Elon Musk is no longer the richest person on Earth and is the first person in history to have lost $200 billion in the last few months. Tesla’s value has plummeted, and it’s possible that Musk sold further Tesla shares to fund Twitter.
Read More: Financial Risks
Since it became a private firm, Twitter’s financial situation and technological state are not well understood by the general public. Just a few days after acquiring the business, Musk asserted that bankruptcy was a possibility. It was not surprising that Musk would raise the threat of bankruptcy given the enormous debt he went on to acquire Twitter, whose yearly loan payments will significantly exceed the yearly revenues even before advertisers left the site. In order to pay its interest, Twitter now requires $1 billion annually. This amount does not include the hundreds of millions or maybe billions of dollars that will need to be reinvested in order to rebuild the firm through new recruits. In an attempt to reduce Twitter’s expenses, Musk has repeatedly ordered layoffs, given less severance than he had previously said, ceased paying the rent at several Twitter locations, and closed a data center that was vital to the company’s redundancy and dependability. As Musk puts it, “Twitter isn’t secure yet, just not in the fast lane to bankruptcy,” despite all of these cost-cutting measures.
One of the two key concerns for Twitter’s future, as observed by technology and culture journalist Max Read in a recent email, is “How much money is Musk willing to burn on the project?”
Typically, a corporation filing for bankruptcy would not automatically shut down. However, after acquiring Twitter a few months ago, Elon Musk has let rid of almost half of the workforce and forced hundreds more to resign after giving the remaining employees a deadline to either become “extremely hardcore” or depart. As a result, Twitter was reduced to a meager 1,300 workers and included engineers on loan from his other businesses. It’s currently unknown how long the people who are left will be able to maintain the website and address any more significant issues that may arise.
If Musk files for bankruptcy, or even if he doesn’t and Twitter continues to lose money and users, it won’t be long until another business buys Twitter from Musk, which could be the platform’s last chance to survive. Regulators and other U.S. government officials need to be ready for this eventuality and be ready to move swiftly to address the acquisition’s anti-competition risks and stop any possible exploitation or abuse of users’ Twitter data.
Regulators need to get ready in case Twitter is acquired by a big internet corporation.
If Twitter finds itself in a situation where it needs to be acquired, it’s quite probable that only a small number of current, well-established digital companies—like Microsoft, Salesforce, or Google—would be able and willing to continue operating the site. These businesses could afford the service, handle the revenue loss from the site for years to come until it has been fortified, and manage the technical expertise to maintain the platform and then recruit to rebuild it. Several of the few suitors had previously thought about acquiring Twitter.
Regulators have to start planning now for the potential purchase of Twitter, given that it may happen soon if the company runs out of money or starts to fail rapidly. Whether Twitter is acquired through bankruptcy or a sale, it presents regulators with difficult questions, particularly now that they are starting to realize how risky acquisitions in the digital platform area can be:
Even though Elon Musk paid a premium—$44 billion—for Twitter, the social network on the platform is still a valuable resource, particularly if it can be restored to full functionality.
Given the quantity of employees that Twitter has already let go, stabilizing the website following a purchase and financing and hiring new personnel to rebuild it would probably need for a significant influx of current technical talent.
As Twitter was not very lucrative even before Elon bought it, the buyer would have to be prepared to lose money as the company rebuilt over a long period of time.
Scholars, legislators, and technologists have become increasingly aware in recent years of the risks associated with permitting big tech businesses to develop to positions of power that either eliminate competition or strengthen their own market domination. The “network effects” of social media sites like YouTube and Meta/Facebook play a major role in their market dominance. A platform has more appeal to other users when it has a high user base. Additionally, once it becomes extensively utilized, users are “locked in” since everyone else is using it, or everyone else in a certain audience, such college students or journalists. This provides the incumbent platform market strength and makes it more difficult for smaller or newer tech businesses to enter the market, particularly in the case of entities that have the social graph network effects that are discussed below.
A company with even more market dominance is likely to be produced by combining platforms that are already shielded by network effects. Now that it has access to a sizable new user base’s behavior and preferences, the acquirer may integrate and improve upon the knowledge it already has about its current user base. This should provide the acquirer with deeper understanding of both user groups, giving it the ability to influence more people’s online activity, and improve its ability to target users for advertisements. Furthermore, there won’t be any more rivalry between the two platforms.