

Author

By Chris Sutcliffe | Senior reporter

April 11, 2022 | 9 min read

Update: Multiple outlets are reporting that Elon Musk is close to securing a deal to buy Twitter outright, after a weekend of frenzied activity. There has yet to be an official response from either Twitter or Musk, but it is widely expected that the social media company will accept the billionaire's $43bn offer.

brett jordan

Elon Musk has declined to join the Twitter board, raising questions about its future ownership structure / Brett Jordan

Original story: Elon Musk has declined a role on the board of Twitter, opening the door for the billionaire to take ownership of more of the social platform. He then went on to publicly share his musings for an advertising-free Twitter. But how much influence can he wield in shaping a new direction for the platform?

Twitter’s CEO Parag Agarwal announced today (Monday, April 11) that Elon Musk had declined the opportunity to join its board, mere days after stating the opposite. The move to invite Musk to the board was widely seen as an attempt from Twitter to prevent the billionaire from buying up more than 15% of the company.

Now, however, that option appears to be back on the table, raising questions about the extent to which Musk’s plans for the company will be implemented regardless of Twitter’s pre-existing strategies.

Responses to the news included skepticism about the extent to which this is a plan to boost the stock of Twitter through Musk’s performative tweeting. He has previously employed this tactic with the cryptocurrency dogecoin and even with Twitter itself.

Others – including Musk himself, according to his likes – seem to suggest that the Twitter board’s attempts to curb the attention-seeking billionaire’s proclivities ran counter to his stated aims for the company. Musk’s initial interest in Twitter came to a head last month when he began tweeting that the social media platform needed to change for nebulous ‘free speech’-related reasons.

Social media consultant and industry analyst Matt Navarra says: “Right now, it’s incredibly hard to predict how much influence Elon Musk has – or will have – in the short and longer term. He has declined to join the board, which leads many to suspect he is keeping his options open in regards to increasing the size of his shareholding in the future. This will be concerning for Twitter and anyone who sees Elon’s moves as a threat, rather than an opportunity.

“Twitter has launched a significant number of privacy and safety controls for users in recent years. The platform has also built out more comprehensive content moderation policies to tackle growing concerns about the spread of misinformation and online harassment. Elon says he’s a free speech absolutist. It’s only a matter of time before this clash of ideologies and visions for the platform becomes problematic and boils over.

“Until there’s a clearer picture of exactly how much sway Elon’s multi-billion-dollar investment gives him, those nervous about his role in the company will remain anxious. And that’s probably part of the fun for Elon Musk and exactly what he wants.”

Advertising in his sights

Musk’s hinted-at changes to Twitter functionality would appear to fly in the face of much of what the social platform has sought to accomplish over the past few years, both commercially and culturally.

It has been praised for its quick response to disinformation around the war in Ukraine, for instance, and its labelling of automated and state-affiliated accounts falls in line with that of platforms including YouTube and Facebook. Advertisers have welcomed the changes aimed at making the platform a brand-safe space.

So it is unclear the extent to which Musk’s interest in curbing moderation on Twitter in the name of free speech would impact Twitter’s commercial interests.

In its latest results, it shared that its total ad engagements decreased 12% year-on-year, but its cost per engagement (CPE) increased 39%. The net loss for the full year amounted to $221m, which the company ascribes to higher-than-average costs and the lingering impacts of Covid upon spending. Despite that, ad sales rose 22% overall in the fourth quarter.

Musk has instead tabled a focus on ad-free subscriptions, stating: “Price should probably be ~$2/month, but paid 12 months up front & account doesn’t get checkmark for 60 days (watch for credit card chargebacks) & suspended with no refund if used for scam/spam.

“And no ads. The power of corporations to dictate policy is greatly enhanced if Twitter depends on advertising money to survive.”

Anthony Macro, head of display, video and social at Croud, says: “If Twitter introduced an ad-free subscription model, the impact on advertising cost would be primarily on inventory availability, impacting cost-per-engagement via increased CPMs. It’s hard to see how this wouldn’t drive advertisers away from the platform, but the hope would be that this loss in advertising revenue would be made up (and exceeded) by a smart pricing model with features that encouraged a good percentage of their active users to convert.

Despite Musk’s increased stake in Twitter, it remains a private company and is therefore within its rights to impose certain limits on its platform. Previous Twitter CEOs have obviously seen the importance of this – as have their counterparts at Meta, Snap and TikTok. While this can be perceived as an attack on ‘free speech’, it is primarily a business decision and if efforts were put in place to roll back moderation it could have a negative impact on both active users’ and advertisers’ willingness to be present on the platform, and thus the value of Musk’s shares.“

While it cramps a lot of Twitter’s partnerships and investments in improving the value of its ads, it does line up with some of the social platform’s focus on direct payments. In addition to experimenting with allowing users to tip or donate to other users directly, its 2021 acquisition of newsletter platform Revue was in service of developing new revenue sources for Twitter users.

Navarra elaborates: “A paid ad-free option for social media platforms like Facebook and Twitter has been proposed many times in the past. However, adding such an option brings a new set of problems.

“For example, the users who are most likely to pay an ad-free premium are often the most affluent and tend to generate the greatest amount of revenue for social networks. They are the high-spending user group advertisers want to reach the most. Also, to offer such an option, it’s likely Twitter would need to invest significant amounts of its resources to reconfigure its tech stack in order to switch off ads and data collection for a limited group of users paying to remove ads from their feeds.

“Unless Twitter can figure out a revenue model less dependent on advertising income, an ad-free premium option could become highly disruptive. This is a challenge pretty much all social networks have wrestled with in recent years. And, as yet, not one of them has found a solution to.“

Musk’s strategy of throwing spanners into the works makes it hard to predict how the whole situation will shake out. The reality, however, is that moving fast and breaking things seems to be anathema to Twitter’s slow, incremental progress towards sustainability over the past few years.

Digital Transformation Ad Spend Adtech

More from Digital Transformation

View all

Trending

Industry insights

View all
Add your own content +