What you can learn about your business model from Twitter (X) and Musk
Last year, I made a prediction that Elon Musk was going to do great things for Twitter’s valuation and horrible things for democracy.
Today, I’m wondering if I was precisely wrong on both points.
In this article, I want to:
Look at what Musk is doing to Twitter’s business model
Consider the implications for the product and users
Challenge you to think about how your business model impacts your customer’s behaviors
Musk’s Moves and My Misjudgements
Regarding Twitter's management, Musk has made mistakes: piling on debt, alienating users, altering the brand, spamming feeds, and shifting toward a subscription model from a tried-and-true advertiser model.
I admit that I had thought his Midas touch would extend to social media, but early results aren’t faring well for Iron Man.
On the other hand, I was quite a Cassandra on the implications for a Musk-Twitter democratic future. Again, the basic idea, which you can read here, is that any platform of this consequence should not be run by a single person and their idiosyncratic ideas of speech.
Yet, observing Musk transform Twitter (or X) makes me wonder if his business model shift might actually benefit democratic freedom in social media.
Why the Twitter Business Model Matters
The traditional model for social media has been to “give away” the content and sell advertisements against our eyeballs.
Then Musk sent everyone into a tizzy when he upended the sacred “blue checkmark” system, asking users to pay for “Twitter Blue” which validates the identities of users on the platform.
What the heck, Musk? We don’t pay for social media!
But let’s think about what the traditional business model actually does.
First, it’s not that we aren’t paying for content. It’s that we are the content. We aren’t getting a free product. We are the product.
A user produces a cat video and the social media platform sells ads against the people viewing the cat. With the notable exception of YouTube and TikTok, the producer of the content is not compensated directly by the platform, but instead strives for “influencer” status so they can hopefully be paid by the advertising brands directly.
So Musk has been trying to reverse this by asking users to pay to post (or more accurately, pay to post “verified” content).
He’s also making it so you have to pay to view the content above certain thresholds.
In the new Musk-Twitter you can view only 300-600 posts (depending on when you signed up) unless you pay for that blue checkmark by your name.
So here is a company who spent years courting advertisers with one of the most information-essential platforms on the planet which is now trying to move to a direct payment model and in the process is seeing its ad sales drop by 59%.
Again, this might all be awful for Twitter’s economic prospects, but it might be a good thing for information accuracy. Here is why:
As we have described in the current ad-based model, nobody pays directly to use or consume on the platform.
This means that a malevolent player seeking to sow discord and misinformation or undermine elections can do so without deep financial costs.
But a farm of disinformation trolls makes less sense at $8/user/month.
Of course, plenty of bad-faith actors trying to advance a personal agenda would happily pop the $8 / month to have a verified presence. But in order to consume their dribble, the user also needs to pay to read it (or at least read a lot of it).
Paying to post and view content creates stakes for both producers and consumers, curbing harmful posts.
Furthermore, if you disentangle the post from the advertising dollars, you minimize the incentive for outlandish and potentially harmful posts. Likewise, as a consumer who pays, I am pot-committed on receiving content of value.
While Musk continues to tinker with Twitter, Meta launched their competitive site, Threads, and saw millions jump in the pool in the first days of launch.
I’m old enough to remember Facebook letting misinformation run rampant on their platform with only a belated mea culpa from Zuck in Congress. Do we really want to let them run more of the world’s information?
As you can see from my bad take last year on Musk / Twitter, I should really get out of the prediction business.
What I do know is that the current social media business model is not built to promote truth. Maybe Musk is right and we need to go back to the old days of actually paying money for stuff we value.
What this means for the rest of us
So how does this relate to your business?
Put simply: business models matter. At Kasvaa, we help companies think through the evolution of their business model, but also the implications of the changes on buyer behavior.
Take software for example. The trend in the last 10 years has been to move from on-premise solutions with upfront costs to cloud-based, Software-as-a-Service (SaaS) offerings. VC markets love predictable revenue and legions of start-ups launched or converted their revenue model with the promise that they can lock in customers with low upfront investment, but keep the subscription revenue stable due to perceived switching costs.
By and large, this model has been a win for customers and providers alike.
However, it has also been applied in cases where it doesn’t make sense.
Subscriptions make sense if we receive a consistent value from the service across time and when the marginal cost of consumption is minimal. If I live in one area, I might subscribe to a gym. But if I constantly travel, the membership makes less sense. Similarly, Netflix works because it costs very little for me to watch the next marginal hour of content.
Pretty obvious, right?
Yet, with the SaaS fervor, I have seen companies adopt a subscription model with lumpy or seasonal value offerings. Offerings like accounting services are more lumpy and, therefore, may have a harder time justifying a subscription outside of tax filing time. Similarly, companies like Uber have struggled with subscription models because each marginal ride has significant fuel and personnel costs.
Or consider customer onboarding...Companies routinely offer a limited free trial that is set on some time-horizon (e.g. 30 days). However, in offering this free trial, we need to think about the time it takes for our customers to experience the value of our product. High churn will follow a company that arbitrarily sets a free trial when the customers haven’t had a chance to deploy the product effectively.
Instead, we should price-to-value like the messaging, productivity app Slack does. Slack charges when you send and archive a significant number of messages. But you are free to stay on the platform with minimal usage for as long as you like. This ensures that they match their extraction of value (payment) to the experience of value (business usage).
Twitter’s changes demonstrate how changing your business model can have a vast impact on the way customers experience your brand. In the same way, we need to think about how we charge our customers and how we can ensure that they receive the value that we can offer so they can remain loyal, ongoing, paid customers.
Questions on your business model? Let’s set a time to chat here.
Best,
Stephen
