The Secret Reason behind Elon Musk's Twitter Deal

27 Apr 2022  Read 4431 Views

The man sent his car into space, because NASA wouldn’t authorise sending scientific payload with his Falcon Heavy rocket. He has starred in various TV shows and movies (his cameo in Iron Man 2 is my personal favourite). He comes pretty close to being a nearly accurate replica of Iron Man himself.

I’m talking about the Twitter-meme-slinging billionaire Elon Musk himself. From odd names for his offspring, to toying around crypto prices with his tweets, the 8th most popular Twitter user has almost fully utilised the micro-blogging platform to add to his notoriety across various forms of media. It seems, however, that he isn’t quite done with Twitter. After a tug of war with the platform’s management, he has decided to buy the entire company for a whopping $44 billion, increasing his stake from just 9.2% to wholly owning it.

So the obvious question is, why did Musk, an avid Twitter user, want to change his position from consumer to owner? Does he mean to purchase the company just because he can, and turn it into his playground of opinions? What reasons has he given, and what are the reasons that we think are behind him going through with this decision?

Let’s find out.

Why is Elon Musk buying Twitter?

Elon is a strong advocate for free speech if one were to believe his tweets. Given his support of the notion of free speech, he has sometimes even shown his disapproval of Twitter’s content guidelines. According to Musk, to further shed light on the subject, Twitter is a de-facto Town Square, and the current state of Twitter’s moderation of content harms the spread of information on the platform.

 

So, is that it? Is Musk buying Twitter to liberalise the content available on the platform?

While I believe that this might be a reason for the acquisition, I do also think that it is not the only one. Here are reasons why I think there might be more to this multi-billion dollar move than meets the eye.

Crypto Games:

Musk has been seen taking an active interest in cryptocurrencies. As a result of this interest, his followers on Twitter have also taken a liking to the subject. So much so, that Musk’s tweets or investment habits have had monumental effects on the prices of various cryptocurrencies. This price movement caused by herd mentality following a single man has been named the “Musk Effect”.

Here are a few instances of the “Musk Effect” through time.

  • On 8th February 2021, through an SEC declaration, it was announced that Tesla had invested in Bitcoin worth $1.5 billion. As a result of this announcement, Bitcoin prices went from ~$38,329 to ~$48,162 in just one day.

  • On March 2021, Musk tweeted that his company Tesla would start accepting the cryptocurrency Bitcoin as a mode of payment to purchase the electric vehicles manufactured by the company.

This tweet caused the crypto’s prices to skyrocket to an all-time high of $64,000.

However, on May of the same year, the arrangement was scrapped, and Bitcoin would not be accepted as a method of payment to buy Tesla cars. Citing the extreme power draw caused by mining Bitcoin, Musk declared that they would start accepting the crypto again once its creation became more environmentally sustainable.

The non-acceptance of Bitcoin by the EV giant caused its prices to fall by around 10%.

As noticed by many, these price fluctuations cause concern regarding the power that Musk holds on the crypto market and how he could use the amassed strength of his followers to possibly gain from manipulating the market. Add to this the fact that the total control of the platform would be concentrated in the hands of one user of the platform, and the bigger picture starts to take a suspicious tint.

Free Marketing & Advertising Platform:

Elon Musk’s 83 million followers would follow the man into battle; such is the strength of the fandom that the Boring Company’s creator boasts. How else would one explain the meteoric sale of The Boring Company’s “Not-a-Flamethrower”? The $500 “toy” (Yeah, right, like I’d give that to a kid. That’s the recipe for arson, or lost eyebrows at least!) by the company sold out 20,000 units in a brief period of only 5 days.

Tesla also released the Cyberwhistle, a merchandise whistle sold as a marketing tool for the Cybertruck. The total batch of the $50 medical grade stainless steel whistle is unknown, but the website showed that the fancy whistle had gone out of stock in the brief period of just above an hour.

This goes to show that when Musk speaks, the people follow. The billionaire engineer’s notoriety has essentially turned his Twitter account into a free marketing platform.

Recently, the ex-president of the USA Donald Trump’s Twitter handle, was suspended by the website due to certain controversies that do not need to be delved into. The key takeaway is that Twitter has some heavy content moderation rules and does not take well to controversies. Musk is no stranger to controversies, and getting his account possibly suspended might be a risk he is trying to avoid by gaining control of the platform. (Free speech 😉)

Twitter Responds

Although the deal has now gone through, Twitter wasn’t always very favourable of Musk’s acquisition of the platform. Initially, Musk held around 9.2% of the company’s shares, making him one of the largest individual shareholders of the company. But Musk wanted to strengthen his position in the company and wanted to increase his shareholding further. This could mean a hostile takeover of the micro-blogging platform.

As a defence against this takeover, Twitter put into effect a strategy known as the “poison pill”. When this strategy is put in play, existing shareholders (except the party attempting the takeover) can buy new shares of the company at a significant discount. This strategy is triggered when a certain shareholding threshold is reached or breached by a party (called the acquirer) attempting to take over a company.

Whenever newer shares are available at a discount, people find said stock lucrative and buy it,diluting the acquirer’s stake in the company. Whenever the acquirer buys more shares, the poison-pill retriggers. As a result, the takeover turns more and more costly for the acquirer.

This strategy has such a grim name because in applying it, the company itself suffers from the effects of share dilution, all for trying to protect itself from a takeover.

Of course, Musk came to the field ready to play. To circumvent the poison pill, instead of acquiring a controlling/majority stake through the purchase of shares in the open market, Musk decided to purchase the entirety of Twitter’s shareholding through a tender offer.

The acquirer offers to buy all the issued shares from the existing shareholders at a fixed price in a tender offer. The price set in Twitter’s case is ~$54 per share, making the acquisition be worth $44 billion. This means that the shareholders will be paid $54 for each share of the company held by them.

Twitter 2.0: Our expectations

If we are to believe Elon Musk’s penchant for free speech, here are a few things that we can expect from a fully Musk-owned Twitter, as well as some of the promises made by Mr Tesla regarding changes he would like to bring to the platform.

  • Tweet Edits: Allowing tweets to be edited after publishing has been a long-running argument. While the company's management did mention the feature to be in the works, we are yet to see it implemented.

The argument against this feature has been the possibility of a tweet going viral or gaining popularity and the creator of the tweet changing its content so that it could hurt the audience or the public at large.

The simple solution (maybe too simple to be true), in my opinion, to this problem would be publicly visible edit history where people can see every change made to the tweet.

  • Removal of Ads: This is a feature that is proposed by Musk. According to him, Twitter can sometimes become a bit overwhelmed with what he likes to call “propaganda”. To truly keep the platform and its content unbiased, control over ads is necessary.

It is not confirmed whether this feature will be implemented as the only source of revenue for the platform is through ads. A remedy to this problem can be a subscription model that allows users to pay some amount of money to remove ads. Free users still see ads.

  • End of Spam Bots: One of Twitter’s, along with multiple other social media platforms’ problems, is bot accounts. These accounts send out automated replies to content posted on the website, primarily to redirect the audience of the original content to their website/profile in an attempt to sell their own merchandise.

This defeats the purpose of the comments section. It is meant to allow the audience to interact with the content creator and respond, respond to the content, and provide input on their preferences.

Musk has tweeted that he will try to have the bots removed once this acquisition is complete or “will die trying”.

Closing the Deal

The acquisition has brought a lot of changes to the ecosystem of the platform. Certain significant users are leaving the platform due to their disagreements with Musk himself or other reasons. Free speech can work truly well in a democratic setting and taking the company private and the concentration of control in the hands of a few wealthy individuals seems a bit counterintuitive to the idea of free speech.

Twitter CEO Parag Agrawal has also mentioned that the platform is moving towards “uncertain times” as he is unsure of the direction the platform will take.

While all this seems quite bleak, one good thing that came from this whole ordeal were the memes. Whatever happens, whether in the past or present, will be memed by the internet. One of my personal favourites is this one (take it easy, neither my organisation nor I support the activity shown in the picture below, remember, we’re talking about free speech).

What do you think about the Elon Musk vs Twitter battle? Let us know in the comments below.

See you in the next article.

About the Author: Deb Preetendu Samaddar | 230 Post(s)

Deb is a keen learner and eager to learn about the finance world. With an increased proclivity towards tech and language, he aims to capitalise on his interests as a content writer at Finology.

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