Elon Musk’s Twitter Takeover: Lessons in Strategic Change

Central issue: Managing strategic change in a technology company with network effects.

Challenges:
- organizational and technical challenges. organizationally, they’ve had a lot of leadership turnover
through the years, and that’s been made it difficult to be consistent about the company. I think on the
technological front that you pointed out … so internally and publicly, people refer to this as the fail whale.
And so we have to keep in mind that the original base Twitter infrastructure, database and all those
systems actually date back to the early 2010s. And so they’re using actually quite even today, quite
antiquated and fragile infrastructure that doesn’t scale well as opposed to technologies that are built
cloud-native for today.

- risk aversion of employees and directors. for the employees, I think there’s two things driving the risk
aversion. The first is that the employees were inspired by the outsized role that Twitter had in the world at
large, and they didn’t want to take any chances breaking that system. They just wanted to keep it
functioning as is. And a core characteristic of, at least in the early and middle days of the company, of
what they believed made that work was the simplicity of the product and simplicity of the business, which
is to say that any innovation, any risk-taking are things that make the business less simple. And so, these
are things that we would naturally want to work against.
And then if we turn now to the board of directors, I think this is a really interesting situation where the
board, looking at it now, seems particularly risk-averse because they are very, very scared of public
backlash from any kinds of changes they can make to the business. And here’s one way to think about it,
Twitter is where investors go to complain about public companies. And so if you make a change that
impairs that experience, you’re going to get directly complained at on your own business, on your own
platform.

- compensation, I think an interesting thing to highlight is that Twitter used stock-based compensation, the
short form, which is SBC for many of their employees. And what this really means is compensating
people not with a direct salary, but with ownership in the firm. And as we discussed earlier, Twitter’s
value kept declining, which in practice meant that people had to be incentivized, be issued more stock,
which then continued to decline. So, more than other firms in tech industry, which granted do use stock-
based compensation to a large extent, Twitter relative to them used it quite a bit more. So employees
relied heavily on stock ownership for compensation at Twitter.
1. Discuss some of the lesson learned from the takeover of Twitter by Elon Musk.
1) Overpaid for Twitter?

2) I do think he has recognized progressively that he really needs to be conscious of the stakeholders. I
think in his early days he was much more antagonistic to advertisers, but once he took over, he
reached out to the advertisers saying, look, I want to keep you guys along, we’ll keep things safe
around here.

3) employee base. I mean that it has not been a comfortable place to be an employee for the last year or
so. And so he’s been very aggressive about imposing in terms of what he calls an extremely hardcore
culture, and that is unusual to how Twitter operates, that’s unusual also to how say Google operates,
but that is actually how he operates Tesla and SpaceX and that kind of very, very intense
environment. And it seems to work okay there. Although again, lots and lots of turnover in those
companies as well.

4) (Extra?) Many technology companies today, Twitter especially, but there’s others too, need to go
through serious strategic change in order to make those businesses work, both in terms of reigniting
growth or in terms of shifting to profitability. We want our students and our listeners here to look at
this Twitter situation as an opportunity to learn about the right and possibly wrong way of managing
strategic change. And so what we advise people to do is to start by looking forward at a vision. So
where do you want the company to go? And then to reason back to the things you want to preserve in
the business and the things you want to change and how quickly you want make those changes.

5) (Extra?) thinking about the speed of change. So one thing Elon Musk clearly highlighted, the moment
he took the company over and fired half the employees was he wants to move really fast. And I think
the initial reaction is “that was way too fast.” He could have taken longer. He potentially had to rehire
some of the people he’d let go. But I think the question we’d like students to think about is: what is
the right speed? We know that his resources are limited. We know he has a billion-dollar interest
payment to do. We know the company probably has more employees than it can handle at the
moment. We see Meta is now letting people go; same with Amazon. So the question is, if you don’t
want to fire people, where will the revenue come from? And if you do, how long does it take? Is it 90
days? Is it 30 days? Is it a hundred days? It probably isn’t on the first day. So I think the speed of
change really is an interesting takeaway from this case.
2. Discuss the strategies that Elon Musk can take to turnaround the company.

1) Revenue opportunity
a) the first option is to maintain or improve the advertising business. And again, this is something that
Twitter has struggled with in the past, but there’s definitely possibilities in how do they can do it
better. But at the same time, as we know from Musk’s personal interest, he’s not particularly
interested in having advertising be his big segment of the revenue. One, because it conflicts with his
notion of free speech. The advertisers do want a safe environment of content. The second is that it
also conflicts with his ability to self-aggrandize on the platform. And so advertising is important, but I
think they want to get out of it.

b) The second revenue opportunity that Musk is particularly excited about is the notion of premium
user memberships. And there’s different ways this could be structured, but you can imagine the idea
here is that users would pay $8 a month or more and get a set of premium features. I think one of the
hallmarks of that our listeners might be aware of is the famed-up blue check-mark and the idea that
we could sell people verification in the blue check-mark as part of that premium membership. I think
there’s other possibilities of really making a premium membership stand out. For example, if you
have a premium membership, they might be able to boost your tweets above other people that don’t.
And you could imagine what else they’d do. But again, in the past, in other businesses and for Twitter
itself, getting people to pay for a social media account is not something that historically works. And
again, it directly works against the network effects you need to make the business work.

c) Third, and again, another thing Musk is particularly excited about is the notion of turning Twitter
into an everything app. And you can use, for example, WeChat in China as a model, but the idea here
is Twitter could, for example, go into financial services, peer-to-peer payments and monetize in that
direction. The interesting part of the history here for that option is that remember that Musk was a
founder of x.com, which was joined up with PayPal, and remember that Musk was actually an
executive that was fired from PayPal. And so, this is a chance if he could do the financial services
thing, this is a chance for him to achieve what he had failed to do at the very, very beginning of his
career.

d) (Extra) The final possibility here is to break up the company. And so the idea here is that you
would separate the social graph and database part of the business from the front-end user-facing
advertising-facing application. And so, the idea is that the API would be provided by the backend
business to the front-end business and the front end business would pay for the right to use that API
and maintain ongoing application activity. Now, the reason this is interesting and we want students to
debate about it, is that this opens up the possibility that backend social graph business could actually
re-license the API to other new third-party applications. And really this is the idea of taking Twitter
back to the pre-2010, the pre-Tweetie days.