The News: Elon Musk filed with the SEC to announce his intentions to increase his 9.2% stake in the company, Musk offered $54.20 per share to buy out Twitter, which represents a 54% premium over Twitter’s share price the day before Musk began buying a stake in the company. Read the SEC filing here.
What Twitter Going Private Could Mean for the Evolution of Social Media
Analyst Take: Since the announcement by Elon Musk that he had ‘made an offer’ on Tuesday, linking to the SEC filing on April 14th, there has been much talk of the pros and cons of Twitter moving from public ownership to private ownership. The marketplace of ideas and the impact on free speech are front and center in the debate, but what I find most interesting is the potential wider impact on the underlying technology and structure of social media platforms that could result from Musk — or anyone — buying a public company like Twitter and taking it private.
Open Source and Social Media
All the large social media platforms are publicly traded companies. What this means is that the governance and drive to appease shareholders are foundational to how these companies are run and operated. These companies must report earnings on a regular cadence and their stock prices fluctuate based on these earnings and the public market’s perception of their performance.
In the technology sector, companies going from public ownership to private ownership and being delisted from the stock market is not a common occurrence. The most high-profile example was the movement of Dell Technologies from a publicly held company to private ownership and then moving back into being a public company. This example provides some indicators of what could happen at Twitter.
In the case of Dell Technologies, Michael Dell wanted to undertake major strategic moves to transform the structure of Dell, not only from a financial basis but also to pivot the business model of the business with a goal of making it more competitive. This type of transformation is difficult for a publicly listed company, as these type of business transformations are complex and expensive, and generally not possible to complete in a quarter’s time. They take many months of restructuring, sometimes years, and can mean that sales targets are missed in the short term, on the understanding that after the transformation, growth will return at an accelerated rate.
In public statements this week at a TED conference, Musk has announced his intentions to move Twitter’s codebase to a more open model, “Any changes to people’s tweets — if they’re emphasized or de-emphasized — that action should be made apparent,” he said. “So anyone can see that that action has been taken so there’s no sort of behind-the-scenes manipulation, either algorithmically or manually.” – What would this mean in reality?
Transitioning closed source code owned by a corporate entity to an open source model is difficult. During my tenure at IBM, I was involved in moving 80,000 lines of IBM code to an open source project in 2015. It takes strong leadership, with clear goals and a desire to ‘do the right thing’ despite short-term commercial interests screaming it is a bad idea. You certainly don’t undertake this transition in order to make a buck in the short term. In fact, the commercial benefits may never come and, if they do, they could show up in very different ways many years in the future.
At a technical level, a change of this nature would require Twitter developers to be tasked with cleaning up code, removing comments that are okay for an internal audience, but shouldn’t or cannot be shared in an open source community. This would mean a significant overhead for Twitter’s developers and will certainly slow their efforts to bring new features to market if it comes to pass. However, these technical efforts pale in comparison to the open sourcing of the underlying algorithms that underpin much of Twitter.
The Twitter feed has long since moved from a timeline of tweets from people you follow to a Twitter curated feed based on a hidden algorithm. Listing this algorithm on GitHub for all to see, and crucially download and use, would be huge. Not only from the impact this would have on the much talked about the role Twitter plays as the ‘town square of ideas’ but it would also place commercial pressure on other social media platforms whose algorithms are closed and proprietary.
I believe that if Twitter were to make the transition to an open source model where the codebase is fully out in the open on GitHub for all to see, we would observe a fundamental shift in how people perceive the role of social media in society. The inherent tension around whether a platform’s owner and moderators lean left or right on an issue would be removed by the fact that those with the technical skills could look at exactly how the decisions to promote/deprecate a tweet were made. The impact on the ordinary person in this scenario is that political bias could potentially be removed by scrutiny of code by the open source community. We are seeing efforts emerge to remove algorithmic bias, and this is an encouraging trend for society as a whole as AI and ML models mature.
Decentralized Social Media
Attempts have been made to launch decentralized social media platforms, and while some have gained a loyal user base, I would argue that none have made it into the wider public consciousness, certainly not at the level that Twitter currently occupies.
Below is a non-exhaustive list of the most popular social media platforms and some of the common alternatives:
Another example worth noting is DeSo, a blockchain and corresponding token designed to underpin social networks. Operating as a layer 1 blockchain, DeSo hopes to radically upend the closed and centralized structure of how social media platforms operate, as well as the incentive structure.
According to the DeSo whitepaper:
Today, a post submitted to Instagram, TikTok, or Twitter belongs to these corporations, rather than the creator who posted it. And the monetization goes predominantly to these corporations as a result. In contrast, DeSo stores all of its data on a public blockchain, which means that anyone in the world can run a node that exposes their own curated feed.
While over 100 projects are running on the DeSo blockchain and the technology and approach are worthy of further exploration, this approach is still embryonic and not at all primed to radically disrupt how social media platforms operate today. Decentralized social media platforms, although well intentioned, have not yet made significant inroads in reaching the scale of the proprietary centralized platform they are looking to replace. However, they’re still very much worth considering. I believe that innovation and invention should be encouraged, as it leads to competitive tension and will ultimately drive wider discussion and experimentation by the publicly traded behemoths in the space.
Could Twitter become a DAO?
We know that Musk is a huge proponent of blockchain-based technologies and, while he stirs up the price of Dogecoin with his frequent tweets, it is evident that his belief in everything decentralized is deeper than a passing interest. We have seen Musk talk at length about his feelings toward decentralization in this podcast episode last year, perhaps most interestingly also with Jack Dorsey and Cathie Wood the head of ARK Investments. I highly recommend you watch or listen to this podcast as it gives insight into how two of the world’s biggest tech visionaries are looking at Decentralized Finance (DeFi), Blockchain, and Distributed Ledger Technology (DLT), all of which could give us a view into Twitter’s future.
The concept of Distributed Autonomous Organizations is still nascent, with the interesting corporate structure only recently gaining public attention with a DAO being formed to bid for a copy of the U.S. Constitution. Could we see Twitter become the first major DAO? Of course, a shift to a DAO model where ownership of the business and decision making is coded into smart contracts is impossible while the company is in the public markets. But, as a private entity, and with someone in control with Musk’s vision and penchant for being disruptive, could Twitter pivot to a DAO model? What impact, if any, would that have on the social network’s customer base?
If you accept the most positive version of Elon Musk’s intentions, and many of his supporters blindly do, you could perhaps envision a world where Musk effectively delegates the day to running of Twitter to a fully decentralized governance structure, giving up the reins for decision making to the crowd and decisions are thereafter implemented based on the rules coded into a smart contract.
Coupled with open sourcing the codebase of Twitter, a DAO corporate structure would create a fully decentralized and open social media platform, the likes of which we haven’t seen before. The downstream impacts of such an unprecedented move would certainly be disruptive, not only for public discourse and free speech, but as mentioned earlier, would place massive pressure on the other social media platforms. Musk has proven many times that many of his actions aren’t centered on money, but rather about taking on massive challenges and looking to cement his legacy as someone who changed the world in myriad ways.
Delegating decision making to a smart contract-based engine, would certainly lead to decisions being made that oftentimes would not be in the commercial interests of many. But without the constraints of public market disclosure and shareholders, could this be an upside for society as a whole? There is definitely some thinking that this could be a positive thing. That said, this potential trajectory only comes about with a private Twitter.
In this research note I have purposely stayed away from the pros and cons of whether Elon Musk taking Twitter private is a good thing for society and the potential impacts on free speech — other commentators and pundits can weigh in on that debate. Certainly, there are challenges that need to be weighed in the discussion given recent lawsuits being filed around allegations of stock manipulation as well as the track record of Musk as a leader at Tesla and SpaceX. Suffice to say Musk is a polarizing figure.
Regardless of what happens over the next few weeks with the outcome of Elon Musk’s bid to take private Twitter under his control, we can be certain that we have not heard the last of the technological impacts of open source and decentralized technology on social media platforms. With bias and censorship as lightning rod topics for many, a lot of discussion has focused on regulations and governmental oversight. Personally, I believe that more legislation and oversight by politicians, however well-intentioned, is not what is needed here. Rather, what we need to do is let the nascent approaches of decentralization and the proven approach of open source disrupt the social media sector. I realize that my immersion in the open source world as well as my interest in decentralized finance, blockchain, etc., drive a lot of my thinking and opinions here, most of which center on the underlying technology impacts of this potential transaction.
The technology exists to move social media platforms from proprietary closed source systems where the algorithms that surface content and shape the debate are tightly held corporate secrets. The question we are facing, as are the board of Twitter, is do we want to allow someone as well funded and disruptive as Elon Musk to conduct such an unprecedented experiment at scale? Only time will tell, but like everyone else watching this play out, it will be interesting to see how the technology perspective here evolves.
Disclosure: Futurum Research is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of Futurum Research as a whole.
Other insights from Futurum Research:
Image Credit: Sky News
Steven Dickens is Vice President of Sales and Business Development and Senior Analyst at Futurum Research. Operating at the crossroads of technology and disruption, Steven engages with the world’s largest technology brands exploring new operating models and how they drive innovation and competitive edge for the enterprise. Read Full Bio.