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New Business Stage For Social Media: Fantasy

Michael Hedges July 11, 2022 Follow on Twitter

Digital technology investors began pulling the escape-hatch levers this spring. This was particularly evident with publicly-traded markets, which have always received inordinate attention. From well-heeled fund managers to day traders company shares were being dumped for gold and real estate. Some - but not all - discretionary consumer-facing businesses have been battered. This is more than a cycle, said many financial market observers.

nothing is realColorful, serial tech investor Elon Musk this past week effectively backed-out of the agreed takeover of social media platform company Twitter. Nobody was particularly surprised. In May - just two months ago - he agreed to pay Twitter shareholders US$44 billion for the company. He had already acquired a small stake and now wanted it all. To make that happen - in true post-modern form - he, his lawyers and accountants would be leveraging his Tesla electric vehicle company holdings. As every banker knows, nobody pays real money for anything. Mr. Musk is widely touted as the world’s richest person, estimated by Bloomberg last November at US$340 billion. Alas, last month that had dropped to US$197 billion, reported Insider (July 9).

The stated reason for terminating the agreement, according to Mr. Musk, is the failure of Twitter executives to disclose the “real” number of spam bots and fake accounts on the platform, a “material breach of agreement.” Financial observers suggest the steep fall in the Tesla share price, not to forget tech stocks generally, spooked Mr. Musk. Completing the Twitter takeover might require dipping into his liquid assets. “The hubris of the meteorically risen.”

Twitter’s board of directors shrugged: We’ll see you in court. “We are committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement,” wrote chairperson Bret Taylor, quoted by Deadline (July 8). Twitter shareholders, make no mistake, want their US$44 billion. While a court case could drag on for years, those well-heeled investors have patience. Whether Twitter survives or not is immaterial.

During his brief infatuation phase, Mr. Musk suggested several course changes for Twitter. He proposed an “edit” button, which Twitter engineers implemented. After his suggestion, it appears the 280 character posting limit is being phased out. He also vowed to “defeat spam bots or die trying.” As a free speech absolutist he wanted to stop permanently banning almost anybody as that “undermines trust in Twitter as a town square where everyone can voice their opinion.” Along the same lines, he wanted to roll-back content moderation.

Social media platforms, generally, are struggling to weather the maturity stage in the business cycle. For all the most obvious reasons, investors and shareholders want the growth stage to last if not forever at least until they can cash out. The maturity stage means actually running the business, day after day after day. The social media growth stage effectively ended with a flood of new, more targeted entrants like TikTok and pressure, public and regulatory, to quell the storm of hate speech and misinformation.

What opens, perhaps, is a business cycle detour. As the growth stage draws to a close - and before the expensive maturity stage kicks in - simply jump to the fantasy stage. It was never considered by Ted Levitt. Meta Platforms, owner of Facebook, is headed in that direction. Buy the special headset and go virtual. Believe in cryptocurrency. Fantasy lasts forever.

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