Sociable: Musk's Dominance Poses a Potential Threat to X's Future Business

“Sociable” is Andrew Hutchinson's insightful commentary on the latest developments and trends in social media, offering valuable insights from an industry expert at Social Media Today.

It's important to note that X cannot endure an extended advertiser boycott.

On the weekend, several well-known advertisers declared that they would cease running their ad campaigns on X. This decision was influenced by third-party reports indicating that X is not effectively ensuring brand safety. Additionally, Elon Musk's personal opinions on political matters have further contributed to this situation.

The first concern specifically stems from a report by Media Matters. According to this report, X's advertising system is displaying ads alongside racist, neo-Nazi, and anti-Semitic content in various forms. Despite X's claims of having preventive measures in place, it appears that their ad revenue sharing program may actually be encouraging the monetization of such material. In essence, this program incentivizes users to create divisive and harmful posts.

Last week, Musk's commentary included overt praise of a notorious antisemitic conspiracy theory, which proved to be the final straw for many users in terms of their time and investment in the app. Consequently, several prominent ad partners of X, such as Sony Pictures, NBCUniversal, Paramount, Warner Brothers, Discovery, Disney, Apple, and Lionsgate, declared their decision to temporarily halt their expenditure on the platform.

ESPN, a subsidiary of Disney, has taken it a step further by suspending their complete posting process. As a result, all of ESPN's X handles went dark on Saturday. This move is expected to significantly affect X engagement since sports is a major focus for the app. Earlier this year, X reported that 42% of its user base consists of sports fans.

X's challenges have also provided an advantageous opportunity for Meta, as many users are now shifting their attention to Threads instead. However, the long-term consequences for X in this situation are far more substantial.

Apple alone reportedly spent $100 million on X ads in 2022. However, X's ad revenue had already been halved year-over-year due to concerns about the platform's direction under Musk and hesitations from brands. Before the new boycott, X was projected to generate approximately $2 billion in annual ad revenue based on its 2022 performance. Taking into account the spending of other major advertisers, it can be assumed that the overall impact will be significant, potentially reducing X's annual total by an additional 25%. This is especially relevant considering the timing, as ad spend increases during the holiday season.

While X does have other sources of revenue, such as subscriptions and API charges, they are nowhere near sufficient to compensate for this substantial loss.

According to recent estimates, X's subscription and data sales are projected to contribute approximately $600 million annually to the company's finances, which is a noteworthy alternative stream of income. Nevertheless, compared to its primary advertising business, it remains a minor component.

If left unaddressed, these accumulating losses could ultimately render X financially unsustainable. On top of the significant operating costs, estimated to range from $2 billion to $2.8 billion annually, the burden of Elon Musk's added debt will further contribute an additional $1.5 billion per year.

Income prior to this incident appeared to be approximately $2.6 billion, compared to expenses of $3.5 billion. Despite all the cost-cutting efforts, X was already projecting a substantial loss even before this recent problem. It is also important to note that these estimates do not include the extra expenses for GPUs and other systems needed to support XAI's new "Grok" chatbot, which is another one of Elon's personal ventures.

X should focus on revitalizing its revenue streams and regaining the trust and loyalty of top advertisers. This must be done promptly to prevent further decline, as the departure of users from the app continues unabated.

Instead of following the usual corporate playbook, Elon refuses to apologize for any potential harm caused by his comments, dismissing them as mere misinterpretations or misunderstandings.

Instead of admitting that his comments may have been poorly thought out, Musk has taken a confrontational approach, restating that he is not racist based on the assurance of his friends. In addition, he inexplicably accuses X's key ad partners of being "oppressors of free speech," suggesting that they are using their influence to silence users. Essentially, Musk implies that these major ad partners, responsible for 70% of X's revenue, are attempting to suppress voices.

Musk's actions are unlikely to foster goodwill with those who finance his endeavors. Moreover, he has vowed to pursue legal action against Media Matters, referring to it as a "thermonuclear lawsuit." Elon Musk accuses the organization of fabricating evidence that X is displaying advertisements alongside objectionable material.

Musk claimed that Media Matters deceived the system by generating bogus profiles and constantly refreshing the timeline until ads from prominent companies appeared alongside objectionable content. This approach could still serve as valid evidence of its feasibility within X's existing system. However, Musk and his team argue that this strategy is misleading and does not accurately reflect the system's failure rate. It is uncertain if this was the intended purpose, but Elon and his team are supporting this viewpoint.

Musk has shared posts alleging that Media Matters may have fabricated screenshots to support their claims. He has referred to the organization as "evil incarnate" in response to their reporting. It should be mentioned that Elon similarly threatened legal action against the Anti-Defamation League (ADL) in September when they published a report suggesting that anti-Semitic posts were more common on the app under Musk's leadership. Furthermore, Musk initiated legal proceedings against the Center for Countering Digital Hate (CCDH) in August following their research that claimed X had consistently failed to remove anti-Semitic, anti-Palestinian, and anti-Muslim content.

This is essentially how Elon operates, despite his claims of promoting "free speech".

It appears that free speech is only allowed unless it involves criticizing Elon or his businesses.

In any case, X's approach starkly contrasts with the typical corporate strategy. Instead of acknowledging these issues and collaborating with these groups to enhance its systems, X chooses to go the opposite route.

This is primarily due to Musk's distinctive perspective on what should or should not be permitted on the internet. Elon believes that the most effective way to address contentious matters is by granting everyone the freedom to express their thoughts, regardless of how offensive, incorrect, or misguided they may be. According to Musk, engaging in open-minded debates through comments allows for a greater understanding to be reached.

However, history indicates that the internet operates differently than this.

Moreover, Musk is further spreading these claims to his 160 million followers through his personal profile. Elon has consistently failed to comprehend the significance of his large fan base and the impact his statements hold. This was evident in 2018 when Musk unjustifiably accused a British cave diver of being a pedophile after he had rejected Elon's offer to help in a rescue mission.

Musk viewed this as a non-issue, despite the unjust accusations that have plagued this man.

Elon's words carry weight and capture attention, influencing others. Despite his awareness of this, he appears content to ignore it selectively when expressing opinions.

X is currently facing trouble, as Elon once again intends to employ his significant resources and the threat of legal action to silence and eliminate critics. This has been his approach not only at Tesla and SpaceX, but also remains consistent in challenging and discrediting those who dare to oppose his endeavors.

The issue here is that advertisers are not obligated to utilize his platform. X is not a crucial tool for any brand and its relevance diminishes with every controversial opinion he shares, pushing more users to explore alternative applications. Furthermore, if these well-known brands decide not to resume their spending and take it further by refraining from posting altogether, Elon's X project could come to an abrupt end before it even truly takes off.

And, as mentioned, the room for error is narrower than it might appear. While the threat of legal action may cause some to reconsider their criticism, the continuous flow of reports indicating that X's strategy is ineffective suggests that X and Musk should recognize possible shortcomings instead of engaging in public disputes.

But, as Elon says, X is never boring. And he seems determined to keep it that way, even if it results in that means tanking the business as a result.