X’s Long-Term Business Is Again Under Threat On account of Musk’s Leadership

Let’s be clear: X cannot sustain a long-running advertiser boycott.

Over the weekend, various big-name advertisers announced that they might be halting their ad campaigns on X on account of third-party reports which suggest that X is failing to supply adequate brand safety, together with Elon Musk’s own commentary on political issues.

The previous relates specifically to a report from Media Matters, which found that X’s ad system is running ads alongside racist, neo-Nazi, anti-Semitic content, in various forms, which X claims it has systems to stop. X’s creator ad revenue share program could even be facilitating the monetization of such material, essentially incentivizing users to post divisive, harmful posts.

Musk’s own commentary, meanwhile, last week included overt praise of a well known antisemitic conspiracy theory, which, for a lot of, was seemingly the ultimate straw for his or her time, and money, within the app.

Consequently of this, a few of X’s biggest ad partners, including Sony Pictures, NBCUniversal, Paramount, Warner Brothers, Discovery, Disney, Apple, and Lionsgate announced that they’re pausing their spending on the platform.

Some have even gone further, with ESPN, a subsidiary of Disney, even suspending their entire posting process, with all of ESPN’s X handles going dark on Saturday. Which is able to undoubtedly have an effect on X engagement, as sports stays a key focus for the app, with X reporting earlier this yr that 42% of its users are sports fans.

X’s troubles have also effectively given Meta a free kick, with many users turning to Threads as an alternative. But the continuing impacts for X on this are way more significant.

For instance, Apple alone reportedly spent $100 million on X ads in 2022. X’s ad revenue, meanwhile, had already been cut in half year-over-year, on account of broader concerns across the direction of the platform under Musk, and hesitations from brands. Which implies that X, before this recent boycott, had likely been on course to usher in around $2 billion in annual ad revenue for the yr, based on the platform’s 2022 performance.

It’s protected to assume, then, that when factoring within the combined spend of those other big spenders, the general impact here will probably be significant, potentially cutting one other 25% off of X’s annual total. That’s much more relevant given the timing, with the vacation push elevating ad spend in the ultimate months.

In fact, X does produce other revenue streams, like subscriptions and API charges. But they’re not anywhere near replacing such a major loss.

Based on the newest estimates, X’s subscription and data sales at the moment are on pace to generate around $600 million per yr for the corporate, which is a major alternative income stream. But it surely’s still a marginal element compared to its primary ads business.

And if that is compounded over time, the losses will stack up very quick, which could indeed make X an unviable business based on operating costs, together with the extra debt that Musk saddled the corporate with as a part of his acquisition funding.

At a rough estimate, X’s operating costs are currently between $2 billion and $2.8 billion each year, while Elon’s additional debt load will add an additional $1.5 billion a yr to that total.

So income before this incident was seeking to be around $2.6 billion, versus outgoings of $3.5 billion.

As you may see, even before this latest issue, X was taking a look at posting a major loss, and that’s despite all of its cost-cutting efforts. And this probably doesn’t consider the extra costs of GPUs and other systems required to power XAI’s recent “Grok” chatbot, one other of Elon’s pet projects.

Essentially, X was already staring down a billion-dollar annual loss, and now, it is certainly headed in that direction. And if it may well’t right the ship, and get those top ad spenders back, quickly, it’s hard to see how X can recuperate from this latest hit, especially when you furthermore mght consider the regular flow of users away from the app.

So what should X do?

Well, the regular corporate playbook would dictate that Elon should apologize for any hurt that his comments can have caused, and attribute such to a misinterpretation, or a misunderstanding on his part.

Nope, that’s not the trail that Elon’s taking.

As a substitute of acknowledging that his comments can have been ill-conceived, Musk has gone on the attack, reiterating that he’s by no means racist, because all of his friends say that he’s not, while also, inexplicably, branding X’s key ad partners as “oppressors of free speech.”

So he’s essentially saying that his major ad partners, who make up 70% of X’s revenue intake, try to make use of their power to silence users.

Probably not the perfect method to endear himself to people who pay the bills.

As well as, Musk has promised that a “thermonuclear lawsuit” is within the pipeline for Media Matters, whom he claims have fabricated their evidence that X is displaying ads alongside potentially offensive content.

Based on Musk, Media Matters cheated the system, by creating fake profiles, then repeatedly refreshing the timeline till ads from major corporations were displayed alongside offensive content.  

Which might still be a sound method to prove that this is feasible under X’s current system, but Musk and Co. say that that is disingenuous, and never indicative of the speed of failure in its system. Which I’m unsure was the purpose, but that’s what Elon and Co. are going with.

Musk has also amplified posts which claim that Media Matters may very well have fabricated screenshots to make their claims, while he’s also labeled the organization as “evil incarnate” in response to their reporting.

It’s price noting here that Elon also threatened similar legal motion against the Anti-Defamation League (ADL)  in September, after it also produced a report which suggested that anti-Semitic posts were more prevalent within the app under Musk, while he also launched legal motion against the Center for Countering Digital Hate (CCDH) in August after its research suggested that X had “systematically did not remove anti-Semitic, anti-Palestinian and anti-Muslim content.”

So that is just about Elon’s mode of operation, which does appear to run counter to his own “free speech” ethos.

Free speech, as long as you’re not criticizing Elon or his corporations, apparently.

In any event, X’s approach is essentially the alternative of the traditional corporate strategy, which might more likely have seen X acknowledging such issues and looking out to work with these groups to enhance its systems.

Because Musk’s own view on what should and mustn’t be allowed to be posted online is different to most. Elon’s view is that one of the best method to address divisive issues is to permit everyone to say whatever they think, irrespective of how offensive, incorrect, or misguided it might be, then we will all have it out within the comments, and are available to a greater understanding based on more open-minded debate.

But history suggests that this shouldn’t be how the web works.

Musk himself can also be amplifying such claims to an audience of 160 million people via his own profile. Elon has long failed to know the implications of his massive following, and the burden that his words carry on this respect. That was true in 2018, when Musk labeled a British cave diver a pedophile for no reason, apart from he’d pushed back on Elon’s offer of assistance in a rescue situation.

Musk saw absolutely no problem with this, despite the fact that this man has been unfairly smeared with the suggestion ever since.

When Elon says something, it stands out, people listen, and that has an impact. Elon knows this, yet seems completely satisfied to be willfully blind to such in terms of things he desires to comment on.

Which is why X is now in trouble, though again, Elon is seeking to use the specter of legal motion, and his vast resources, to quash critics.

Which has also been his mode of operation at Tesla, and SpaceX as well, working to discredit and crush critics in the event that they dare to oppose his plans.

The issue on this case is that advertisers don’t should use his platform. X shouldn’t be a necessary tool for any brand, and is becoming less relevant each time he posts one other controversial opinion, which drives more users to alternative apps.

And if these big-name brands don’t resume spending once more, and in the event that they go to the subsequent step, like ESPN, and stop posting entirely, Elon’s X project might be over before it even really begins.

And as noted, the margins for error are much thinner than it could seem.

Threatening legal motion may prompt some to take pause of their critiques, but with an ongoing stream of reports suggesting that X’s approach isn’t working, it looks as if X, and Musk, could be higher placed acknowledging potential flaws, quite than picking fights in public.

But, as Elon says, X is rarely boring. And he seems determined to maintain it that way, even when it leads to which means tanking the business consequently.