Elon Musk took control of Twitter only two weeks ago, but the social network is already upside down, and not half a day goes by without a new twist. Arrived like a tornado, the billionaire first started by decimating the workforce before applying brutal management to the remaining employees.
The businessman wants to impose his vision of the social network in record time, even if it means trampling on the achievements and safeguards of Twitter. But this method brings first catastrophic results. Advertisers – behind 90% of Twitter’s turnover – are fleeing the social network, the deployment of features promoted by Musk has turned into a disaster, and to complete the picture, the company could risk new sanctions from the American regulator, the Federal Trade Commission (FTC). Result: for his first speech to all Twitter employees, Elon Musk said that bankruptcy ” is a possibility if the business does not generate more money.
The Musk method in action
As soon as the takeover entered into force, Elon Musk fired the main leaders of the social network, and put on the CEO hat himself. A cap that stacks above that of CEO of Tesla, CEO of SpaceX and co-founder of The Boring Company (transport) and Neuralink (technological devices). Three days later, he laid off more than half of Twitter’s workforce, or about 3,700 people. This massive departure plan was so rushed that in a tragicomic reversal, the social network finally had to call back a few dozen people who were fired because it lacked staff for essential functions. But the new leader was not done with his purge. Last weekend he brutally dismissed the more than 4,400 temporary employees of Twitter, who dealt in particular with moderation, office management and marketing.
For the survivors, Musk imposed a rough management. No more telework, widespread throughout Silicon Valley since the pandemic. No more taking care of meals by the company. His message is clear: the comfort of employees is no longer a priority, and they must be prepared to work regularly ” more than 80 hours per week or else leave. What if an engineer does expresses his displeasure publicly, he is also called upon to pack his boxes. In The Vergeemployees explain that the teams supported by Elon Musk work up to 20 hours a day, but that a whole part of the company finds itself, conversely, without guidelines, and without direction to address.
Elon Musk can afford this inflexible posture in part because of the recruitment freeze and the waves of layoffs that are hitting the tech world. After more than a decade where tech companies spent lavishly – both in terms of salaries and working conditions – to attract too rare talents, they are now forced to reduce the sails.
Following the numerous layoffs, observers fear a degradation of certain functionalities. For example, on Monday, Twitter’s texting system went down for several hours, preventing people who use two-factor authentication – a security measure – from logging into or changing their account. These types of incidents already occur in normal times, but they could happen more frequently, and penalize the quality of service for longer.
Bankruptcy as a scarecrow
It was therefore in this context of general chaos that the billionaire wrote to his new employees that ” without significant subscription revenue, there’s a chance Twitter won’t survive the looming economic downturn. » By this declaration, Musk thus creates a sense of urgency and poses a sword of Damocles: if the employees do not dedicate themselves body and soul to the company, it will collapse.
The billionaire presents himself as a hard worker, to better impose this rhythm on his employees. ” I work as hard as I can, morning to night, seven days a week”, he boasted again during a conference this weekend. Known for sleeping in his offices and even on the floor of his factories, Elon Musk imposes his extreme vision of work, punctuated with grotesque jokes on his Twitter account.
During his first weekend at the blue bird, the teams therefore deployed under his pressure the new Twitter Blue subscription – which allows you to obtain a certification badge, among other advantages, for 8 dollars per month. A few hours later, the feature was removed – due to the midterm elections two days later – then it was put back into production on Tuesday, before being retracted again on Friday – due to multiple abuses of fake accounts certified. In summary: instead of following the classic procedures for deploying features, which include a risk assessment phase, Elon Musk is going strong… and making a fool of himself. However, he assumes: notPlease note that Twitter is going to do a lot of stupid things in the coming months. We will keep what works and change what doesn’t. »
The limits of the Musk method
The problem with this unfiltered method is that Musk exposes himself to obvious risks, and unsurprisingly, Twitter Blue abuses increased during Twitter Blue’s short rollout. Pranksters have certified accounts in the name of brands – disastrous for advertisers – and published messages that have greatly displeased the principals concerned. The most prominent case of parody gone wrong is that of pharmaceutical giant Eli Lilly and Co. A fake account wrote: “ we are happy to announce that insulin is now free “, while the price of this product, necessary for the survival of people with diabetes, is debated in the United States. Following this tweet, the valuation of the group collapsed by… 16 billion dollars on the stock market! Following the group’s denial, the price rose but did not return to its previous level.
Despite direct pleas from the company, Twitter did not remove the post until six hours later, and other versions of the tweets had already appeared. Eli Lilly insisted on the damage caused to his reputation, and on the health risks that this kind of message represents. But the damage has been done, and according to the washington postthe company – which weighs 330 billion dollars in turnover – has cut its advertising budget on Twitter.
The other problem with Elon Musk’s chaotic method is that it ignores the data governance processes in place. One of the company’s lawyers therefore launched the alert. On the group’s internal Slack (instant messaging), the lawyer wrote: ” Elon has shown that his only priority for Twitter users is how to monetize themr”. In his message transcribed by The Verge, the lawyer is openly concerned that the billionaire does not respect the commitments made to the FTC in May. The US regulator then imposed a $150 million fine on Twitter for using personal information from its users to target its advertisements. However, if the company were to fail to meet its commitments, it would risk fines in the billions of dollars, warns the whistleblower. ” Alex Spiro (the current director of the legal department) said that Elon Musk is ready to take an immense level of risk with this company and its users, because ‘Elon sends rockets into space, he’s not afraid of the FTC‘” he wrote.
Shortly after the publication of this message, the head of the Privacy department Damien Kieran, the head of the Compliance department Marianne Fogarty, and the CISO (chief information systems security officer) Lea Kissner all resigned. Yoel Roth, promoted to head of Twitter’s moderation division after the takeover and widely relayed by Musk, also left his post. In other words, the people charged with making sure the company stays within the law are all gone… The FTC meanwhile said it ” was following recent Twitter developments with deep concern”. And to add, in indirect response to Elon Musk: “ no CEO or company is above the law, companies must follow our user consent policies. We have the tools to ensure compliance with the rules, and we intend to use them well. »
Low risk of bankruptcy…for now
With plummeting ad revenue (by Elon Musk’s own admission), a new revenue system that’s causing more problems than it solves, and the threat of fines, Twitter is in a bad place. But the main financial problem is elsewhere: to reach the end of the takeover, Elon Musk contracted – in the name of the company – 13 billion dollars in debt, borrowed from seven major Wall Street banks. A colossal sum compared to the annual turnover of the group, which was 5 billion dollars in 2021 and 3.7 billion dollars the previous year. This financial choice now pushes the company to repay more than a billion dollars a year, and justifies the threats of bankruptcy made by the new leader.
But before reaching this extreme, the social network has several safety notches. To begin with, the group has cash. In its latest financial results, released in June, Twitter reported its cash on hand at $2.68 billion, plus $3.4 billion in short-term investments (which can be quickly converted into cash). As explained Bloomberg, this jackpot of more than 7 billion dollars in total would allow him to collect the burden of debt contracted by Elon Musk in the short term, even if Twitter continues to report nothing. .
Then, Musk remains one of the richest men on Earth, and can activate funding levers if he wishes to maintain the financial health of the social network. He could inject cash himself, but that would mean selling even more shares of Tesla, with risks to its price stability. It could also rely on the handful of co-investors who supported its takeover project, and whose financing capacities should be up to par.
Banks are not betting on the future of Twitter
But Twitter’s core problem hasn’t changed. The company has never made significant profits, and even posted annual losses in 2020 and 2021. Elon Musk explained less than a week after taking power that the company was losing $ 4 million a day, and he reported shortly after that he observed a ” massive drop of turnover with the escape of certain advertisers.
Even if the billionaire and his co-investors let Twitter slip into bankruptcy before repaying their debt, then the social network could be taken over by the banks that lent it money. But proof that they do not want to find themselves in this situation, some of them have already sold part of the loan, for a price of up to 60 cents per dollar. In other words, they are already ready to lose 40% of their stake today to avoid being on board the ship in the event that it sinks.
It must be said that however experienced he may be, Elon Musk takes some strange economic decisions. For example, it has included in the benefits offered to Twitter Blue subscribers a halving of the volume of advertisements. Estimated cost for Twitter: $6 per month. However, as Apple and Google take their commission (respectively 27% and 15% of the price) on the transaction, the Blue subscription should at best be a zero-sum game, at worst cause the company to lose money. ..