This Week in the Mayonnaise Clinic: Elon Musk's Twitter Misadventure Is Unusual Only in Scale
Lots of billionaires have convinced themselves they understand the secret to running a profitable media company when they don't. Plus: Oysters!
It’s time for the Mayonnaise Clinic! DJ has our first question:
I've been very confused by Elon Musk's behavior at Twitter, and it's now all coming to a head with his announcement that anyone who doesn't pay for the Twitter Blue subscription can't be discovered through Twitter’s algorithm. I already thought it was odd that he made the checkmark essentially meaningless and now this. What do you make of this? I'm baffled given his success at Tesla, SpaceX, PayPal. Has he just been really lucky with where he's invested?
Elon Musk is exceptional in a lot of ways, but “an entrepreneur who had lots of success in some other field of business buys a media company and then falls flat on his face” is not an exceptional story at all. We have seen this over and over: Sam Zell buying Tribune Co. and landing it in bankruptcy after just a year. Chris Hughes buying The New Republic, driving away virtually the entire staff, and then selling it a few years later when he got bored of losing money. Even more editorially successful billionaire interventions — like Jeff Bezos’ purchase of the Washington Post and Patrick Soon-Shiong’s acquisition of the Los Angeles Times — have produced disappointing financial results.
These buyers should have remembered the wisdom of Warren Buffett, who has said that "when a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact." But this advice is so hard for billionaires to follow that even Buffett himself hasn’t managed — in addition to breaking his own promise never again to invest in an airline,1 he also bought up a couple dozen local newspapers in the 2010s. He sold them at a loss in 2020.
Musk does seem to have been approximately correct about one major business point at Twitter: that it could run with a lot fewer employees and a much lower labor expense load. But his other major business idea — that it should be possible for Twitter to generate lots of revenue by charging users — does not yet show any sign of working. He remains wedded to a juvenile idea of what Twitter is for: that it’s for shouting, and therefore users will pay $8 a month to “rocket to the top of replies, mentions and search,” even though changing Twitter’s algorithm to prioritize posters who’ve paid to be at the top will degrade the user experience for the majority of users who are primarily on the platform to read. It is these readers who form the core of Twitter’s real business: selling the advertising they see interspersed among tweets.2
Even Meta, Twitter’s larger and more successful competitor, generally does not monetize its social media platforms through subscription fees. And he’d need to get tens of millions of subscribers to pay up in order to come even close to justifying the $44 billion he paid to buy Twitter. Remember, even 10 million paying subscribers to Twitter Blue wouldn’t quite generate $1 billion in annual revenue. And he currently seems to be around 500,000 — a figure that makes sense if you’re selling only to an abnormal slice of your users who really do care about being able to shout over everyone else. Meanwhile, his antics seem to have impaired Twitter’s advertising revenues, a business that was already imperiled by broader negative trends in advertising revenue that are even hitting Meta and Google.
Musk made a classic billionaire mistake: glancing at a media business he does not understand especially well, and that he perceives (correctly) as being somewhat mismanaged, and then jumping to the conclusion that it ought to be pretty easy to shake more money out of the consumers of the content. The truth is that it’s really hard to get people to pay for content, because there’s so much content out there. I know this from personal experience. Billionaires who buy newspapers learn this quickly. And now Elon Musk is learning it the hard way, too.
I'm a big fan of fresh oysters and white wine, especially in the sunshine, which we're currently enjoying in Virginia. I've never found really good side dishes, though. French fries feel too greasy; something about the sponginess of bread doesn't work. What would you pair with raw oysters?
The thing about raw oysters is that they’re barely food at all. They’re only 90 calories per half-dozen — making them a great appetizer choice if you’re at a fancy restaurant while you’re on a diet — and they have a very subtle flavor. You need to avoid overpowering them.