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Is Elon Musk overpaying for a loud megaphone?

Assif Shameen
Assif Shameen • 11 min read
Is Elon Musk overpaying for a loud megaphone?
To get all his new ventures to the next level, Elon Musk will need a marketing tool like Twitter. Photo: Bloomberg
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Once upon a time in a faraway planet called Earth, inhabitants had a fascination with something called social media, or digital channels that help facilitate the creation and sharing of ideas, information and different forms of expression.

Things got so crazy that at one point the planet’s richest person paid a whopping US$44 billion ($60 billion) for a loud megaphone, affectionately known as Twitter. At the time, it was by far the largest-ever purchase of anything in the earth’s entire history. The whole world was agog. What on earth was going on the planet?

Someday, when the inhabitants of Mars, or some other distant planet, are writing the history of the universe, they might attempt to put what has been happening recently in proper context.

Unless you have been hiding under a rock or have just returned from outer space, you probably know that the world’s richest man Elon Musk (current net worth US$253 billion, according to Bloomberg Billionaires list) on April 25 purchased Twitter after three weeks of weird tweets, a media frenzy and a firestorm of speculation that overwhelmed everything, including the social media platform at the centre of it all.

I covered the Twitter saga extensively in my column two weeks ago, and you have probably seen updates of the ongoing story on the Internet or in other media. As such, I would avoid regurgitating stuff that you can find elsewhere.

I will also stay away from details of the US$46 billion financing package that investment bankers put together to clinch the deal — including US$13 billion in debt financing, US$12.5 billion margin loans against Tesla and US$21 billion in equity commitments — he put up. And I will avoid speculating on how soon might Musk get a margin call from his bankers and what might happen if the banks are forced to sell some or all of the Tesla stock they are holding as collateral. All that stuff has been written in excruciating detail which you can easily find elsewhere in the local media or on the Internet.

See also: Microsoft warns other firms of Russian-sponsored group in email hacking

Allow me to jump straight to what has not been covered well elsewhere. Like how the 50-year-old South African-born serial entrepreneur, who was literally broke 10 years ago having bet everything on his pioneering electric vehicle (EV) firm, became the world’s most celebrated innovator with a growing army of fanatical followers and the role Twitter and other social media played in his own rise as the world’s richest and how Tesla catapulted to the world most valuable automakers (current market capitalisation US$912 billion). How would he benefit from controlling the world’s loudest megaphone?

To understand how the world’s wealthiest might leverage the planet’s loudest megaphone to take him to the next level you need to understand how struggling start-ups these days promote themselves to stakeholders. The way emerging companies market themselves as they seek to grow into large global enterprises has dramatically changed in recent years.

Ten years ago, if you were getting ready to sell cars, personal computers or consumer goods on a global scale, you would have had to set aside a big chunk of your total budget for advertising and marketing. These days you might just loudly tweet all about your product for free on Twitter bypassing high paid marketing gurus and big cheques to advertising firms. It is, after all, the Internet’s loudest — and, arguably, most effective — megaphone.

See also: Microsoft, Amazon and Google are kingmakers for AI start-ups

Global auto giants like General Motors, Toyota Motors, Ford Motor Company and others spend billions on advertising and marketing around the world every year to meet their sales targets. Although the amount of money they spend to sell cars has been steadily declining, advertising and marketing budgets for large automakers are still huge.

Global ad budgets for major automakers dipped sharply during the pandemic but have returned to pre-pandemic levels this year even as the giants sell fewer cars due to the acute shortage of semiconductors and other supply chain issues.

Guerilla marketing with a megaphone

GM spends about US$5 billion on advertising annually, Ford’s annual global advertising outlays are about US$3 billion and Toyota spends nearly US$7 billion globally. Some of the more aggressive spenders on advertising are Korean auto companies like Hyundai Motors and its affiliate Kia Motors who have been trying to increase their market share at the expense of their larger Japanese and US rivals.

And this is just the ad budget. Throw in the money the auto giants spend on promotions and soft marketing and the total numbers are even bigger. To compete effectively against large entrenched incumbents like GM, Toyota or Ford, a start-up like Tesla would have had to pour billions just to create awareness and build its brand from scratch. Tesla which skirted bankruptcy for years had no money to spend on advertising so Musk resorted to guerrilla marketing and all sorts of antics to promote his electric cars.

He also used Twitter to taunt rivals and play pied piper to his growing hordes of fans. Tesla has never advertised, indeed never even spent much on any form of marketing or promotion. The money Tesla saves on advertising and marketing goes straight to its bottom line. Clearly, Musk is not just one of the world’s best innovators and most successful entrepreneurs, he is also by far one of the world’s best communicators and a great showman. In the three weeks since the battle for control of Twitter began with the announcement of his interest to the board agreeing to his US$44 billion offer, Musk added six million new Twitter followers.

The publicity generated by the bid pushed two million Twitter users each week to sign up as his new “followers”. Musk knows as Tesla moves from selling 1.5 million EVs this year to its next goal of selling nearly five million cars a year by 2025, he needs a more effective and louder megaphone. It would be nice if he had a firmer grip, or preferably, total control of such an effective marketing and promotion tool.

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Musk got this far this fast by using Twitter far more effectively than any other businessman. A new study, by Professor David A Kirsch and his assistant Moshen Chowdhury at University of Maryland’s Robert H Smith School of Business, published recently shows that Twitter bots helped build the cult of Elon Musk and Tesla as much as his horde of fanatical fans. The bots helped pump up pioneering EV maker’s stock price for over seven years starting in 2013 allowing him to repeatedly raise more cash.

If you do not know what a bot is and how it works, here is the low-down. Bots are automated accounts on a platform programmed to do certain tasks without a human user needing to manually start them up every time. They can be programmed to scour the Twitter platform to keep an eye on specific news content or posts and post negative or positive responses to tweets.

Companies, large and small, have long used Twitter as a messaging and marketing tool and bots have always been part of the mix. Over the years, bots have gotten a bolder and broader role as corporate defenders alongside their original role as a propagandist. Every time someone attacks you or says something negative about your company, the bots can be programmed to post scathing responses.

Spotting bots

If you look at Twitter it is actually easy to spot the bots. They tend to make a ton of mistakes and can’t string together complete sentences. Maryland University researchers found that a fifth of the volume of tweets about Tesla were bot-generated. They also found that over 60% of Musk’s followers were “fake” or bots. Twitter users with the largest number of followers include former US President Barack Obama (131 million followers) Justin Beiber (114 million), Katy Perry (108 million) and Rihanna (103 million). Musk had the highest percentage of “fake” followers. The researchers studied 186 Tesla-focused bots which sent 30,000 Tweets praising “positive” sentiments about Tesla over the course of seven years. They traced each bot from the day it started tweeting and discovered that after the launch of each, Tesla’s stock rose by more than 2%.

Tesla stock surged over 19,000% between January 2013 and its peak last November. During the nine year period Tesla was the best performing large cap stock on Earth. The stock is down 28% from the peak.

Control of Twitter will help Musk get some respect that he believes he now deserves as the world’s richest person. It will also help Musk and his fanatical followers settle scores with other billionaires like arch rival Jeff Bezos, the founder of e-commerce behemoth Amazon.com. Like Musk, Amazon founder Jeff Bezos (net worth US$201 billion) is a space enthusiast though Blue Origin, his aerospace manufacturer and sub-orbital space flight services firm lags far behind SpaceX.

Last week, the Tesla founder and the soon to be owner of Twitter went after Bill Gates, the co-founder of software giant Microsoft and the fourth richest person in the world (net worth US$ 125 billion). Musk had “heard from multiple people that Gates still had a half billion short position against Tesla,” which prompted him to fire a tweet at Gates, asking: “Do you still have a half billion dollar short position against Tesla?”

The Microsoft co-founder promptly replied: “Sorry to say I haven’t closed it out. I would like to discuss philanthropy possibilities.” Musk seemed livid that Gates had not only quickly confirmed he was still shorting Tesla stock but was also asking him to donate much of his net worth to his climate change charity. “Sorry, I cannot take your philanthropy on climate change seriously when you have a massive short position against Tesla,” Musk replied in the exchange that has since gone viral on Twitter.

Musk who continues to be one of the most prolific of the high profile tweeters on the platform can now use it to promote his array of companies, as well as his interests, while running down his detractors and indeed anyone who disagrees with him. Tesla aside, he has a lot of other ventures that need to be promoted and defended from sceptics and detractors. Musk has built SpaceX, an aerospace manufacturer and space transportation services provider which is currently valued at over US$100 billion biggest private contractors of NASA, the US space agency.

SpaceX stated the goal is making access to space faster and cheaper and eventually create a colony on Mars. After years of botched space launches, SpaceX began hitting the stride five years ago. It was the first private space firm to send a craft to the International Space Station and the first to send astronauts to orbit.

You have probably also heard of SpaceX’s Starlink, the space broadband Internet service which has been helping the Ukrainian army to defend the country against Russian invasion. Musk also founded and funded The Boring Co, a tunnelling firm that constructs “hyperloop” tubes that will shoot cars at high speeds between major cities, cutting down on highway congestion. The Boring Co has already built two short “test” loops — one in Las Vegas and a “test tunnel” outside Los Angeles.

During former President Donald Trump’s administration, Musk pushed the idea to construct a hyperloop between New York City and Washington, DC that would reduce travel time between the US capital and America’s business hub and largest city to just 29 minutes. The Boring Co was valued at US$5.6 billion at its last funding round.

Five years ago, Musk founded Neuralink Corp, a neurotechnology company that develops implantable brain–machine interfaces. Its mission is to create brain implants that will one day make humans hyper-intelligent, heal traumatic brain injuries and let paralysed people walk again. Neuralink last year became a “unicorn”, a private venture capital start-up with a valuation of over US$1 billion. To take his new ventures to the next level, Musk will need an effective marketing tool like Twitter. Clearly, the US$44 billion he is paying for it is worth every penny.

Assif Shameen is a technology and business writer based in North America

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