Today’s Cache | Elon Musk could use Netflix’s experience to steer Twitter

Twitter’s new boss is obtruding his way into the micro-blogging site with proposals that are causing a stir among advertisers and prominent twitter users. The new owner could learn a lesson or two from Netflix’s experience.

Updated - November 03, 2022 08:19 pm IST

Published - November 02, 2022 05:18 pm IST

A file photo of  the Twitter logo and a photo of Elon Musk displayed through magnifier

A file photo of the Twitter logo and a photo of Elon Musk displayed through magnifier | Photo Credit: Reuters

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Twitter’s new boss Elon Musk is moving fast to leave his imprint on the social platform he purchased for $44 billion last week. And the first place he’s looking to make a lasting impression is on the ‘blue tick’ users.

Mr. Musk’s proposal to charge the blue check-marked users $20 a month has visibly upset several prominent personalities who use the platform to share terse updates. Famed American novelist Stephen King retorted tweeting, “F#%k that, they should pay me.” Then, Mr. Musk haggled with the thriller writer asking whether $8 works, citing bills to pay at Twitter.

For a platform that earns its revenue largely from selling space for ads, Mr. Musk’s idea of making money from users who have blue tick badge is quite strange. In fact, the company’s own Annual Report for the year ending December 2021 states, “We [Twitter] generate the substantial majority of our revenue from advertising. The loss of advertising revenue could harm our business.”

Twitter’s revenue for the June ending quarter totalled $1.18 billion. Of this, $1.08 billion came from advertising. Only $100 million came from the company’s subscription-related bets. Even before Mr. Musk got involved with Twitter, the company had sold its mobile ad platform MoPub to mobile game software maker AppLovin. The move was aimed at diversifying its source of revenue, and go beyond sale of ads on the platform.

Given current macroeconomic headwinds, several companies have tightened their ad budget, and so there is heightened need for Mr. Musk to leverage the platform’s 237 million monetizable monthly active users. His $8 bargain with Mr. King is a step in that direction.

But charging users verified with a blue tick could potentially hurt the platform. And here’s where Mr. Musk will do well to learn from Netflix co-founder Reed Hastings’s change of heart.

The Los Gatos, California-based company said, back in 2010, that any time an argument in support of ads on its platform came up, it was “shot down”. And the service did thrive in the last 10 years, and was successful in its endeavour in build an ad-free streaming experience.

During the pandemic, the company reported record revenue and jump in subscription. But things changed in the last two quarters as its subscription growth declined. Macroeconomic headwinds and competition from other streaming services have made the company rethink its revenue model so much that Mr. Hastings decided to place ads on the platform.

If, for a service like Netflix that makes its own content, ads play a crucial role, then Twitter will need them all the more plus revenue from subscription. In the case of the micro-blogging site, its users drive traffic and create content on the platform. So, charging verified users are privilege fee of $8 could potentially drive them out of the platform. That will translate into net loss of both subscriber and content for the platform.

Instead, Mr. Musk will do well to build a slate of features that will be attractive to the platform’s active users and make them available for a price, either as a subscription bundle or à la carte. Simply charging a monthly privilege fee for a digital blue-tick badge will only make several active ones shun verification.

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