Charging users $8 a month to verify their accounts is unlikely to cover much of the debt service costs resulting from Elon Musk’s $44 billion acquisition of the social media company. This could also drive away most of the influential people the platform requires.
Witter must pay its bills. The firm’s new owner Elon Musk insisted as much in a tweet Monday in response to author Stephen King’s criticism of a plan to charge Twitter users $20 a month for account verification. Musk changed course quickly on Tuesday when he issued a statement. tweeted compromise: “Power to the people! Blue for $8/month” (though the plan may have changed again by the time you’re reading this).
Musk finally bought the social media giant for $44Billion last Thursday. This was nearly six months since Musk announced the deal had been delayed due to bot concerns. There were many key questions that remained. One of the most important questions was how Musk intends to turn Twitter into a profitable company, particularly with huge bills in sight. For stock that could have been vested, employees are responsible. And there’s also the nearly $1 billion in annual interest expense that analysts estimate the company could be saddled with due to at least $13 billion of debt likely used to finance one of the most expensive acquisitions in tech history.
The $8 per month fee for account verification may be a piece of that puzzle—but it’s likely a small one. SME estimates that 10.4 million users would have to pay that fee each year to service Twitter’s debt—approximately 25 times more than the roughly 400,000 users currently boasting blue check marks free of charge. Adopting this fee could lead to Twitter losing the most powerful users it relies upon for its success.
Even if some of Twitter’s users are ultimately willing to pay $8 a month for account verification, it’s unlikely to make much of a dent in the $1 billion of annual interest expense, according to Wedbush analyst Dan Ives, who covers Twitter. Ives believes the $8 per month fees could generate new revenue equal to 4-5% of the company’s largest existing revenue stream, advertising revenue, “out of the gates depending on uptake if adoption is strong.” At most, that would infer $230 million to $290 million of new revenue based on Wedbush’s most recent forecast for total 2022 revenue at $5.8 billion—or 2.4 million to 3 million users paying $8 per month. Asked whether he could ever see $8 per month account verification generating $1 billion of revenue, Ives said “nope, just helps fill the hole to higher monetization of Twitter, which has been on a treadmill the last decade.”
The $8 monthly charge “is about adding an incremental revenue stream,” according to analyst Richard Greenfield of Lightspeed Partners, “not replacing the current business” (which analysts estimate will generate $1.1 billion of EBITDA–earnings before interest, taxes, depreciation and amortization–in 2022). In other words, Musk will likely have to look elsewhere for most of the revenue needed to service Twitter’s debt costs.
Other, more lucrative opportunities are available. For example, “there’s a whole group of corporate users where Twitter is critical to run their business,” Greenfield says. “Those people would absolutely pay for Twitter and pay meaningfully.”
Musk, however, was primarily focused on the individual user on Tuesday. He claimed in an interview that he had spoken to a handful of users. tweetPayed verification allows them to have priority in reply, mentions, search and see fewer ads, post longer audio and videos, as well as view more replies. Musk has not elaborated on these features, but it would allow some users to bypass paywalls or add compensation to content creators. Influencers, however, are not in favor of the change, according to research firm GlobalData — and it’s influencers that people come to Twitter to interact with.
They’re not alone. These are the results of an poll of Twitter users last Sunday by angel investor and Musk ally Jason Calacanis suggests that the number of users with blue check marks could actually shrink under Musk’s new plan, despite all those fancy features. Asked “how much would you pay to be verified & get a blue check mark on Twitter,” nearly 82% of respondents said they wouldn’t pay anything.
“It ain’t the money, it’s the principle of the thing.”
Social media users are being urgedPremium features are not a new concept. LinkedIn generates 40% of its revenues through premium subscriptions. There are several levels starting at $29.99 per months. Twitter also has its premium subscriptions. Twitter Blue subscription service, which since 2021 has provided users with “access to premium features like Undo Tweet” for around $4.99 per month. (Twitter hasn’t disclosed its revenues from Twitter Blue, which were lumped into a generic “subscription and other” category in its disclosures as a public company. But in its final quarterly filing, that category comprised less than 10% of Twitter’s revenue and showed a 27% year over year decline.) What is new, though, is Musk’s plan to make verification a paid service.
Nir Eyal (author and ex-Stanford lecturer) says that widespread verification of Twitter users could decrease bots and allow for more genuine people to be identified, who advertisers might then target. But if users start paying to see fewer ads, that would end up reducing Twitter’s ad revenues.
A blue verification mark is used to indicate status in digital communities. It was created by a 2009 lawsuit for defamation against the company. Originally, the goal of the program was to verify the identity of certain types of people, such as celebrities, politicians, businesses and journalists as a protection against impersonation and fraud, and the company’s rules require that accounts be “authentic, notable and active” in order to qualify.
LinkedIn and Facebook also offer verification programs. However, neither one charges for this service. That’s because it’s seen as a service to protect users from misinformation rather than as a premium feature. And, Twitter’s plans to charge for verification could on the flipside lead to impersonators of notable individuals who cannot afford or are unwilling to pay the fee.
Eyal suggested that Twitter would charge a once-off upfront fee to verify users. This was in exchange for a promise that paid users will be able to remove impersonator accounts. Eyal warns that following through on the promise is crucial. “Whether it’s Instagram, Tiktok or LinkedIn, they all suck at taking down fake accounts,” he says.
Lightshed Partners’ Greenfield sees a significant opportunity to generate additional cash flow from other high-margin subscription services, including by growing the number of Twitter Blue subscribers, which factored prominently into Musk’s plans in a pitch deck leaked to the New York TimesMai
According to the pitch deck, Musk expected that service and another one mysteriously named “X” (widely believed to be “super app” functionality akin to WeChat) to generate much of the $10 billion in subscription revenue ambitiously forecasted for 2028. That’s nearly double the company’s total sales for 2021, which Musk expected to increase more than fivefold to $26.4 billion by 2028. He projects that $12 billion of total sales that year will come from advertising to a much larger user base of 931 million users—more than quadruple the 217 million reported by the company for 2021.
It’s not easy to set lofty goals. But just “240 million users, even 5% of them paying $10 a month, is a $1.5 billion business opportunity,” points out Lightshed Partners’ Greenfield, adding that “there’s lots of details to be worked out.” One of those details may be figuring out how much of the non-paying majority will be so offended by the fee that they leave the platform altogether. One user claims that the platform is worth $1.5 billion. author Stephen King, “it ain’t the money, it’s the principle of the thing.”
Big users leaving the platform is the biggest risk of Musk’s change, agrees Eyal. “The worst thing for Twitter is that the network effect collapses–because no one wants to be at a party where other people aren’t there.”