Let me take you today into a favourite pass-time of media and management experts around the world: trying to examine the business acumen of Elon Musk. At the same time I use his current state of affairs re. Twitter as an example to explain some underlying economic concepts that are a good learning for any media executive. While Musk might not be a suitable role-model for many things he does, he is a suitable study object for applying shrewdly and scrupulously textbook economical and management principles. Hence, Twitter is the rat-lab for all of us who want to experiment on transforming an existing business into a new business model.
Musk has been widely regarded as a business genius, with many of his fans lauding him for his ability to turn existing businesses into mega success stories. However, the veracity of this assessment remains a topic of debate, particularly in light of recent challenges faced by Tesla and Twitter. What he does so well is learning a concept and then applying it rigorously.
Upon closer examination of Musk’s career and accomplishments, we find that his success can be attributed to his exceptional ability to learn complex concepts and transferring them methodically into the real world: i.e. following them step by step as a manager. While some may view this as evidence of genius, I argue that it is simply a testament to Musk’s dedication and hard work (and maybe lack of genius).
Twitter and the Super App Transformation:
What is it that Musk promised to do with Twitter? Why did he find so many wealthy investors and banks to co-finance the acquisition of Twitter in the first place? And what concepts does he follow in his dismantling and reassembling of Twitter.
Firstly, he has this vision of Twitter becoming a super app.
The concept of super apps is currently the hottest ‘sh.t’ in town – at least if your town is in Silicon Valley. Everyone is trying to launch the next super app: some with big ambition to be the super app for everyone, while others want to cover a certain niche or market segment only. The idea of the super app is, that this app is the one platform that provides all (and it is really meant: ALL) of the daily services that you require in your digital life. So, it typically would include banking / payment solutions, shopping and delivery services, communication/ messaging tools and all the relevant content that you typically consume.
In the words of Gartner Group: “A superapp, super app or super-app is an application that provides end users (customers, partners or employees) with a set of core features plus access to independently created miniapps. The superapp is built as a platform to deliver a miniapps ecosystem that users can choose from to activate for consistent and personalized app experiences.
There is no separate app store or marketplace for miniapps. They are discovered and activated by the superapp users, and once used, they can also be easily removed from the user interface.“
It is the platform concept of the future and many of the new market entries look at existing super apps such as Wechat, Alibaba, Grab etc in the Asian market as role models. Platforms are the megastars that will rise to prominence in our digital experience soon and such platforms have one goal: attract as many people as possible and keep them inside your platform for all their needs – ideally 24/7; and ideally with access to all your data.
The economical principles driving the Twitter Transformation Process
Let me have a look at the economic concepts underlying Elon Musk’s strategy to reposition Twitter as a super app platform. My analysis reveals that Musk’s approach is in line with well-known economic principles, particularly the Network Effect.
The Network Effect is a crucial factor in the success of a super app platform. Musk has a significant advantage in this regard, as Twitter already boasts a massive user base. However, the key challenge for Musk is not to attract new users, but to retain existing ones during the restructuring process.
Typically, startups aim to quickly gain market share and expand their user network to achieve a critical mass that triggers the “winner takes it all” phenomenon. In the case of Twitter, Musk must reverse this scaling by preventing churn and avoiding a critical point of inflection where the network becomes unattractive to users. This, in turn, would lead to a loss of advertising clients and revenue.
The analysis indicates that Musk’s strategy is currently facing challenges, as evidenced by the recent introduction of alternative revenue sources such as the blue checkmark. Overall, we believe that Musk’s approach is sound, but it requires careful execution to avoid losing users and revenue.
But it brings us to another economic concept: “Time to Scale”.
For any start up, this is an imperative and in its essence the application of the network effect concept and its impact on development, marketing and cash flow. The idea is that a start up needs to keep development phase as brief and effective as possible to quickly enter the marketing phase. During the development phase, your business is not making money (sic: negative cash flow) as you do not have a product to market yet. Hence, concepts like agile software development become so popular. You looked at developing a basic, marketable product and then improved on it and added more features after you launched it.
Twitter is an existing business with current services and cash flow. But it looses revenue (see above) and it must quickly introduce new features that are leading into the future super app platform world. These features should also attract new customers and result in new monetization options, and positive cash flow.
If you look at all these concepts in one graph, you will see a couple of lines and each with different leverage for Musk:
Line A- User Development: Users decline currently and the hope is that new features will allure users back. Critical inflection points for Twitter to watch: when line is below cost structure, or when lowest point in line is hitting battle zone with competitors; or when development line (line D) is shifting constantly to right along a falling A-Line
Line B – Cash Flow: cash flow is currently decreasing because advertising clients are leaving the platform. New monetization via super app services will generate additional revenue and cash flow. Further pressure on cash flow is from increased development cost. Musk can improve cash flow short-term by charging fees to existing Twitter user (‘blue check mark’), but that might impact churn and Line A; he can also try to add more relevant subscribers to allure advertising partners who spend more CPM. But that is also unlikely currently.
Line C – Cost Base Line: this is were Musk immediately acted and tried to reduce the cost of the overall operation. By cutting off staff, suppliers and other cost factors, he hoped to improve cost situation and bringing that line down. As you see from the chart, it opens for him a bit more room to manouver
Line D – Development Deadline / Ship To Market: again, a line on which Musk acted immediately. He wants to move that line as much to the left as possible. The sooner he can add new services that better the effect on Line A and B. That is why he asked developers to work through the night and weekends.
It remains unknown and interesting to watch if a) Musk will manage to convert Twitter fast enough into a super app to outpace potential competitors and b) if users will like the new Twitter super app and actually stay with it for the long run.
Economic dynamics and imperatives are what they are: and even an Elon Musk is subject to them.
How do such models affect your business and how to manage them? Contact me for a discovery call and to learn how we can guide you through transformational change and developments.