Restructuring is a horrible time for the staff of any company, but it’s also an opportunity to concentrate on what reliably makes money. Elon Musk has made cuts so deep at Twitter Inc. that his team has started asking dozens of workers to return after being laid off last Friday, when about half of them were shown the door. Mark Zuckerberg’s Meta Platforms Inc. is, meanwhile, gearing up to fire thousands of its roughly 87,000 salaried employees on Wednesday, according to the Wall Street Journal, the first time in its history that it has ever carried out mass job cuts.
Inflation, fears of recession and a pandemic hiring boom have led to this inflection point for Big Tech, with firms like Stripe Inc. making painful job cuts too. But the cuts at Meta and Twitter are more than an opportunity to bolster their bottom line; it’s a moment to put aside their leaders’ obsessions with new and untested services.
Musk and Zuckerberg both run companies with advertising in their DNA, and they should refocus on being good ad businesses if they want to stem their decline — even if their moment of dominance appears to have peaked. Instead, Facebook’s founder is chasing virtual reality and Musk is threatening advertisers who boycott Twitter, as companies including General Motors Co., Microsoft Corp. and Verizon Communications Inc. suspend their ads on the site over concerns of inadequate content moderation.
Zuckerberg has invested more than US$10 billion in building a novel business based on virtual reality — the metaverse — that includes a US$1,499 headset that he’s pitching, inexplicably, for office meetings. Musk is selling Twitter’s blue verified badges for $8 and taking them away from anyone who doesn’t pay. Both billionaires are stubbornly chasing ideas that stand little chance of making money at a time when both firms need to pay their bills. Twitter in particular is saddled with US$1 billion in annual interest payments thanks to debt taken on in Musk’s purchase of the company.
Musk’s plans to generate the necessary cash don’t make sense. Even if all 400,000 verified badge holders paid the monthly fee, that would still bring in just US$38 million a year. Musk wants to get more users to buy the badge too, but his value proposition is nothing to write home about: You can post longer videos to the site, get ranked higher in threads and see half the normal volume of ads, according to Twitter’s updated page on Apple Inc.’s App Store.
Pre-Musk, Twitter’s attempts to make money from a subscription service, known as Twitter Blue, were always small and experimental. That’s because Twitter’s ad business has always been so reliable (and far bigger than US$38 million). The company brought in US$1.2 billion in revenue in the second quarter of 2022, with roughly 90% of that coming from ads. Meta made $28.9 billion in sales in the second quarter, with nearly all of that money coming from ads.
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It certainly makes sense to try and diversify, as I’ve argued here before. The digital ad business, which grew at a 21% clip in 2021, will likely slow to single digits in the coming years.
But Zuckerberg and Musk are pivoting far too quickly and too radically. They’re betting their entire companies on selling products, when social media firms generally do a terrible job selling products. Snap Inc. for instance, has never turned its augmented-reality spectacles into a viable revenue stream. Facebook itself has a string of product failures behind it.
The tech industry is entering an age of austerity as several big companies freeze hiring and trim their workforces. You could argue that companies like Twitter needed to be streamlined anyway, and that shifting from flashy novelties like self-driving cars and crypto to building truly useful products is a healthy step in the tech industry’s evolution. After all, the dotcom bust of two decades ago created a brutal market crucible that enabled the likes of Amazon.com Inc. and eBay Inc. to ultimately flourish.
But for Twitter and Facebook to stay afloat in this next big storm, their leaders need to untether themselves from new-fangled ideas, and any urges to solidify their legacies as innovators. They should stick with what works for now. Too much hubris could lead them to sink instead.
