What Elon Musk’s Twitter takeover means for advertisers

Elon Musk jokes about a lot of things, but the Tesla and SpaceX founder certainly seems serious about shaking up Twitter. Following weeks of dramatic developments that included the rare adoption of a “poison pill” defense by shareholders, and of course, plenty of tweeting, the executive on Monday reached an agreement to buy the social media app for roughly $44 billion. It is one of the most substantial and unusual deals in tech history and will test whether brands are comfortable operating in an environment overseen by an individual known for his inflammatory personality.

In a press release announcing plans to take Twitter private, the world’s wealthiest individual nodded toward a desire to safeguard speech on the platform and greater priority on legitimate accounts and interactions.

“Free speech is the bedrock of a functioning democracy, and Twitter is the digital town square where matters vital to the future of humanity are debated,” said Musk in a statement. “I also want to make Twitter better than ever by enhancing the product with new features, making the open source algorithms to increase trust, defeating the spam bots, and authenticating all humans.”

Mixed signals for advertisers

The potential takeover, which has unanimous approval from the board of directors, is expected to close this year and is still subject to regulatory and shareholder sign-off. It also sends mixed signals to advertisers. On the one hand, Musk is an ardent tech evangelist who’s stated he’s open to more innovation on a platform that is a notorious laggard compared to peers. On the other hand, his “free speech” crusade could stoke fresh fears over brand safety.

Twitter has previously been criticized for its toxic nature by brand managers. Opening the discourse flood gates further may push some to the limit at a time when they have no shortage of alternative services to turn to. TikTok’s ad revenue is forecast by Insider Intelligence to triple this year to $11.64 billion, surpassing that of Twitter and Snapchat combined.

“If Elon decides to loosen content moderation policies, he puts Twitter ad dollars at risk,” Forrester research director Mike Proulx and principal analyst Kelsey Chickering wrote in a blog post reacting to the news. They cautioned that this approach could turn Twitter into a “mainstream Gab,” the alternate micro-blogging site that’s known to host far-right and extremist users, some of whom were banned from Twitter.

“Brands are becoming more conscious of their adjacency to risky content or disinformation, so they may take their dollars to other channels with greater safety measures in place,” the analysts wrote.

Weighing risk and reward

That said, certain categories may see more opportunity under Musk’s stewardship than others. The frequently online executive often uses Twitter to muse and meme about cryptocurrency, a category that’s more willing to take a gamble and is tied closely to the Wild West of Web3. Coins have seen their valuation jump or flatten based on Musk’s tweets. Crypto exchanges have also recently tried to solidify mainstream legitimacy and adoption through heavier advertising plays.

“Crypto advertisers, and any enthusiastic backer of Elon Musk, will lean in and buy more advertising with Twitter,” Todd Krizelman, CEO and co-founder of MediaRadar, wrote over email. “Elon brings with him significant cachet. Premium national consumer brands however may be worried about what the content looks like with fewer regulations.”

Musk at the same time has made his distaste for traditional advertising clear. Tesla, his electric vehicle company, eliminated its public relations department in 2020. That type of thinking is not necessarily conducive to a company that derives the lion’s share of its revenue from ads.

But Twitter has been poised for a meaningful shakeup since late last year, when co-founder Jack Dorsey stepped down as CEO and handed the reins over to CTO Parag Agrawal, who had a background in product. Efforts to expand Twitter’s revenue streams, in features like its Blue subscription offering, commerce functionalities and Spaces audio rooms, are still unproven. Musk may choose to prioritize more experimental bets and has expressed interest in putting a bigger focus on subscription concepts like Blue, as reported in The Wall Street Journal.

“Ironically, brands could benefit as [Musk’s acquisition] may improve Twitter’s advertising offering,” said Alistair Goodman, CEO of Emodo, the ad-tech unit of telecom Ericsson, over email. “There will undoubtedly be increased financial pressure on the new owners to further evolve the advertising solutions so that they can command Higher rates — maybe with new more immersive ad experiences — while maintaining a brand-safe environment.”

Musk is an experienced businessman who ostensibly understands how the ad-supported internet functions. Enacting any sort of widespread advertising switch-up overnight would prove incredibly disruptive for a company that has often struggled with revenue growth and to get users excited about tools beyond basic posts. On that front, Musk has suggested he’s open to an edit button and longer character count. The executive at the end of the day says a lot of lofty things and frequently doesn’t follow through on them. A takeover might end up being far less chaotic than the path getting there.

“People expect Elon Musk to make changes, but I predict likely nothing at all will change in their ad driven business,” said Krizelman. “At least in the short-term selling ads needs to continue for the Twitter business to remain solvent.”

Twitter is scheduled to report its first-quarter earnings Thursday.

Leave a Comment

Your email address will not be published. Required fields are marked *