The Twitter deal is all downside risk for Elon Musk

Elon Musk’s $44 billion acquisition of Twitter is expected to close tomorrow. (Please God, let it close tomorrow.) There are lots of very smart financial journalists who have things to say about this. Here in the peanut gallery, I want to talk about Musk’s image.

The fandom logic about Elon Musk: he’s the richest guy on Earth, therefore he must be a genius. But if the acquisition is the colossal and very public screwup some people are predicting, it threatens the most important thing to Musk’s brand: his reputation.

It is, first of all, not a very good buy. “No one thinks the company should be valued at $44 billion,” said Andrea Walne, a general partner at Manhattan Venture Partners in early October. She and other investors were trying to back out of the deal. (“Obviously, myself and other investors are obviously overpaying for Twitter right now,” Musk said in a Tesla earnings call.)

Twitter is an also-ran social network, one that made only $5 billion in revenue last year. It did not make a profit. But it’s had an outsized reach partly because of the active use of people such as Musk, who uses Twitter to connect to his fans, investors, and others. Heavy users include politicians and journalists, which means that Twitter influences public discourse. What Twitter does not do is make money.

Musk reportedly told investors he’ll double Twitter’s revenue in three years. He also told them that he plans to cut 75 percent of staff, according to The Washington Post. The numbers feel a little AOL-Time Warner — where executives cooked up $1 billion in savings and said the merged company would do $40 billion in revenue, neither of which worked out — but whatever, sure. Maybe that’s possible! Roelof Botha, PayPal mafioso and head of Sequoia Capital, seems to think so, and his job is being good at money.

Let’s say Botha’s right and Musk turns Twitter around and maybe turns it into X, the Everything App. He gets richer, and that’s nice, but it doesn’t matter much for his reputation. Dude already landed a rocket on an autonomous barge, you feel me? When the student who comes in first on every math test comes in first again, it’s not so much an accomplishment as it is the status quo.

On the other hand, if the student who comes in first on every math test publicly flunks, that’s notable.

And Musk has a serious headwind: Twitter’s heaviest users are ghosting the platform, Reuters reports. Those users are the most valuable, generating half of Twitter’s revenue. This isn’t Musk’s fault — it’s been going on since the pandemic started — but it is now his problem.

Musk’s reputation is worth real money. It’s been a large part of the success of Tesla and SpaceX — the Musk aura has protected both companies. And Musk has been savvier than other CEOs in using social media for marketing. Between his Twitter account and appearances on YouTubers’ channels and podcasts, he’s cultivated a Very Online fandom. In fact, there is a whole parallel media ecosystem devoted to positive news about Elon Musk: Whole Mars Catalog, for instance.

Musk’s fans say that he gives them hope. He talks about an exciting future, the kind that science fiction promised us. But buying Twitter, a terrestrial social media platform, is a significant decrease in ambition! The guy who promised to put people on Mars is going to spend his days dealing with content moderation issues on a website that less than 1 in 5 Americans use?

It gets worse. Under Musk’s leadership, Twitter may struggle to handle users’ expectations around speech and moderation. Musk has said a lot of things about what he’ll do, but the most notable has been that he plans for less content moderation. But here’s the thing: even users of conservative social media want content moderation, Garbage Day’s Ryan Broderick has noted; they just want different norms than they’re getting on Twitter and Facebook.

There’s also a larger shift happening in online communities. “Twitter has never been able to deal with the fact its users both hate using it and also hate each other,” Broderick writes. Like, we literally call it “the hellsite”! Some social media ventures such as TikTok and BeReal let people put up boundaries, but not Twitter — so an innocuous tweet can suddenly ignite a days-long dragging.

Building a car or a rocket has clearer and simpler goals than building a community. Metal doesn’t talk back or post footage of an active mass shooting, child sexual abuse material, hate speech, or hentai. 

This is still the fun part for Musk fans: they can imagine how Musk will handle moderation, and in their heads, he’ll do what they want. But Gen Xers should already know: reality bites. Unfortunately, the reality of moderation is that it’s messy, difficult, and miserable! Bad moderation choices — for whatever definition of “bad” you want — are immediately apparent to users and can chase them off. 

Bigger companies with more resources have struggled with content moderation; it’s hardly just a problem for Twitter. TikTok, for instance, has responded to online harassment by limiting the reach of videos made by people who are likely to get harassed, such as creators with disabilities. Separately from the way that the company formerly known as Facebook has treated the contractors who do the dirty work of removing the most horrific videos, it also lost a piece of its moderation policy for three years. Google’s text snippets have, at times, told users that Snoopy assassinated Abraham Lincoln. Apple nearly banned Instagram from its store because the Facebook-owned app did a bad job of removing human trafficking. This is to say nothing of Amazon selling suicide kits.

All this is without even touching politics or hate speech, both of which are considerably more difficult and prone to user blowback. Plus, Musk has spent hundreds of thousands of dollars cultivating politicians, especially in Texas. So a moderation choice around a politician’s account could be tricky. The sheer number of Musk’s companies means he has a large attack surface; vengeful politicos could take aim at his tax breaks or write legislation that kneecaps SpaceX or Tesla. Mark Zuckerberg has lots of things to worry about, but this isn’t one of them.

Users are only one set of stakeholders in the Twitter acquisition — and arguably the least important. There are the banks getting saddled with debt for the leveraged buyout because Musk’s shenanigans meant they couldn’t sell it as they usually do. (Musk has offered to help them sell the debt once the deal closes, Bloomberg reports. That’s good because, as William Cohan notes, banks holding that debt too long is risky for Musk.) There are the governments that have lots of feelings about social media and which have some leverage in interfering with Twitter because Musk has other businesses in those countries.

Musk’s reputation has been buoyed by Tesla, which Musk pulled from the jaws of bankruptcy more than once. Tesla’s EVs revolutionized the market, getting people who aren’t environmentalists excited about the cars. He’s been rewarded with a share price that’s blasted off, letting him pass fellow mogul Jeff Bezos to become the richest man on Earth. But if Tesla’s share price starts to seriously plummet, does Musk’s reputation go with it?

In this context, dealing with Twitter’s problems is not so much a headache as a traumatic brain injury, and it’s happening at a terrible time: Tesla is just starting to face competition. I am reliably informed by the football watchers on staff that Chevy is spending big on ads about its electric vehicles; during Musk’s time hosting Saturday Night Live, it felt like every EV maker on Earth advertised against him. 

I don’t think it’s necessarily the case that a company like Chevy dethrones Tesla on EVs. But big auto manufacturers have advantages: it’s easier to get your Chevy repaired, for instance. And while Tesla is ahead on EV chargers, I’m not sure how long that lead will last, particularly with the Biden administration funding the expansion of the charging networks. Then there’s the possibility of dealer sales, where new cars get sold below MSRP. And, you know, the used car market can be a nightmare for Tesla owners. These problems are fixable, but they do require sustained attention at a time when Musk has taken on a brand-new very noisy distraction.

To finance his Twitter acquisition, Musk has sold $15.3 billion of his Tesla shares: $8.4 billion in April and $6.9 billion (nice) in August. Musk doesn’t have founder control of Tesla — an attribute he shares with Steve Jobs and one that distinguishes him from the next crop of tech founders such as Zuckerberg. That may leave him vulnerable to activist investors if Tesla suffers further.

As for distractions, it’s perhaps time to discuss Musk’s outsized persona. There was a time when the thing most people knew about the guy was that he was the inspiration for Robert Downey Jr.’s portrayal of Tony Stark in the Marvel movies. Twitter let him speak to the faithful directly, so much so that Musk’s tweets can move not only Tesla stock but also cryptocurrency prices. But that’s also made him much more available to people who dislike him or are sick of hearing about him.

As Musk’s star has risen, he’s gotten more isolated. His popularity has made it “difficult to buy a coffee at the corner store, that’s for sure,” he said in a March interview. “I used to be able to just go to the store or walk down the street, and now it’s quite difficult to do that. It’s hard for me to go to a restaurant.” So Twitter, in addition to being a place where he floats his weird ideas, is an important part of his social life. He responds to randos, you know? If the changes Musk plans alienate users, he’s going to lose that.

Twitter will be private, so we won’t be able to tell how people feel about it just by glancing at its stock price. (Ironically, if people complain about Twitter on Twitter, that is probably fine?) Tesla won’t be. And if it falters, so, too, does Musk’s wealth. And then the question is: if Elon Musk isn’t so rich, will he still seem like a genius?