Is the Twitter moat eroding?
CONTENT WARS and the Twitter Vs Substack battle.
About a year ago, before Elon completed the acquisition of Twitter, I sent out Elon Musk at the gate. I stressed the point that Twitter had to reduce head count drastically, and that growth plans and increasing revenues was no excuse… 👇
BUT FIRST! Twitter has to reduce its head count. They have to shrink, trim the fat and rationalise costs.
Increasing sales is not an excuse to keep increasing costs and not making any money. They are no longer a startup.
Gross Margins are >60% - the company should have been printing money.
Look at all those revenues. $5 billion last year.
Facebook achieves EBIT margins of >30%.
Twitter achieves EBIT margins of 0% to 10%.
It was obvious that Twitter was not being managed as a profit-seeking enterprise for the benefit of all stakeholders. Management and staff got rewarded handsomely while shareholders were actually punished.
Elon keeps laying off more Twitter employees. LINK.
Elon did manage to cut the fat by reducing head count by 80%. And guess what, the platform is still operational — and you could argue revenues will also do well as Twitter Blue is ramping up.
But Elon made other mistakes…
After Substack announced the launch of Notes (a microblogging platform like Twitter), Twitter tried to restrict Substack<>Twitter interoperability.
How? By making it difficult/cutting off Substack links from being tweeted and limiting Tweets from being embedded on Substack posts. Substack writers used Tweets in their posts all the time, driving engagement to Twitter and making content shared on Twitter native to the whole internet basically.
But Elon sees differently. They are moving more and more towards a closed network — trying to kill competition that could piggy back off Twitter’s content. But Twitter’s content is the content of the people sharing on Twitter!
If you chase them away, what do you have? Nothing.
TWITTER IS KILLING ITS OWN NETWORK EFFECT
Newsletter writers frequent Twitter because it's a great place to engage with people, distribute content and grow their reader list. ....And because these writers and other content creators distribute content, Twitter is a great place. Do you see the cyclicality and network effect here?
Now Twitter Mgmt/Elon decided to start repressing the distribution of content and link sharing on the platform -- lest someone steal their cheese..But it's working backwards!
The fact that I can't share on Twitter made me look to Substack Notes even more: The platform is ramped up, I have thousands of followers and they can reSTACK me for more engagement. Twitter is killing its own network effect this way.
If we start noting on Substack Notes, Twitter will lose traction, and Substack will gain from further network effects. Why do I say further? Because Substack already has millions of users — It did not start from 0.
So you see, this strategy of closing the network more and more will boomerang more and more... If you wanna stay alive you need to open up! It’s obvious.