Musk’s Twitter Buyout Bid And The Future Of Internet Platforms

Recent news has been replete with reports of Tesla chief Elon Musk’s attempt to launch a hostile takeover of Twitter. The platform has been the darling of many politicians, including former US President Donald Trump, and has about 77 million users in the US and about 24 million in India, according to Statista. A 140 -character short-message service that also allows links to other media, it is one of many social media platforms that have become enormously popular over the last few years.

Musk’s offer represented a 20% takeover premium over the current market price of Twitter. In fact, the offer was 54% over what its shares had been trading at before Musk started earlier this year to corner a large portion of its equity. He now owns more than 9% of its stock, and his offer is to buy 100% of it and take it private. He is himself an ardent user and has more than 80 million followers on the platform. He claims to be a “free speech absolutist”. One of the plausible reasons for him to turn it into a privately-held firm away from the public market’s glare is to allow all comers an unrestricted soapbox on the platform. There is speculation that he might allow Trump back on what used to be the former US president’s favourite soapbox. Trump was banned for life some time ago.

Meanwhile, Twitter’s board last week unanimously adopted a ‘poison pill’ strategy through a ‘shareholder rights plan’ that will reduce the likelihood of any single entity or person gaining control of the company though open market accumulation. I am sure that this poison pill and the ongoing saga of Musk’s takeover attempt will consume much newsprint over this week, and so I will stop contributing to it now.

This column is instead a musing on the future of social media platforms. Twitter is a relative minnow—others such as Facebook are much larger, with over 3 billion users worldwide. Instagram, a Facebook subsidiary, has roughly a billion users worldwide. Facebook has already seen a different future for itself. It has put down some of its recent difficulties to Apple’s new operating systems which disallow cross-site tracking and other methods of collecting user-specific information on Apple devices. Lack of this granular information makes Facebook a less attractive medium for advertisers to single out prospects for specific commercial messages.

The new operating system controls by Apple are not Facebook’s only worry. The EU has led the way on policing the private data of eurozone residents, and now countries across the globe—including India —have tighter restrictions on what user data can be collected. In addition to this, Web 3.0 puts social media platforms squarely in its crosshairs. As Web 3.0 takes hold, one can expect further disintermediation of such platforms, which at their core are centralized repositories of customer data.

To explain, it might be worth a small excursion into what Web 3.0 is. The Web, as most of us know it, started off as Web 1.0, where pages mostly just presented static information. Users were not given much of a chance to interact with what was presented, but they could ‘surf’ the web for information, the availability of which grew as more and more people created websites on myriad subjects.

This then evolved into Web 2.0, the current version, where websites became ever more interactive. This to the point where users could upload their own content to a host of sites, such as YouTube, Instagram, Patreon, Substack, which offered users an opportunity to get paid. The more ‘followers’ you have, the more of an ‘influencer’ you become, and the theory is that you have a captive audience to whom goods and services can be marketed by third parties. Hence the plethora of advertising content on sites such as YouTube. The advertiser pays the platform, and the platform the influencer, for a chance to reach viewers of the influencer’s content. There are even a slew of tech firms that support dynamic bidding for advertising slots as the viewership of channels ebbs and flows.

Web 3.0 upends the current paradigm by moving sites directly into the hands of the creator or influencer by using blockchain technology. This allows creators to fully own the relationship with their fans.

Just as people invest in assets, they can buy a share of their favourite creator’s content through contract terms that are codified on a ‘smart’ basis (read decentralized and discoverable). The decentralized nature of blockchain ( bit.ly/3xAkkiM) allows for such peer-to-peer contracts. Non-Fungible Tokens (NFTs) based on Web 3.0 concepts have already begun making headway in the art world.

The fact that Facebook is re-positioning itself as a virtual reality leader by renaming itself ‘Meta Platforms Inc’ is not a coincidence. The pincer of privacy regulation and peer-to-peer contracts is bound to reduce the influence of social media platforms in a few years.

Facebook is building virtual reality glasses named Nazare (note the Indianization of the name), but the project has been beset by arduous customized chip development efforts, and The Verge reports that the bill of materials for a pair of these glasses runs into thousands of US dollars. This reminds me of the difficulties that Xerox Corp, one of my previous employers, had with the commercial roll-out of highly successful technologies that were ahead of their time.

Only time will tell whether Meta will truly be able to reinvent itself for Web 3.0 before the pincer closes.

Siddharth Pai is founder of Siana Capital, a venture fund management company focused on deep science and tech in India

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