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Experts have been puzzled by Elon Musk’s profanity directed towards advertisers boycotting x, which used to be called twitter. Is X going to be able to withstand abandonment by advertiser if they flee without return?
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In April, it was my earliest discussion with Musk, who later had multiple insane interviews on X acquisition.
This was a statement he made that proved prophetic in retrospect and I did not notice it then.
Talking about advertising, he said: So if Disney can easily sell its kid’s movies on Twitter and Apple can safely sell its iPhones, that just shows that Twitter is a good platform to do some advertising.
After seven months, Disney and Apple are out of X-; Musk is telling the companies that have left out to “F*ck off.”
One of these is that it stopped airing ads following a review conducted by a US organisation known as Media Matters for America which pointed out several adverts that appeared beside pro-Nazi posts. Initially, X vigorously contested the report, arguing about its methodology and later on sued the organization.
To illustrate, the “ad” boycott is really hurting the firm’s profitability and this is why Musk used the b-word – bankruptcy during the interview conducted on Wednesday, the “b” word being part of his vocabulary during such interview.
With regard to a company he procured for $44bn(£35bn) last year, forgoing bankruptcy may seem preposterous. But it is possible.
But why are advertisers not returning? This has to do with understanding just how dependent is X on advertising revenues.
Despite not having the most recent numbers, about 90% of X’s income came from advertising last year. It is at the center of the business.
On Wednesday, Musk more or less alluded to this.
“A failed company… a failed company due to an advertiser boycott, and that’s what will make bankrupt the company”, Mr. Phelps added.
According to mark gay, managing director, chief client office at marketing consultancy ebiquity working with hundreds of firms, nobody is coming back (see footnote 26).
According to him, “the cash has emerged and no one is making a plan for reliquefying.
Last Friday, Walmart, one of the largest retailers stopped advertising in X.
Following the statements Musk made at the New York Times DealBook Summit on Wednesday that told advertisers who left X where to go, he added something more offensive in adland.
He used a greeting, “Hi Bob,” referring to Bob Iger, the CEO of Disney.
When Musk aims at such chiefs “in his cross hairs” as this, people will be still more reluctant to deal with X, says Lou Paskalis of marketing advisory AJL Advisory.
Jasmine Enberg, principal analyst at Insider Intelligence, adds: As any Facebook user knows, it’s not hard to figure out that publicly harassing their customers as advertisers and companies who pay X’s bills does not foster more advertisements.
So, is it possible that X will declare bankruptcy?
What does Musk have if advertisers leave for good?
When I interviewed him in April, it was clear that he realized that subscriptions to X would not replace advertising revenue.
“If a million people subscribe for, say, $100 per year, that’s $100 million.” “That’s a relatively small revenue stream in comparison to advertising,” he explained.
Twitter’s advertising income is expected to be around $4 billion in 2022. According to Insider Intelligence, it will fall to $1.9 billion this year.
The corporation is making two significant investments. The first is its payroll. Musk has already trimmed X to the bone, laying off thousands.
The second is servicing the $13 billion in loans Musk put out to buy Twitter. According to Reuters, the corporation now has to pay almost $1.2 billion in interest payments each year.
Yes, X could go bankrupt if it is unable to repay the interest on its loans or pay its employees.
However, that is an extreme case that Musk would undoubtedly prefer to avoid.
He has options. By some distance the best thing for Musk might be to put extra of his cash in – however it sounds like he would not need to do that.
Musk should try to renegotiate with the banks for less arduous hobby bills. He ought to ask, for instance, for “payment in type” interest – where payments are not on time.
But if renegotiation does no longer paintings and the banks do not get their cash, then bankruptcy can be the handiest option, and at that point the banks could try to push for a exchange in management.
“It would be very messy and complex,” says Jared Ellias, a professor of regulation at Harvard Law School. “And it would be extraordinarily challenging. It could create loads of information because he would continuously get deposed and have to testify in court docket.”
It will be terrible for Musk’s business reputation, and might also impact how Musk ought to borrow money within the future.
And in a financial disaster situation, might X actually prevent working?
“I discover that to be very tough to believe,” says Ellias. “If that passed off, it’d be due to the fact Elon decided to tug the rug out. But even then, if he have been to do this, the creditors would have the choice of pushing the organisation into financial ruin, getting a trustee appointed and turning the lighting again on,” he says.
What is next for Elon Musk’s?
The apparent solution to all of X’s issues is to quickly locate another cash stream. Musk is obviously making an effort.
He has developed a new service for audio and video chats. He streamed himself playing video games last month and expects that X can compete with apps like Twitch.
He wants X to be the “everything app,” with features ranging from conversation to online payments.
According to the New York Times, which obtained a copy of Musk’s pitch deck last year, X was expected to generate $15 million from a payments business in 2023, climbing to $1.3 billion by 2028.
X also has a massive data cache, and its extensive history of chats can be utilized to teach chatbots. Musk believes this information is extremely useful.
So, yes, X has potential.
However, none of these possibilities will fill the void created by advertisements in the short run.
That’s why many people were perplexed by Musk’s angry reaction.
“I don’t have any theories that make sense,” adds Paskalis. “There is a revenue model in his head that eludes me.”