After a year of disputes, Elon Musk finally purchased Twitter last October. Unfortunately, the company and its CEO have been in the headlines ever since. From firing a significant portion of the workforce to creating a pay-for-verification plan, there are many changes ahead for the social media giant.
With Musk taking steps toward putting Twitter behind a paywall, many are wondering whether the social media platform will be able to maintain its popularity. Here is how Twitter got to this point and what impact a paywall could have going forward.
Key Takeaways
- Elon Musk bought Twitter for $44 billion in October 2022, using cash, equity, and debt financing.
- One change is the introduction of Twitter Blue, the $8 per month program users can join to get a blue checkmark.
- There are several potential ideas for implementing a payment system, including placing all of Twitter behind a paywall.
The Purchase of Twitter
Elon Musk’s takeover of Twitter was plagued by chaos as it seemed every one of his decisions for the platform cost him advertising revenue and users. Last fall, stories were coming out almost daily about new, sweeping decisions Musk made to cut costs and pay for his purchase of the social media site.
Musk paid $44 billion for Twitter. He financed it using personal assets plus debt and equity financing. The latter included loans from major banks. The electric car magnate put up $27 billion of his own money and sold $15.5 billion of his Tesla shares in two waves before closing the deal.
Additionally, he borrowed $13 billion in loans from Morgan Stanley, Bank of America, and more. Some estimated that Musk will have to pay $1 billion a year in interest on the loans he took out to purchase Twitter.
Investors, including Larry Ellison, co-founder of Oracle, Prince Alwaleed bin Talal, and Qatar Holding, also purchased $7.1 billion in equity in Twitter.
Since taking over Twitter, Musk has made a series of moves that have hurt the company instead of helping it maintain its operations and stay profitable. Just in October and November of 2022, the following events occurred in the short time after Musk became CEO:
- Proposal for an $8 monthly fee for the blue checkmark
- Halting the new verification process after impersonators flooded the site
- Firing 50% of Twitter’s workforce
- Asking fired workers to return
- Notifying the workforce they had to return to the office
- Losing advertisers
- Stated bankruptcy might be coming for Twitter
- Banned satire accounts
All this chaos occurred in the few weeks after Musk took control of Twitter. The site is now privately owned, though it will continue to offer stock and options as part of its compensation plan.
Blue Verified Is Introduced
The blue checkmark stirred up much controversy last November when Musk adjusted its terms to authenticate accounts for a fee. Users paid $8 monthly to get the blue checkmark next to their name, with the purpose of getting to claim they were the real person or entity behind the account.
Before Musk purchased Twitter, accounts were verified by Twitter staff and assigned without cost to the user. But the sudden need for revenue drove Musk to change this process and let anyone buy a blue checkmark for their profile. This change in policy was immediately abused.
Drug manufacturer Eli Lilly was a victim of the blue checkmark scheme. An unknown individual created a fake Eli Lilly account, paid to verify it, and tweeted that the company would give out free insulin. In turn, Eli Lilly lost roughly 4.37% of its stock value.
Eli Lilly wasn’t the only victim of the prank. Celebrities, politicians, and others were affected by fake accounts with blue checkmarks.
Twitter pulled its new blue checkmark service shortly after that. On November 15, Musk announced the company would be relaunching Blue Verified later that month once he had ensured it would be “rock solid.”
Relaunching of Twitter Blue
It was around this time also headlines proclaimed Twitter would lose $4 million in revenue daily as advertisers left the platform. The platform needed revenue quickly, and Musk made statements suggesting he thought the platform was headed for bankruptcy. By the start of 2023, he changed his tune, sounding more optimistic about the platform “breaking even.”
The updates to Twitter’s checkmark policies that have come since December of last year have left many people confused. Multiple times, the platform announced features only to have the intended launch date come and go without users being able to use those features.
Musk relaunched Twitter Blue in December 2022, allowing users to have a blue checkmark, edit tweets, and upload high-quality videos. A new color-coded system was also implemented for the checkmarks: gray checkmarks for government entities, gold checkmarks for companies, and blue checkmarks for individuals.
The service cost $8 for users on Twitter’s website and $11 for iPhone and iPad Twitter users. If you already had a checkmark, you were allowed to keep it when Twitter Blue relaunched, though the company said that would change in the future.
Recent pushes for paid verification
The company later announced it would be winding down its verification program for users who didn’t pay for Twitter Blue on April 1. The announcement of the end of the legacy verified program led to several high-profile celebrities criticizing Musk’s decision, including William Shatner and LeBron James.
On April 2, though, it wasn’t immediately apparent any change had occurred. The verified checkmark hadn’t disappeared from LeBron’s account, though Musk did remove the checkmark for the New York Times Twitter account.
At the end of March, Musk announced that starting April 15, Twitter would only show verified accounts on its For You feed. He also announced only verified accounts would be allowed to vote in polls. He cited “advanced AI bot swarms” as the reason for these changes.
With Musk trying to find a way to make Twitter’s operations profitable, it will be interesting to see how many of these changes stick and which (if any) help the company boost revenue.
Paywall to Increase Revenue
One of the potential options still being considered is putting Twitter behind a paywall. Still, millions of users would likely need to pay for access to replace the lost income from advertising revenue.
The concept of introducing a paywall was floated simultaneously with the $8 subscription for a blue checkmark last November, but it has not yet been implemented. There is still talk as to how a paywall would function.
Another option is letting users put videos they post behind a paywall. To view the content, a person would pay a one-time fee. Users who post videos could earn a portion of the fee after Twitter takes a cut. They could do this for every video they post, creating a revenue stream.
There is also the possibility of allowing users to access Twitter for free for a certain amount of time each month before requiring payment to continue using the app. This option is popular with many online news outlets. Many allow users to read a certain number of free articles each month. Then, the user has to subscribe to continue reading additional articles.
Impact of a Paywall
We can’t predict the exact impact of a paywall on Twitter since users have always expected to access the site for free. If Twitter implements a paywall, there is a good chance that users will leave the site in large numbers and not return.
What’s worse is that, as users leave the site, advertising revenues may continue to decrease because Twitter would serve ads to far fewer users than in the past.
However, a paywall could save Twitter from bankruptcy, considering the relatively small number of paying users needed to return to the site to pay for its operations. This strategy might be the best option Musk has to bring Twitter back from the brink of insolvency.
He could also restore Twitter to its previous management principles. This might bring users and advertisers back to use the site as initially intended.
The introduction of a paywall raises interesting questions about the philosophy behind Twitter. Many critics think of Twitter as an especially democratic social media platform. Introducing a paywall seems to contradict that principle, which is one Musk seems to believe in himself.
Musk has argued that making the verification process a paid feature equalizes the checkmark, as celebrities must pay just as much as a non-celebrity.
The primary challenge Musk faces now is the loss of advertising revenue. Advertisers have been pulling ads since last fall, not wanting to be associated with the company because of Musk or some of the comments he has made. Musk’s unbanning of certain accounts has also led many people to criticize or distance themselves from the platform.
The Bottom Line
We will wait to see what Musk does next to bring Twitter back to paying for its operational costs, covering its debt, and attempting to turn a profit. There has been talk of reviving Vine, the Twitter video app that rivals TikTok, and eliminating character counts for tweets.
As with most leadership transitions, there will be bumps in the road. However, Musk makes the ones Twitter faces more prominent with his tweets.
Fortunately for Musk, he does not have to provide quarterly reports on Twitter’s financial state. This could help in the long run as the changes will take time to pay off.
