Business policy and strategy

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The strategic consequences of Elon Musk’s acquisition of Twitter.

Twitter is currently ranked among the top 20 social media platforms, with 436 million monthly active users as of 2022. What distinguishes Twitter from most other social media platforms is its emphasis on real-time information, events, and trends. The company currently has 7500 employees (as of 2021) and according to GoBankingRates, Twitter is worth $13.316 billion based on its revenue and profits from the last three years.

50-year-old entrepreneur and investor, Elon Musk, who is widely regarded as the world's wealthiest private individual has recently negotiated a deal to purchase the platform, the Tesla CEO has agreed to buy Twitter for $44 billion in a deal funded by $21 billion of his own money, a further $12.5 billion borrowed against his Tesla shareholding, and the remainder covered by bank loans. The estimated $1 billion in interest costs associated with the funding have fueled speculation that Musk will implement platform charges and cut costs in order to make the transaction financially viable. Musk has generated 90.8million followers on the platform over the years and took to twitter to express his intentions for the app, stating that he wants “To make Twitter better than ever by enhancing the product with new features, making the algorithms open source to increase trust, defeating spam bots and authenticating all humans.”

Musk made it clear that he's purchasing the platform because he cares about "Free Speech," not money. While this may be true, the company as it currently stands is a for-profit platform that hasn't been making much money and Twitter's largest issue as a business is that it is a free, ad-supported service with insufficient users to be appealing to advertisers. Twitter operates on the same business model as Google and Facebook, but it has far less reach than these platforms so advertisers are unlikely to support it as much.

While the entrepreneur has ambitious plans for the platform, are they realistic? Will he be able to make more money from users than from advertisers? In any case, despite being the world's wealthiest man, he still needs the app to be profitable enough to repay the loans he took from banks to make the purchase. In purchasing the company, Tesla's stock fell more than 12%, bringing its market valuation down to $906 billion from more than $1 trillion previously, a sudden decline the day after Musk and Twitter reached an agreement for him to take ownership of the company. Musk has committed billions of dollars in Tesla stock as collateral for his $44 billion acquisition of Twitter. If Tesla's value falls, Musk may be forced to sell some of his shares in order to meet his loan obligations, resulting in a downhill spiral in his net worth which has already declined from $270 billion to $240 billion.

The entrepreneur intends to make a number of proposed changes to the platform in order to increase its value and generate revenue, including:

Free Speech: According to an MIT study, inaccurate information spreads faster on Twitter than true news. Since then, the company has increased its measures to counter hate speech and increase consumer safety, including allowing users to flag misleading info. However, misinformation, media manipulation, and extremist views remain prevalent on the site, and it appears that more lackadaisical policies for content moderation could lead to more of the negative behaviour that Twitter has been attempting to eradicate for years. Furthermore, fewer safeguards around speech may be detrimental to Twitter's bottom line: advertisers may be less likely to pay for posts that contain racism, prejudice, or sexism.

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