The Breakdown - Can Elon Musk’s Twitter Challenge the Internet’s Advertising Model?

Episode Date: November 2, 2022

This episode is sponsored by Nexo.io, Circle and FTX US.   On today’s episode, NLW recaps the first few days following Elon Musk’s takeover of Twitter, including who he has fired and brought in, how the company is thinking about content moderation, a new payment plan for verification and, of course, dogecoin.  - Nexo Pro allows you to trade on the spot and futures markets with a 50% discount on fees. You always get the best possible prices from all the available liquidity sources and can earn interest or borrow funds as you wait for your next trade. Get started today on pro.nexo.io. - Circle, the sole issuer of the trusted and reliable stablecoin USDC, is our sponsor for today’s show. USDC is a fast, cost-effective solution for global payments at internet speeds. Learn how businesses are taking advantage of these opportunities at Circle’s USDC Hub for Businesses. - FTX US is the safe, regulated way to buy Bitcoin, ETH, SOL and other digital assets. Trade crypto with up to 85% lower fees than top competitors and trade ETH and SOL NFTs with no gas fees and subsidized gas on withdrawals. Sign up at FTX.US today. - “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with editing by Rob Mitchell and research by Scott Hill. Jared Schwartz is our executive producer and our theme music is “Countdown” by Neon Beach. Music behind our sponsors today is “War” by Enoch Yang. Image credit: Taylor Hill/Getty Images, modified by CoinDesk. Join the discussion at discord.gg/VrKRrfKCz8.

He seems to have an instinct that the power users of the platform are willing to pay in a way that they've never been asked nor able to. It really is about a fundamentally different business model for a content network than we've seen, and there is potentially a huge inherent disruption there. It's not surprising to me that he's maintaining the idea that it's for bots. Remember, the reliance on advertising has been called the Internet's original sin. And holding aside any controversy that you feel about Elon, this will be one of the most fascinating experiments in modern social networks. Welcome back to The Breakdown with me, NLW.

It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io, Circle, and FtX, and produced and distributed by CoinDesk. What's going on, guys? It is Tuesday, November 1st, and today we are talking about Elon, taking over Twitter, whether there's a payments play, what the role for crypto is. But before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Also a disclosure, as always, in addition to them being a sponsor of the show, I also work with FTX. All right, folks, well, as I mentioned last week, we are currently down as a family in South America, and a couple things that means. One is, like I said, you'll be getting more interviews interspersed with these regular shows.

I did haul down the equipment because I didn't want to miss anything huge for two weeks of being down here. But second, the quality might not be quite what it normally is. It's a little echoey in here, but we're going to do the best that we can. So today, we are talking the latest in the Bird app. On Thursday, Elon Musk closed the Twitter deal on the original terms. The company was taken private at 5420 per share, which is a little more than a $10. premium on the typical range the company traded in during this year. The deal came to a total price tag of more than $44 billion. Musk appointed himself Chief Twit, stating that he wasn't sure

who would become CEO at this stage. Announcing the close of the deal, Musk tweeted the bird is freed. Now, people have been speculating over this deal for months now, obsessing over different interpretations of what it will and won't mean on numerous levels. Is Musk setting up to hand the U.S. midterm elections to the right? Does this create a new national security concern? based on the investors involved? Is Elon just trying to make Dogecoin the global digital currency standard? Given that the thing has now happened, let's see what the early indicators are. First, let's talk about the money for the deal since it's coming up a fair amount in the reporting. As we expected, funding has been contributed by a consortium of supporters,

i.e. it wasn't just Elon liquidating all of his stock from other companies to buy Twitter himself. Saudi Prince Alouid bin Talal contributed $1.9 billion via the Kingdom Holding Company, making his entity the second largest investor in the Musk holding company which now owns Twitter. The sovereign wealth fund of Qatar also contributed $375 million to the deal. Binance contributed a $500 million investment to the purchase with founder CZ saying, we want to make sure crypto has a seat at the table when it comes to free speech. There are more tactical things like we want to bring Twitter into Web 3 when they're ready. Overall, the thing that people have been talking about most is the support of these foreign actors.

Democrat Senator Chris Murphy said on Monday that he wanted to, quote, conduct an investigation into the national security implications of Saudi Arabia's purchase of Twitter. That's about as far as that line of discussion has gone so far, though, so let's talk about the first couple days after the takeover. One of the first orders of Musk business was the removal of senior leadership. Musk removed the nine-member board of directors in accordance with the merger agreement and appointed himself as the sole director. He also removed four senior executives, including CEO Paragagagawal, and head of legal policy trust in safety, Vijay Agadi. Despite early media reporting the software engineering team has not been fired en masse. Indeed, the appearance of two

people holding their personal belongings to discuss their firings in front of a media pack was just a stunt, played on a frenzied press that was more interested in getting a scoop than it seems doing even cursory fact-checking. Now, one interesting side show to the cleaning house is that Musk appears to be setting up to refuse to pay the severance packages owed to executives. Parag Agarwal, for example, was set to receive between 20 and 60 million if he was fired. Reporting from the New York Times says that Musk fired Agarwal and other executives, quote, for cause, which could void this agreement. It's not exactly clear what the cause is. To the extent that there is speculation, it's that it's something having to do with bots or misreporting during the

trial when Musk was trying to back out of the deal. While I am no expert, it seems from the legal sector that there is an extremely high bar to escape this clause in an executive contract, something in the area of theft, of company property, felony criminal behavior, or gross negligence. The National Security Counselors, a public interest law firm writes, For Cause isn't a magic get-out-of-Golden Parachutes free phrase. There's this pesky thing called proof. Twitter will lose far more in the resulting litigation than it would have lost just paying them. Mike Dunford, another lawyer said,

I'm not an expert in that area of law or anything, but I'm pretty sure that you can't fire people within minutes of closing a deal, claim you fired them for cause as their new boss, and successfully avoid a contractual duty to pay severance. Of course, with people being gone, Musk had to bring in more trusted folks to make some quick moves. To close out last week, he brought in a team of Tesla engineers to review Twitter's code. At first, he asked Twitter engineers to print out hard copies of recent code commits before

reversing this decision a few hours later when it became obvious that it was kind of untenable. One of the big themes of this entire debate is how much of Twitter staff Musk was looking to fire. This code commit and Tesla engineer review seems like it might be part and parcel of that, or more nefariously, it could be that he's trying to avoid paying severance, just as we were discussing before. reports are circulating, which we'll get into a little bit more in a minute, of Musk requiring engineers to stay late and over the weekend to complete assignments which some are viewing as a test of commitment to the company. Now, on top of the Tesla engineers, Musk has also brought in a group of outside advisors to assist with new feature design. Some of these deputies include

venture capital notables, David Sachs and Jason Kalakhanis, Sharia Mishnan, a crypto VC at Andreessen Horowitz, and longtime Musk lawyer, Alex Spiro. Krishnaan tweeted, now that the word is out, I'm helping out Elon Musk with Twitter temporarily with some other great people. I and A16Z believe this is a hugely important company and can have great impact on the world, and Elon is the person to make it happen. Now, this team seems to have hit the ground running with suggestions on how to improve the platform. One that has gotten a lot of attention is whether or not to bring back Vine. The original, really, OG short-format video platform.

This is something that was acquired by Twitter and killed years ago, but now the new management team seeks to relaunch it by the end of the year, potentially being able to recycle the existing codebase. On Halloween, Elon conducted a poll on Twitter where 69.6% of almost 5 million voters said, Bring Back Vine. Now, one of the early engineers from Vine wasn't sure this is the play. Sarah Bagpur, who's a former senior director of product management at Twitter, said some free advice from someone who worked at Vine and also led the shutdown of Vine.

This code is 6 plus years old. Some of it is 10 plus. You don't want to look there. If you want to revive Vine, you should start over. Trust me on this one, guys. A bigger point of discussion was, did this just set up perfect competition with TikTok. YouTuber Matt Wallace wrote, Elon Musk is going to put TikTok out of business.

Cryptotrater Chubbycorn said, man didn't buy Twitter. He bought TikTok. Why did no one say he could reboot Vine and kill TikTok in that whole process? It's fucking obvious. Now, I personally don't think it's that obvious in the sense that TikTok's dominance in hold is pretty tight and tough to compete with. And I don't think Elon is going to get distracted by a competition that he doesn't necessarily want for no reason.

However, one, there is something still lingering popular about Vine. Two, as Twitter is trying to reinvent itself and look for real engagement, this could increase engagement. Three, Elon might genuinely believe that the code isn't that hard to resurrect. And four, Elon might think there is an outside chance that the U.S. bans TikTok, which, if it does happen, resurrected Vine could be a decent business line. Still, when push came to shove, much more chatter was on a different discussion point. Perhaps the first major change to how the platform has been worked that has been floated in the

short term is charging the blue checkmarks to maintain their verified status. The first price point suggested was $20 per month. This new policy would also remove verifications from users who didn't subscribe within 90 days. According to reporting from The Verge, this seems to be the thing that Twitter engineers have been given just this week to launch, with the looming threat of being fired if they fail to deliver. Jason Calacanis said, having many more people verified on Twitter while removing the bot armies is the quickest path to making the platform safer and more usable for everyone.

These are not the only ways to make Twitter safer and more usable, but they will have a quick and dramatic impact. If you have other ideas to make things better, please reply here with details and or write up a blog post and share the link. Increasing the quality of discourse and making things safer is priority number one. Michael Saylor of Micro Strategy fame wandered into the conversation saying everyone on Twitter should have the option to obtain verification via a blue check, green check, or orange check based on their qualifications and payment preferences. Activist Andrew Wartman tweeted, so it isn't so much verification anymore as it is who has $20 bucks a month to spare to look more official, trustworthy, and reputable on Twitter.

Blue check marks will effectively be rendered meaningless with this pay-to-play dumbassery. Mike Solana of Founders Fund says the way Twitter leaks are saying blue checks need to pay for blue checks, and blue checks are interpreting this as blue checks need to pay to stay is telling. They genuinely can't imagine a platform experience without the unearned status. Now, some are just not convinced that this is a great business model. Journalist Matthew Euglesias says, People have done so much mockery of the blue checks that they actually meme themselves into believing verification

as a highly sought after invaluable prize. Screenwriter Robert Shulay summed it up, soon a blue check will mean that you work for a company that lets you expense Twitter. Now, on top of all these different takes, some think that this just creates new problems. Zach Whitaker, the security editor at TechCrunch, writes, Twitter's ongoing verification chaos is now a cybersecurity problem.

It looks like some people, including in our newsroom, are getting crude fishing emails trying to trick people into turning over their Twitter credentials. Paris Marks, the host at the Tech Won't Save Us podcast, says charging for verification is how you get a lot of the legitimate accounts to drop their blue checks and a bunch of spammers to buy them because it increases the chances they'll be able to empty wallets. Want to keep more profits when trading? Get the best possible prices and trade with 50% lower fees on Nexo Pro. The new Spot and Futures trading platform uses aggregated liquidity of over-servative. 3,000 order books collected from multiple sources. Utilizing the complete nexo suite allows you to earn interest and borrow funds as you wait for the next trade setup. Visit pro.nexo.io. That's p.r.0.9.0. and n-exo.io and sign up today.

This episode is brought to you by Circle, the sole issuer of USDC, and a leader in crypto that's held to a higher standard. USDC is a fast, safe, and efficient way to send money around the globe. USDC is always redeemable one-to-one for U.S. dollars and has over $45 billion in circulation as of October 13, 2022. Plus, Circle posts weekly reserve reports and monthly attestations of reserve capital, letting users know that USDA is safe, transparent, and compliant with regulations. Just go to circle.com backslash transparency to see why USDC is a trusted stable coin.

The breakdown is sponsored by FTXUS. FTXUS is the safe, regulated way to buy and sell Bitcoin and other digital assets, with up to 85% lower fees than competitors. There are no fixed minimum fees, no ACH transaction fees, and no withdrawal fees. One of the largest exchanges in the U.S. FtXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTCS, you pay no gas fees. Download the FTCS app today and use referral code Breakdown to support the show. Now, one interesting back and forth that I think has a lot to teach us about how Musk is thinking about this and handling the PR came from horror author Stephen King.

King writes, $20 a month to keep my blue check, fuck that, they should pay me. If that gets instituted, I'm gone like Enron. Elon Musk responded, saying, we need to pay the bill somehow. Twitter cannot rely entirely on advertisers. How about $8? I will explain the rationale in longer form before this is implemented. It is the only way to defeat the bots and trolls. Now, I actually think that there is a ton to unpack in this statement.

First of all, Elon, I think, sees blue checks as something a little bit different than blue checks have historically meant to many on the platform. He does see them as a way to be clear that someone is real, aka bot prevention. However, he doesn't see it as a way necessarily to fight disinformation in the sense of some sources of news being verified to be truer than others, and that's a fairly big difference. If you're a news outlet who thinks that you should be a verified source of information, and that is what the blue check mark meant, you're going to hate this policy. If you're looking at it from the standpoint of just, is this person really a person,

and leaving the judging of the validity of the information aside, once you know it really is a person, this makes much more sense, and I think that's the wavelength that Elon is on. Cosmologist and author of End of Everything Katie Mack wrote, The point of Twitter verification is that for certain individuals and organizations, it's useful for them to be able to verify their statements are coming from them. That is why so many journalists and reporters are verified. It's supposed to help combat disinformation not be a status symbol. People think of it as a status thing because a lot of people with status are verified. But the causality is that if you're well known, you're more likely to be a target for impersonation and or there's more public interest in being able to verify that your statements are yours. This is not to say that Twitter verification is always applied sensibly or fairly. It certainly isn't. And the verification distribution system has been to be in. bad in many ways for a long time, but turning it into a purely a vanity accessory for pay would

in fact be worse. I suspect if this change goes through, it'll just generally be harder for anyone to know what information is in any way reliable or vouched for by a real person or organization. More noise, less signal. My gut tells me that the more noise less signal, and not having blue check marks mean vouching for a source of information, but instead just the simple meaning of they were real enough to be willing to pay for this verification, is kind of exactly what Elon's interested in. Now, a second part about his exchange with Stephen King. What he's not really necessarily saying out loud, and instead of focusing on the bots and troll-fighting aspect of this, is that he seems to have an instinct that the power users of the

platform are willing to pay in a way that they've never been asked nor able to. It really is about a fundamentally different business model for a content network than we've seen, and there is potentially a huge inherent disruption there. It's not surprising to me that he's maintaining the idea that it's for bots. Remember, the reliance on average. has been called the internet's original sin. And holding aside any controversy that you feel about Elon, this will be one of the most fascinating experiments in modern social networks. If Twitter can actually get a huge number of power users to pay a monthly fee, is it possible that it has significant dividends for the platform as a whole? Last note, given the tone of his engagement

with King, Musk is clearly thinking about this in business model terms. He's asking what the right price is, and he's starting to see some rationale, and nicely engaging one of those power users he hope would pay. Now, what about the thing that everyone was worried about, the idea of content moderation? Some commenters noted that there was a big kick-up in racist content and offensive content, and some speculated that was because of a change in the actual moderation policy, but that wasn't the case. Yol Roth, the head of safety and integrity at Twitter tweeted, let's talk for a minute about slurs, hateful conduct, and trolling campaigns. Bottom line up front, Twitter's policies haven't changed. Hateful conduct has no place here, and we're taking steps to put a

stop to an organized effort to make people think we have. Our rules prohibit hateful conduct. This includes targeting people with dehumanizing content and slurs. This doesn't mean we have a list of words that are always banned. Context matters. For example, our policies are written to protect reclaim speech. Over the last 48 hours, we've seen a small number of accounts post a ton of tweets that include slurs and other derogatory terms. To give you a sense of scale, more than 50,000 tweets repeatedly using a particular slur came from just 300 accounts. Nearly all of these accounts are inauthentic. We've taken action to ban the users involved in this trolling campaign and are going to continue working to address this in the days to come to make Twitter safe

and welcoming for everyone. Elon Musk himself tweeted to be super clear we have not yet made any changes to Twitter's content moderation policies. Twitter will be forming a content moderation council with widely diverse viewpoints. No major content decisions or account reinstatements will happen before that council convenes. Now I think in some ways my favorite overall take on what has happen in the first couple days comes from Jessica Lesson, the CEO of the information. She writes, watching Elon Musk and Co. Takeover Twitter is like watching a business school case study on how to make money on the internet. Amazing that at some level it is so basic. Lesson one, charge your power

users what they are willing to pay. Lesson two, lock up your core customers, advertisers, by going on a listening tour and asking them what works and what doesn't. Make sure to land a few key public commitments. Focus on the head, not the long tail. Lesson three, cut cost dramatically and do it fast than all at once to get it over with. Elevate a few key people, including some veterans, to promote internal cohesion. Not rocket science. They will succeed because they can do it outside the public shareholder eye. Now, overall, this is a very developing story. It's quite clear that Musk is still in suggestions listening mode. Just today, someone named Eric Rush said, request for Twitter management, please purge all inactive

accounts. There are so many inactive sitting on excellent Twitter handles. Rule should be, if you have been inactive for more than a year, you have 30 days to log in. If not, account gets deleted. It was a super popular post with 32,000 likes, and Elon responded definitely. There also remains a huge looming question, which Elon joked about last night. If I had a dollar for every time someone asked me if Trump is coming back on this platform, Twitter would be minting money. Now, to close on a couple crypto notes, Jeff John Roberts from Fortune Crypto argued in a piece today that it's all about payments. The piece was called the real reason Elon Musk bought Twitter. He writes, Musk, of course, is part of the PayPal Mafia, the gang that built a giant payment platform in

the late 90s and went on to become billionaires. The payments are in Musk's blood. One of his first companies was a payments business called X, a name he resurrected for a mysterious Twitter product he claimed will reach 104 million users by 2028. Roberts also quotes Caitlin Long, who you guys are all familiar with for her work in the crypto space. Long said, he's been trying to disintermediate ACH his whole career. And then Robert summed up the rest of reviews by saying Longviews Musk's Twitter play as the reincarnation of Libra, which sought to provide crypto wallets to Facebook's more than 1 billion users. Roberts also points out that the best reason for this isn't reading the

tea leaves of who he brought in or anything like that, but just to look at the investor document obtained by the New York Times, where Musk predicted that Twitter will bring in $1.2 billion in payment revenue by 2028. I think whatever the crypto aspect of this particular story, it's definitely validating of the idea that there is a business model shift that is coming to Twitter that could be a major, major sea change for social networks. And whether there really is a crypto or payments agenda or not, Elon's assent has had at least one big financial windfall. That, of course, is Doge. You can't have major Elon knows without an associated Dogecoin pump for the memes. Over the last week, Dogecoin more than doubled,

including an 80% move on Friday night. That makes the meme coin the easily best performance. major token of the month. There were suggestions from Musk earlier in the year that Doge could be used to monetize Twitter and to prevent spam by charging for tweets, but absolutely no news has come on on that front in recent months. Regardless of that, though, Dogecoin is now moved up and ranked becoming the sixth largest cryptocurrency by market cap. Shrugman. We are definitely in a fascinating new era. As you can probably tell, the stuff that's most interesting to me are not the absorption about the American political debate, although I do think that is an important part of this question of big picture power shifts. What's really interesting to me is whether or not there are

truly different viable business models for this type of content network. I think a lot of the problems of power are shaped by the nature of business models, and that's part of why so many of us are so interested in what it means to have networks made up of people who are the owners of the network. In lieu of a true decentralized crypto-powered protocol-based network, having a singular ruler of a network. It's one of the only ways that you see real change and disruption to the underlying structure. So if nothing else, we have an interesting show to watch. For now, I want to say thanks again to my sponsors, nexus.com, circle and FTX. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.