Does Threads Pose an Existential Threat to Twitter?

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The Mount Rushmore of 21st-century entrepreneurs wouldn’t be complete without Elon Musk. The world’s richest man, who boasts a net worth of ~$240B, has proven himself to be a renaissance man to the highest degree.

After selling his first startup, Zip2, to Compaq in 1999, Musk used the proceeds from his sale to fund online financial services company X.com. X merged with PayPal in 2000, and Musk pocketed a cool $175M when eBay acquired the combined firm two years later.

While many folks would gladly cash out with their nine-figure fortune, Musk rolled the dice again, exiting the fintech world to pursue a more ambitious field: space exploration.

In 2002, hoping to reduce the cost of rocket production by a factor of 10, Elon invested $100M of his own capital to start SpaceX. And he did just that: NASA concluded that in developing the Falcon 9 rocket, SpaceX spent 1/10th of what NASA would have spent on the same project, and launch costs have plummeted since SpaceX introduced reusable rockets.

When you consider that Musk also turned a long-shot EV startup into a trillion-dollar behemoth and founded or co-founded OpenAI, Neuralink, and The Boring Company, it’s a no-brainer to consider him a first-ballot Hall of Famer in the ranks of successful entrepreneurs.

But Musk’s most impressive feat isn’t sending a rocket (or Roadster) to space and back, pioneering internet payments, or orchestrating a hairline comeback that rivals Lebron’s comeback vs. the Warriors in 2016:

No, his most impressive feat is balancing all of these accomplishments and responsibilities while being a terminally online inhabitant of Twitter dot com.

Elon Musk sent his first tweet in June 2010, and as of July 2023, he boasts 147.7M Twitter followers, a number that would edge out Russia (144M people) for the 9th most populous country on the planet.

Unlike many business leaders, who use their social media platforms to broadcast a polished view of themselves, Musk has long used Twitter as a medium for his own entertainment. From baiting fellow billionaires, to pumping Shiba Inu-inspired cryptocurrencies, to racking up $20M fines for his "funding secured” tweets, Musk’s antics were far from “professional.”

But while Elon’s Twitter feed is chaotic, it is also effective.

In the internet economy, attention is more valuable than gold, and no one plays the attention game as well as Musk. Don’t believe me? How many other CEOs haven’t needed to spend a cent on advertising because their social media presence is more valuable than anything money could buy?

And Musk’s relationship with Twitter wasn’t one-way, either. If anything, it was symbiotic. Twitter, like most social media platforms, generates revenue by selling ads. Advertisers pay more money to get in front of more eyeballs. When your most followed user is also a frequent poster, he attracts a lot of eyeballs. It’s not a stretch to say that Elon’s account was one of Twitter’s most valuable assets over the last decade.

Ironically, this relationship between user and platform began to deteriorate once Twitter became one of Musk’s companies.

From time to time, we all play the hypothetical “If I had $_______, I would buy _______” game in our heads. When you have $200B, those hypotheticals aren’t so hypothetical.

In 2022, Musk loved Twitter, but he didn’t love how Twitter’s management (especially newly-appointed CEO Parag Agrawal) was running the company. He probably thought to himself, “If only I had $44B, I would just buy Twitter.” But unlike most of us, he did have $44B. In fact, he had $44B with another $160B to spare, so on April 14th, he decided that he would just buy the whole platform and fix it himself.

And that’s where the problems began.

For the last decade, Twitter was infamous for its lack of updates. Musk turned that trope on its head when he fired 80% of Twitter’s workforce, including the company’s prior executives, and started immediately implementing dozens of changes that were, in his opinion, much needed.

The legacy “verification” system that was used to signify notable persons and organizations was replaced by a pay-to-play model where anyone (including yours truly) could pay $8 for a blue check mark and more visibility on their posts. The algorithm behind the “for you” tab was tweaked turned upside down. Musk also throttled engagement on posts that included Substack links after the newsletter platform added a notes feature that mirrored Twitter’s feed, and Twitter started limiting the number of posts a user can view each day.

And yet, despite this flurry of activity, Twitter hasn’t improved. In fact, it feels like Twitter is decaying. To me, Twitter used to be like a high school hallway between classes, where you could listen to countless conversations seamlessly intertwined among each other. Twitter was an equalizer: an anonymous account could debate market cycles and valuation fluctuations with a season hedge fund manager. Athletes and artists could interact with their fans. It was the one place where anyone could interact with anyone.

But over the last year, there’s been a shift. Every other tweet is a cleverly-designed hook seeking to capture your attention so its author can sell you something at the end. Well-meaning discussions have been replaced by arguments and “GOTCHA!” dunks. Instead of a timeline filled with content from people I follow (which is, you know, the point of the follow button), Twitter continues to feed me irrelevant ads and spam-like content from random accounts. Put bluntly, the new Twitter kind of sucks.

So what went wrong?

In the worlds of X’s and O’s, calculations and computations, and math and engineering, Musk is one of one.

If I asked you, “How does a rocket achieve lift-off?” You could take into account variables such as its weight, shape, material composition, and fuel source to give me a definitive answer.

But social media isn’t rocket science.

If I asked you, “What makes some tweets perform better than others?” or “What makes a social platform fun?” you couldn’t answer that with metrics and facts. I mean, sure, we have ideas. But there aren’t any rules to social media success like there are rules to physics. Some of the funniest posts get zero traction, and apps like BeReal, which appeared to have major traction, burned out after a few months. Social media platforms are the collective embodiment of their users. And those users are happy, angry, excited, scared, and most notably fickle. These platforms live and die on vibes, and you can’t calculate vibes with physics.

Twitter was never “good,” in a business sense. It IPO’d in November 2013, finishing its first trading day at $44.90 per share. After nine years, despite one of the strongest tech bull markets ever, Musk acquired Twitter for $54.20 per share (a price which he later said was too high), marking a 21% gain in a period that the Nasdaq composite increased by 233%. Twitter never came close to 1B users, and its ad-targeting, especially when compared to Google and Instagram, was wonky at best.

Twitter was, however, invaluable as a source of current events and community.

Twitter was the primary source for every news outlet as anything that happened anywhere was mentioned on Twitter first. Different groups of users would gather to discuss everything from the implications of LeBron joining the Lakers to the benefits of adding emerging market exposure to your portfolio. These communities may not have increased shareholder value, but they were fun.

Elon Musk’s Twitter isn’t fun.

Musk has been preoccupied with fighting a “free speech” and “data privacy” battle that no one actually cares about (and let me be clear, 99.9% of users don’t care about data privacy. They want a fun, easy-to-use platform. Please farm my data! Hopefully the ads are better). Meanwhile, Twitter has been gamified to hell by users seeking to extract every last ounce of engagement from the Blue Bird app, it is near-impossible to find tweets from people in your network.

Basically, in an effort to make changes that he thought were necessary, Musk made Twitter much, much worse.

And as Twitter began its descent, Mark Zuckerberg smelled blood in the water.

Zuck has (rightfully so) received a lot of shit for his failed Metaverse experiment. As consumers yearned to return to the “real world,” Zuck incinerated tens of billions of dollars on his virtual reality vision, and Wall Street took notice.

Between September 2021 and October 2022, Meta shares declined from ~$380 to ~$90 as investors thought the company was left for dead.

And you know what? The metaverse was probably a misstep. But when your company generated $39B in free cash flow in 2021, you can afford a few billion-dollar missteps, and let’s not forget that this is the same Zuckerberg who kickstarted “social media” as we know it and continues to dominate this world through Facebook, Instagram, and Whatsapp.

Last fall, while critics continued to lambaste Zuck for his metaverse ambitions, Meta employees took notice of disgruntled Twitter users seeking alternative platforms such as Mastodon, and they began discussing creating a standalone app for Instagram’s coming “Notes” feature. By January of 2023, Meta began developing this app, code-named “P92,” and news of Instagram’s Twitter competitor hit the mainstream in June when The Verge leaked details of the project.

This brings us to last week, when Meta released their new platform, Threads, to the public.

So far in this piece, I have been heavily critical of Elon Musk’s Twitter. But still, my first thought when I saw the Threads news was, “Cool, another Twitter competitor. We’ll see how long this one lasts.” After all, last fall we saw a wave of several “next Twitters,” but no one is talking about Mastodon anymore, are they?

I had my doubts.

Then Zuck announced that Threads had hit 10M sign-ups in 7 hours. And 100M sign-ups in 5 days. And Threads still isn’t available in Europe.

So now, for the first time, I think there could be a true Twitter killer. But why is this time different?

1) Zuck

Mark Zuckerberg founded Facebook, the OG social network, when he was in college, and he has since acquired the largest messaging and photo-sharing platforms in the world. If anyone was going to have a chance at taking Twitter’s crown, it was him.

2) Everyone was looking for an alternative

As mentioned earlier, Twitter was never a great business, but it used to be a fun user experience. You could go there to hang out, pick a fight, laugh at memes, and goof off with your internet friends. But as the quality of the newsfeed declined and the general experience worsened, everyone wanted something, anything, different.

Let me be clear: Threads, as a platform, sucks right now. You can’t sort chronologically or by followers. You can’t direct message. You can’t search for tweets. But no one cares. Those features are coming, but in the meantime, users seem to be genuinely having fun. Threads feels like a homecoming tailgate where everyone is a few drinks in, unashamedly sharing every thought that comes to their mind. Its algorithm hasn’t been gamified yet because no one has had time to gamify it. Everyone is just rawdawging the timeline with their unprotected thoughts, and the user experience is better for it.

3) Musk’s Twitter is in a tough business position

Maybe it’s because users have departed the platform, maybe it’s because Musk fired half of the employees responsible for maintaining relationships with advertisers, or maybe it’s because brands are wary to partner with Twitter because of Musk himself, but Twitter’s ad business is in the tank right now, with revenue down 59% YoY in April.

This matters because Musk’s Twitter owes $1B+ in interest payments on its debt each year, forcing them to make subscription payments a more prominent revenue stream to offset the loss of advertising sales. The problem with Twitter’s subscription strategy is that the perks of paying for a subscription (increased engagement) are part of what has made Twitter a worse user experience (random “paid subs” now appear in your timeline.) For Twitter to win the paid subscription game, a critical mass of users need to pay for a blue check, but if too many users pay for blue checks, the benefits of being verified get diluted and the newsfeed would likely become a nonstop stream of verified users.

It’s a lose-lose situation.

Speaking of verified users…

4) OG verified users have fewer incentives to stay on Twitter

Verification used to convey status. You had to be someone (that “someone” definition was somewhat subjective and up to Twitter’s discretion) to be verified, and being verified gave you a level of respect in the Twitter ecosystem. Getting a follow or reply from a verified account was a big deal. The hierarchy benefited all parties.

Now? Anyone with 22 followers and a platypus profile picture can be “verified,” screwing up the social pecking order. As someone who directly benefits from the current system, I can honestly say the prior verification method made for a more pleasant, and orderly experience.

5) Musk fired everyone who could make Twitter competitive, and many of them work for Meta now

After Meta launched Threads, Twitter attorney Alex Spiro threatened to sue Meta, claiming that Meta had hired former Twitter employees who “had and continue to have access to Twitter’s trade secrets and other highly confidential information.”

Meta’s spokesperson replied, noting that “No one on the Threads engineering team is a former Twitter employee.”

Debating whether or not Meta stole “trade secrets” from Twitter misses the point. Musk fired 80% of his workforce when he took over. Those employees weren’t just not going to work somewhere. If you were fired from one social media company, it’s plausible that you would seek employment at another social media company.

This mass firing was a double-edged sword: First, those employees now help your competitor, second, not having those employees makes it that much harder for you to innovate to stay ahead of the competition. Not great!

Is Twitter definitely, positively, without a doubt dead? No. It’s still the go-to destination for current events, casual communication, and short-form blogging. But its position is weakening quickly, and if anyone can dethrone Twitter, it’s Zuckerberg.

Social media isn’t rocket science, it’s something much harder.

- Jack

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