Musk Purchased Twitter, What Now?

Corporations acquire companies for a variety of motives which often affect the success of a merger. A merger can increase the value of a corporation by spreading the fixed cost of production over a larger output or by spreading the cost of expertise over a wider range of employees. Alternatively, successful mergers may align supply chains by integrating supply, manufacturing, and sales to lower costs of production. Mergers can even be effective disciplinary tools when they are used to replace bad managers.

Some acquisitions do not create value, but instead shift value from stakeholders to shareholders. When companies buy competing businesses and push out competitors, they can then institute monopolistic pricing. This shifts value from consumers to shareholders by raising costs for consumers and passing the profits on to company shareholders. Conversely, inefficient, unproductive mergers shrink company value when there are overconfident evaluations of corporate synergies or when companies seek to build name recognition and brand awareness but sacrifice value through careless empire building.

Elon Musk claims his recent acquisition of Twitter “help[s] humanity. While this is a noble goal, it is a very vague one. Musk argues the acquisition creates a forum for people to freely speak their minds. He clarified that Twitter would not become a free-for-all unfiltered environment, and that Twitter must “adhere to the laws of the land.” Despite these assurances, Twitter’s advertising clientele remains unconvinced. While social media sites like Facebook have rebounded from advertising boycotts, Twitter faces an uncertain future as companies may raise concerns that their ads would be shown alongside objectionable content.

Twitter’s advertising quagmire is not their only problem. Companies are questioning the validity of Twitter “verification,” which can now be purchased by any Twitter user willing to pay $7.99 a month. This defeats the purpose of Twitter verification: signaling the legitimacy of the account owner’s identity. Corporate spoof accounts cause confusion and chaos, demonstrated by one account impersonating the pharmaceutical firm Eli Lilly & Co. that announced that insulin would be free. In addition, fake politician accounts have flared prejudice and tension with inflammatory tweets, like a spoof account of George W. Bush tweeting an attack on Iraqis.

Despite Musk’s promise that acquiring Twitter was not about the money, he cannot ignore the reality of running a social media empire, which entails hefty monetary expenditures. Musk claims to be working tirelessly to balance the needs of his existing ventures, SpaceEx and Tesla, with his new venture in Twitter. This is critical because Musk intends to keep many of his employees as shareholders, giving him his own set of fiduciary duties. At this point, it is unclear what direction Musk plans to take the site, and such uncertainty could have been avoided with a clear cut strategy from the acquisition’s outset.

While the future of Twitter remains uncertain, Musk has indicated his plan to have someone else run the company. It is unlikely Twitter will be realized as the paradigmatic public forum Musk hoped it would be. The reality is that the company will need to have enough stability for advertisers to support its existence.