The Homa Files

Good intentions, but what exactly is he buying … and what are chances for success?
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These are the questions that I’d usually pose to my MBA students when we were doing an M&A case in class.

Let’s apply them to Elon Musk’s bid for Twitter.

So far, most the reaction to Musk’s bid for Twitter has been at the philosophical / political level: Will his purchase open the town square for open information exchange … or, open the floodgates for existence-threatening “misinformation”.

I buy that Musk’s goal of open discourse is on the up-and-up, so I’m all for his acquisition.

That said, my questions are at more tactical level:

> What exactly is he buying?

> What are his chances of success if he gets “it”?

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On the first question, the simplistic answer is that he’d be buying control of  “an up and running communications platform”.

OK, but let’s dissect that a bit.

What are the key component parts?

1. A well recognized, valuable brand name?
2. An established base of subscribers and advertisers?
3. An in-place infrastructure of  hardware, software and people?

Which of the above offer enough enough value to justify a $43 billion outlay?

Let’s take them one at a time from a Musk perspective…

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Brand name

The Twitter name is well-recognized …  revered by some, detested by others … dated, fading as “old school” … formidable, but likely beatable

Bottom line: Brand value is equivocal at best.

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Subscribers and advertisers

> Subscriber base — is plateauing … reportedly, half of all accounts are bots …  largely politicos and woke, pro-censorship loyalists who are likely to defect in droves if Musk takes the reins.

Bottom line: The mix will change, but the base may be stagnant (or decline).

> Advertisers … many (most?) are likely to “go Disney” and run for the hills rather than risk being outted as inadequately woke … or worse than that, being taint-branded as supporting free speech.

Bottom line: Musk has already hinted that he would likely shelve the ad-based revenue model and adopt a subscription fee business model.

So, not much value if he follows through on paid subscriptions.

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Infrastructure

OK, so that leaves us with Twitter’s existing infrastructure of hardware, software and people.

Taking them one at a time…

> Hardware … No question, Twitter has in place the computer power and communications network to handle a vast worldwide volume of simultaneous transactions.

But, all of that is replicable with “new stuff” by a guy who has a track record of technology implementation with electric cars and space ships.

Musk could do it — probably for a lot less than $43 billion — but that would take time …. and, time is an undeniable valuable asset.

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> Software …  Twitter has the user interface, the transaction routings and the algorithms to manage the messaging.

That’s a plus, except that  the latter — the algorithms —  are commonly regarded as a substantial part “the problem”.

But, the algorithms are simply mechanisms for enforcing the desires and rules of the people who are managing and operating the “system”.

Of course, the algorithms can be changed.

So …

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> People … are the key asset that Musk would be buying … hundreds of cause-motivated managers and thousands of technically proficient, mission-driven drones.

Right now, all of the Twitterati are on the same page … sharing a common (albeit narrow and self-serving) understanding of truth and justice … and a zeal for technology-enforced compliance.

So the real question is whether Musk can win over the hearts & minds of the Twitter managers and workers to an “open forum” cause that is about 180 degrees from their current belief in “decided truth” and “restricted discourse”.

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I’m betting the under on that  question.

Musk is more likely to run into the same type of resistance that Trump ran into trying to redirect the Federal government.

The odds of a in-place management team and an entrenched  work force adopting a Musk supportive open forum philosophy are (IMHO) slim to none.

He’s more likely to be undermined by a management team that doesn’t buy into the Musk program … and a sprawling employee base that, at best, slow rolls any Musk initiatives … or, at worst, uses its technical dexterity to outright sabotage them.

Of course Musk could fire them all and replace them with employees loyal to his cause.

But, that gets us back to the core question: What is Elon buying?

Strikes me that he might be better off starting from scratch … except, then Twitter would still be alive and well … as a competitor.

Hmm … think about that for a second.

This entry was posted on April 21, 2022 at 7:45 am and is filed under Twitter - tweets. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.