Numlock Sunday: Sarah Frier on the tumultuous times for Twitter
By Walt Hickey
Welcome to the Numlock Sunday edition.
This week, I spoke to Sarah Frier about what’s become a somewhat disastrous quarter for social networking companies. Facebook has seen its company’s value crash this year amid serious investment in unproven metaverse businesses, and last week marked Elon Musk’s first as the top dog at Twitter.
Sarah is the author of No Filter: The Inside Story of Instagram, all about the company that served as a major rival to Twitter and a massive acquisition for Facebook. She’s also the big tech editor at Bloomberg.
This interview has been condensed and edited.
I was trying to think of what folks would potentially want to read about this week. Really, there's just one thing: would you like to talk about the Twitter corporation and the richest man in the world?
This is such a visceral story right now, because as we are speaking, I am watching my Twitter feed fill up with people who have been laid off, who don't quite know what the next steps are for them. They know that they don't have a job. They don't know who in their team is left, if they even have a team anymore, if they weren't laid off, who would they send a resignation letter to? It's really a moment of pure chaos, unlike any I've seen from a tech company before.
It's, needless to say, a somewhat peculiar way to operate a business. Do you want to just take us back a little bit to kind of what brought us here? I know it's been a multi-month saga, but I suppose what brought us to this position?
Elon Musk decided that he wanted to become a large Twitter shareholder and thought maybe he would join the board. Then he got in an argument with the Twitter CEO and decided, "Nope, I'm not joining the board. I'm buying this thing." A couple weeks later, he decided he didn't want to buy it, at least not for that price, and the market soured meanwhile. There was this long legal battle between Elon Musk and Twitter about whether this transaction could go through. Although employees were somewhat mixed — a generous way to put it — about the idea of having Elon Musk take over their company, $54.20 per share was something that Twitter really couldn't say no to from the perspective of fiduciary duty. $44 billion is just not what Twitter would be worth on the open market right now. So they fought for it, they fought for the acquisition to go through, and eventually Musk decided that he would do it after all.
The second he took over on Thursday of last week, he started putting his stamp on the company. He cut CEO Parag Agrawal, he cut the entire leadership team. More leaders at Twitter were told to come up with lists of people who should be laid off. He brought in engineers from Tesla and the Boring Co. to his other companies to review code written by Twitter employees to determine whether they were worthy of staying at the company — this is all per our sources at Bloomberg. Then he proceeded to cut about 50 percent of the staff. Those cuts started Thursday night and are continuing today on Friday as we're talking.
It's been handled unconventionally, to say the least. I think one thing I want to get back to is that $54.20 per share. Evaluating the proper, an ideal sale offer to a publicly traded firm is never an exact science, but it is a little bit weird that he just picked 420 because it's a vaguely funny number. Now as a result, in order to pay the interest on that, he's got to immediately destroy a lot of the inherent value of the company.
Well, that's really the financial pickle he's in right now. The amount of debt that Twitter has taken on as a result of this overpayment for Twitter is going to be at least more than they had last year in cash flow. They need to do something dramatic in order to get to the point where they can pay off about a billion in a year to banks and others that Elon Musk borrowed from. I think that they're going to have to come up with new ways to do business. He's going to start charging, we hear from our sources, on Monday for Twitter Blue, which is going to allow people to have verified check marks by their names, alongside other features that employees have been working around the clock to build.
He is going to try to boost advertising revenue, but that's not going so well so far because a lot of advertisers have just been uncertain about how he will act. He hasn't had a track record of caring about content moderation. He says he wants the network to be all about free speech, but what that means is maybe there will be some brand unsafe content for advertisers, as well as, you have to think about the fact that he's also CEO of Tesla, and these car companies that are advertising on Twitter?
They may not want the CEO of Tesla to get their money or know what their strategy is.
In a world where that's going to public shareholders, that's one thing. This is just, their rival is the owner of this company now.
I mean, he is the sole leader right now, besides some of the venture capitalists he's brought on for temporary help.
It's a fascinating situation, and weirdly probably the second worst thing to happen to a social media company this quarter.
Anything else come to mind?
It's just a wild space right now because we have Meta. Normally, we would probably be talking about their issues right now. They've lost more than 70 percent of their value this year, and it's just a stunning decline. I'll look it up right now, on our list of billionaires on the terminal here, Mark Zuckerberg is definitely not one of the very, very richest people in the world anymore. He is number 29, below Phil Knight and Michael Dell, and a whole bunch of other names that are less recognizable.
It's really a wild time for Meta because they're reaching some saturation in the amount of users they can possibly add to Facebook, and they are completely reinventing Instagram to take on TikTok. I don't know if you've noticed, but it has an algorithm that is showing you stuff from people you don't follow and focusing on short-term video.
The whole thing is supposed to reengage people with the social networks to make enough money to spend on the metaverse, which is this futuristic idea that we will all live in a virtual reality world. It is an extremely expensive idea to bring forth because it requires a lot of investments in hardware and artificial intelligence, in making something where we're not actually sure that people want to live and work in the metaverse, but Zuckerberg is very confident that they will. So, he's asked investors for patience and they're not really granting it.
There's a lot of turmoil in markets. The advertising market has, understandably, softened. Even if it's not a recession quite yet, it is somewhat recessionary in terms of the advertising spending in the world. But what's remarkable is that all the things that you've talked about so far are not really related to external factors. They really stem from the people who own these companies.
I guess I'll just ask you, you've covered each of these companies for a very long time, and you've covered a lot of companies that have a lot of founder influence going on rather than shareholder influence. What are some of the risks that these guys are running into at this point?
It's a really good point, because what I was starting to think about this week was, we went through this period of covering these companies mostly like businesses. Are they going to be able to grow? Are they going to be able to return value to their shareholders and compete with our competitors, recruit the right kind of people? Covering them literally as business reporters, holding them accountable for making the business better.
Then the 2016 election happened, and a few other things happened, but I would say the main thing is that election and some of the other trends and violent content going viral and misinformation going viral and privacy issues on these networks. Then we started to realize, oh my gosh, these are not entities that should be covered solely as businesses anymore. These are part of the infrastructure of our society. We need to start holding them accountable for their power.
The last five years or so have really been about the extreme power of Facebook and Instagram and Twitter and YouTube and what they have brought on society and what they're doing and not doing about the structural ways that their platform allows the worst of humanity to reach more of humanity. I think we're rethinking the premise again, because ultimately they are businesses, and we're kind of back to that period of thinking of them in terms of, whoa, are they going to be able to pull this off?
It's not a given anymore that Meta will just keep growing and growing and growing until the end of time, or that Google will, or that Twitter will. I think that one of the side effects of this moment is we can't forget about all those lessons we learned about their power.
They are still powerful in terms of how they affect users. These are still powerful in terms of how they impact our culture, the way we think about the world, the kind of information we get about important decisions we have to make in our lives. That still comes from Twitter and Facebook and Instagram and YouTube and TikTok, but there's this other factor, which is that they have to survive this downturn in economy.
It's a really challenging time, and it just seems a lot more personality-driven than your typical large business would necessarily be.
Zuckerberg, somewhat notoriously, every time he looks in a mirror he sees Caesar Augustus. It seems kind of difficult to try to treat these things as just businesses when they don't necessarily even see themselves as that anymore.
Well, he has been used to this idea that whatever he does, people will criticize it and tell him he's wrong, and he has prided himself in fighting past that and doing what he thinks is best for the company no matter what.
But maybe he's not right this time. We don't know.
People thought he was crazy to acquire Instagram, people thought he was crazy to acquire WhatsApp for the amount he did. Is he crazy to pursue the metaverse? I mean, it's pretty much the biggest thing he's done yet. It's going to take a really long time to play out. I don't know if I can say that it's going to work. I certainly don't see myself living and working in a metaverse kind of world or Facebook being the main moneymaker off of that future, but he's proven us wrong before.
You're right, there is this founder mentality that's still driving these places, but is what worked over the last 20 years going to work for the next 20 years?
It's an exciting time. This is normally the part where I would ask folks, what's going to happen next, where are things going?
And that is ridiculous to put on you, to ask what is Elon Musk going to do next in this acquisition. Assuming that we're working with the best information that we’ve got, how is this going? There's just a lot of debt to deal with.
There's a lot of debt to deal with.
I mean, I think what Musk is going to do is he's going to run this company in the public eye through tweets, through Twitter polls, through his whims, through his personal relationships. That's one of the things I have my eye on. Elon Musk isn't just the owner of Twitter now. He's the owner of multiple businesses that operate in countries that Twitter gets a lot of pressure from governments in.
What's it going to do when a government says, "You can't sell Teslas in this country unless you give us information on Twitter employees?" There are so many ways that his philosophies are going to be tested over the next few months, and it's going to be difficult for journalists because Twitter's a private company now. We can't see how it's working based on public disclosures. We'll have to be more adept at sourcing whatever happens from the employees themselves and from our other checks that we can make on the company.
I was really struck that they fired a considerable amount of the staff in India, for instance, which is a country that has a unique relationship with social media companies, has a substantial amount of regulation, and oftentimes, free speech is not necessarily the first thing that comes to mind when viewing some of those policies. This international component really seems like it could be a bit of a trap for him.
I think that it's going to be a few months where Musk is reinventing the wheel in his own way, where the way that we've seen Twitter operate, the stuff we sort of take for granted about what Twitter will do in a certain situation, Musk might do something different.
I think the verification decision is an example of that. I mean, verification will essentially cease to mean that your identity is that of a public figure. It'll just mean that you pay for Twitter Blue. We're just going to have to reorient as users of Twitter, and as journalists on Twitter, what the company is and does.
That seems as good a place as any to end it. I suppose, besides your Twitter account, which God only knows how long this is going to last, where can folks find you and find your work?
I am the author of No Filter: The Inside Story of Instagram, if you want to learn more about another major tech company. I'm also an editor of big technology coverage at Bloomberg, so I work with a bunch of really incredible reporters whose work appears on bloomberg.com and Businessweek. I am available on all the social media platforms for anyone's feedback.
Amazing. No Filter has a ton of stuff about Twitter. And it's about Instagram, but Twitter was a big foil for Instagram for the longest time, and there are some ideas that you get at in there about why celebrities went to Instagram over Twitter, I should say, that have permanently changed the way that people view both these platforms. And so would highly recommend that one as well.
Thank you. Appreciate that.
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