When Elon Musk walked into Twitter’s offices in San Francisco last month, on the day he finally plonked down $44 billion to buy the social media platform, he was carrying a sink. His message? “I’m going to throw everything at this company to fix it.” Today, some in Silicon Valley are joking that he might have been better off carrying in a toilet. Twitter and much of the rest of the tech sector are seeing profits, valuations and prospects for growth flushed away.
Twitter’s very existence seems under threat. Last week, imposters took advantage of the new premium verification system to set up parody accounts of everyone from Pope Francis to pharma giant and insulin maker Eli Lilly & Co. The Eli Lilly & Co fake account caused stocks in the company to tumble after it tweeted that insulin would now be free. This comes after many big firms feared that under Musk, a self-declared “free speech absolutist”, trolling and hate speech will proliferate, making the platform too risky a marketplace.
Also feeling the heat is Mark Zuckerberg, the founder and chief executive of Meta, formerly Facebook. He has cut his workforce by 11,000, or 13 per cent, in response to competition from rival platform TikTok and rising losses on investments in the metaverse, the nascent online 3D world.
Meta’s shares are down by three-quarters in value from a peak last year. Even the mighty Amazon, up the west coast in Seattle, is hurting. It has become the world’s first public company to lose $1 trillion in market capitalisation. Consumers are spending less on the platform in response to rising inflation. The firm’s value has fallen to $879 billion, less than half its record of $1.88 trillion in July 2021. Its Seattle neighbour, Microsoft, has lost $889 billion in market capitalisation from a peak last November. If all that weren’t enough, crypto-currency platform FTX — a self-styled saviour in the crypto winter — filed for bankruptcy protection last week.
The tech slump is not as dramatic as the dot-com bust in 2000 but it is the worst crisis since then. “Grab your coats, it will be a cold winter,” warns Brent Thill, Jefferies’ technology analyst.
What’s going on and why is it all happening at once? The humbled chief executives would have us believe it was a simple case of over-exuberance, prompted by the rapid growth of all digital services during lockdown. Zuckerberg concedes that during the pandemic he “made the decision to significantly increase our investments. I got this wrong”. Meta increased its workforce by six per cent over 2020 and last year.
Twitter co-founder Jack Dorsey said: “I grew the company size too quickly. I apologise for that.” But many analysts say the bosses’ mea culpa is far from the whole story. Bloomberg’s Parmy Olson points out: “Zuckerberg didn’t address the billions of dollars he has sunk into the metaverse, a project he is pinning the entire company’s future on.” Over the past three years, his company has lost close to $30 billion on metaverse initiatives. Meta has also been badly hit by changes to the tech environment, prompted by claims that it abuses users’ privacy. Apple and Alphabet, Google’s parent company, recently gave iPhone and Android users the option to block apps, such as Facebook, tracking their activity across other apps and websites. This has cost Meta $10 billion in forgone revenue in the past 12 months.
Many analysts are asking if this is the start of a new order in global technology. Could the big platforms be beginning an inexorable decline?
For Twitter, it’s possible. Its debt load has jumped to about $13 billion, up from $1.7 billion after the leveraged buyout. That means annual interest payments of $1.2 billion. The company hasn’t been profitable for a full calendar year since 2019. Musk needs advertisers to stick with it but big brands, including Pfizer and Volkswagen, have said they will stop spending on Twitter for now. The drop in advertising has been “massive”, Musk concedes. To boost user growth, Musk has suggested that he might try to turn the platform into a US version of China’s WeChat — an “everything app” to communicate, shop and bank. But there is little evidence that western consumers are frustrated with their current banking and e-commerce options. Nor is there much evidence that users will pay to subscribe to Twitter, without which Musk says there is “a good chance” the firm “will not survive the upcoming economic downturn...We need roughly half of our revenue to be subscriptions”, he says. Indeed, the early signs are that users are quitting the platform. Estimates from Bot Sentinel suggest that more than 875,000 deactivated their accounts between October 27 and November 1, while half a million more were suspended. Some former “Twits” are migrating to smaller platforms such as Mastodon. It has picked up more than 640,000 users since Musk’s takeover.
Meta is exposed on two fronts — one short term and one long. In the short term, TikTok threatens to break Meta’s business model. Once written off as a silly dance-video fad, Tiktok has an unrivalled grasp on culture and everyday life for the under-thirties. No app has grown faster past a billion users.
Two-thirds of American teens use the app, and one in six say they watch it “almost constantly,” a Pew Research Center survey in August found. Usage of Facebook among the same group has halved since 2015. TikTok is so wildly popular because it makes it easy to create and share videos. It does not want to know who you know. It doesn’t ask you to “like” anything or follow anyone. It simply wants to encourage you to create great content. It analyses your content and that created by others that you watch and works out what you really like — and then serves it to you at warp speed with a never-ending stream of new videos.
TikTok is growing so fast it is also nibbling at Google. TikTokers are increasingly using the app as a visual search tool; 40 per cent of Generation Z respondents to a Google survey this year said they had opened TikTok or Instagram, not Google, when searching for lunch spots. TikTok’s role as a news source is also rising. In Britain it is the fastest-growing news source for adults.
Zuckerberg’s long-term problem is his decision to put so much faith in the unproven promise of the metaverse. It is one of the riskiest bets any large corporation has made. So far he has little or nothing to show for the tens of billions he has invested.
After years during which Facebook and Twitter have been bitterly criticised for political interference, aggressive data mining and tracking, and damaging mental health, some may welcome the prospect that they might go the way of MySpace. But critics should perhaps be careful what they wish for.
TikTok has close links to the Chinese government, with all the political and data privacy risks that entails. And Twitter has become the beating heart of the global news system, even helping to create news as women in Iran are now proving. So none of it is straightforward.