Will Elon Musk destroy the X platform and push it into bankruptcy? – Arabic 21

Since his purchase of the global platform “X” (formerly “Twitter”), its American owner, Elon Musk, has been constantly arousing controversy after the exciting decisions he has taken since arriving at the platform’s management.

In his latest controversial actions, Musk launched a scathing attack on advertisers boycotting the

James Clayton, BBC technology correspondent in North America, says in a report published on the BBC Arabic website that last April, he sat down with Musk as part of his interviews about his acquisition of X, formerly known as Twitter.

Speaking about advertising, Musk said: “If Disney feels comfortable advertising children’s movies on Twitter, and Apple feels comfortable advertising iPhones, then these are good indicators that Twitter is a good place to advertise.”

After seven months had passed, Disney and Apple stopped advertising on the “X” platform, and Musk said that if someone would try to blackmail him with ads or money, let him go, and he mentioned an obscene word to express his extreme anger at the attempt to blackmail him.

The companies had temporarily stopped ads after an investigation conducted by an American organization, which confirmed that the platform had flagged ads that appeared next to pro-Nazi posts.

The X platform strongly rejected the report, questioned its research methods, and filed a lawsuit against the organization.

In an interview last Wednesday, Musk pointed out the amount of damage caused to the platform after some people stopped advertising on the platform.

For a company he bought for $44 billion last year, bankruptcy may seem unthinkable, but it is possible. To understand why, you have to look at the extent of the platform’s dependence on advertising revenue.

Although there are no accurate numbers, about 90% of the “X” platform’s revenues last year were from advertising.

Musk hinted at the danger of advertisers stopping advertising on the platform, and said: “If the company fails, it will fail because of advertisers’ boycott, and this will lead to the company’s bankruptcy.”

Mark Jay, chief client officer at marketing consultancy Ebiquity, which works with hundreds of companies, says there are no signs that any of the departing advertisers will return to the platform. “The money has gone out and no one has put together a reinvestment strategy,” he said.

Retail giant Walmart announced last Friday that it had stopped advertising on the X platform.

After Musk insulted the advertisers who left the platform, he “insulted” Disney CEO Bob Iger.

According to Lou Pascalis, of marketing consulting firm AJL Advisory, when Musk puts CEOs “in his crosshairs” in this way, they will be more reticent to engage with the platform.

“It doesn’t take a social media expert to understand that publicly and personally attacking advertisers and companies that pay X bills won’t be good for business,” adds Jasmine Enberg, principal analyst at Insider Intelligence.

Could X really go bankrupt?
If advertisers are gone forever, what will Musk have left?
Journalist James Clayton adds that when I interviewed Musk last April, it was clear that he understood that subscriptions on the “X” platform would not replace advertising revenues.

“If you have a million people subscribing, at about $100 a year, that’s $100 million, and that’s a fairly small revenue stream compared to advertising,” he told me.

In 2022, X’s advertising revenue reached approximately $4 billion. Insider Intelligence estimates that this year it will fall to $1.9 billion.

The company has two main expenses, the first is the recruitment bill, and it has had a history of laying off thousands of employees.

The second is the loans that Musk had to take out to buy X, which total about $13 billion. Reuters reported that the company now has to pay approximately $1.2 billion in interest each year.

If the company can’t pay interest on its loans or pay employees, then yes, X could indeed go bankrupt, but that’s a scenario Musk would want to avoid.

Musk has limited options to deal with this crisis, the simplest thing for him is to invest more of his money in the platform, but it seems that he does not want to do that.

Musk could try to renegotiate with banks to get lower interest. He can request, for example, a “payment in kind” benefit that allows him to delay payment.

But if the renegotiation process is unsuccessful and the banks do not get their money, bankruptcy may be the only option, at which point the banks may try to pressure the platform to replace management.

“It will be very messy and complicated, because he will be constantly deposed and will have to testify in court,” says Jared Elias, a law professor at Harvard Law School.

This will affect Musk’s business reputation but, if the bankruptcy scenario occurs, will X simply go out of business?

“I find that very hard to believe,” says Elias, “because if it happens, it will be because Elon decided to pull the rug out. But even if he did, the creditors would have the option of pushing the company into bankruptcy and appointing a trustee.”

What’s next for Musk?
The obvious solution to all of these problems for X is to find another revenue stream, quickly.

X has launched a new voice and video calling service and last month, Musk broadcast a video of himself playing video games, which he hopes X can compete with apps like Twitch.

Musk wants X to become a “everything app that covers everything from chatting to online payments.”

According to the New York Times, which obtained Musk’s presentation to investors last year, the X platform was supposed to bring in $15 million from the payments business in 2023, growing to about $1.3 billion by 2028.

The “X” platform also has a huge treasure trove of data, and its huge archive of conversations can be used to train chatbots, and Musk believes that this data is of great value.

So the platform has potential. But in the short term, none of these options will fill the gap left by advertisers. That’s why Musk’s outburst was confusing to many.

“I don’t have any logical theories for what Musk did,” Pascalis says. “There’s a revenue model in his head that eludes me.”