The Daily: Can X Stem User Declines and What the Company Might Turn Into in 2025? | Dec 2, 2024

Summary

Podcast Summary: Behind the Numbers – "Can X Stem User Declines and What the Company Might Turn Into in 2025?" | December 2, 2024

Introduction

In this episode of Behind the Numbers: an EMARKETER Podcast, hosted by eMarketer, analysts Marcus Johnson, Jeremy Goldman, and Daniel Konstantinovich delve into the current state and future prospects of X (formerly known as Twitter). Released on December 2, 2024, this episode titled "Can X Stem User Declines and What the Company Might Turn Into in 2025?" explores the significant user declines since Elon Musk's acquisition, the fluctuating advertising landscape, and the strategic maneuvers that could shape X's trajectory by 2025.

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1. Current State of X: User Declines and Platform Changes

The podcast begins by addressing the substantial decline in X's user base since Elon Musk's takeover two years prior. The valuation of X plummeted by 75%, dropping to approximately $9 billion, and daily active users have decreased notably across key regions:

• United Kingdom: Active daily users fell from 8 million to less than 6 million over the past year.
• United States: A decline of about 7 million users from 59 million in 2022 to 52 million projected in 2025.
• European Union: Users decreased by 5% year-on-year in the first half of 2024.

Jeremy Goldman attributes the user decline to X's shift away from user-centric policies, highlighting that reduced content moderation has alienated a portion of the user base. He states, “... it turns out generally speaking, broad content moderation is not a bad thing. It tends to attract users because it gets the 5 to 10% of whatever less pro social content off of the platform” (05:18).

Daniel Konstantinovich echoes these sentiments, noting that influential users such as journalists and news publications are leaving, which diminishes the platform's appeal and reliability. He adds, “The quality of information there has really gone down. And I think that is what made X or Twitter a platform with some degree of mass appeal” (07:44).

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2. Advertiser Dynamics: Declines and Renewed Interest

Despite the ongoing user decline, there has been a recent resurgence of advertisers on X. Historically, X's share of US media ad spending was diminishing, dropping from 0.8% in 2021 to 0.7% in 2022, with ad revenues halving between 2022 and 2023. However, major brands like IBM, Comcast, Warner Brothers, Discovery, and Disney are beginning to return to the platform.

Daniel Konstantinovich suggests that this return may be strategic, aiming to gain favor with Elon Musk or to influence regulatory landscapes under a potentially Trump-aligned administration. He explains, “If you're one of these companies that is seeking to get through a regulatory hurdle in acquiring someone... advertising on X is probably in your interest, and you can devote a not majorly significant portion of your spending as an olive branch in exchange for something more significant” (13:16).

Jeremy Goldman concurs, likening the advertisers' return to “...giving somebody a small tip just to ensure that they don't spit in your food” (14:47). He also notes that despite Fidelity cutting its valuation of X by 79% since Musk's purchase, the platform's role in shaping public discourse remains influential.

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3. Elon Musk's Strategic Influence and Platform Vision

A significant portion of the discussion centers on Elon Musk's motivations behind acquiring X. Marcus Johnson references Dan Primack of Axios, who posits that Musk's acquisition was driven more by a desire for power than profit. Primack argues that Musk leveraged X to shape public opinion during elections, thereby increasing his influence without corresponding financial returns. This strategic positioning has potentially elevated Musk to become "the most powerful unelected American ever," benefiting his other ventures like SpaceX, Tesla, and Xai, which rely heavily on government contracts (10:09).

Daniel Konstantinovich expands on this by suggesting that Musk values X for the control and influence it grants him over news cycles and public discourse. He posits, “the amount of influence and control that it gives him over news cycles was also something he really took into consideration during the acquisition” (10:09).

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4. Future Outlook: X in 2025 and Beyond

Looking ahead to 2025, the analysts discuss the potential paths X might take:

• Continued User Decline: Daniel Konstantinovich anticipates that X will likely continue its steady decline unless significant changes are implemented. He emphasizes that the platform will probably remain focused on Musk's vision, serving his political and personal interests rather than broad user engagement (16:06).

• Emerging Competitors: With various competitors like Blue Sky gaining traction, X's position in the social media landscape could be challenged. The upcoming episodes will explore Blue Sky's surge and staying power, indicating a shift in the competitive dynamics of social platforms.

• Banking Ambitions: Marcus Johnson references Alex Heath of The Verge, who points out that X was slated to transition into a comprehensive financial platform (“a bank”) by the end of 2024. This ambitious goal raises questions about X's capacity to handle financial services alongside its existing social media functionalities.

Jeremy Goldman remains cautiously optimistic but underscores that X lacks a compelling reason to receive substantial investment for platform improvements. He suggests that, aside from minor enhancements, X will likely remain "the same public square that it's been of late" with limited investments in content moderation and platform stability (17:14).

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5. Conclusion

The episode concludes with a consensus that while X faces significant challenges in user retention and advertising revenue, its strategic value to Elon Musk and its role in influencing public discourse provide a unique justification for its continued operation. The analysts agree that the platform's future will depend heavily on how it balances Musk's personal and political objectives with the need to maintain a viable, user-friendly environment amidst rising competition.

Marcus Johnson teases the next episode focusing on Blue Sky, signaling an ongoing exploration of the evolving social media ecosystem.

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Notable Quotes:

• Jeremy Goldman (05:18): “... it turns out generally speaking, broad content moderation is not a bad thing. It tends to attract users because it gets the 5 to 10% of whatever less pro social content off of the platform.”

• Daniel Konstantinovich (07:44): “The quality of information there has really gone down. And I think that is what made X or Twitter a platform with some degree of mass appeal.”

• Jeremy Goldman (14:47): “It's like when you give somebody a small tip just to ensure that they don't spit in your food.”

• Daniel Konstantinovich (10:09): “the amount of influence and control that it gives him over news cycles was also something he really took into consideration during the acquisition.”

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Final Thoughts

This episode of Behind the Numbers offers a comprehensive analysis of X's struggles and strategic maneuvers under Elon Musk's leadership. By examining user trends, advertising dynamics, and Musk's overarching influence, the podcast provides valuable insights into what X might look like in the near future and how it fits into the broader digital media landscape.

Transcript

[Daniel Konstantinovich]

Is pretty well established at this point since Musk's takeover. So the question is, why, amid all of these user declines and the changing priorities of the platform, why are advertisers coming back? Hey, gang.

[Marcus Johnson]

It's Monday, December 2nd. Jeremy to Daniel and listeners. Welcome to behind the Numbers Daily, an emarketer podcast made possible by Liveramp. I'm Marcus. Today I'm joined by two folks. We start with our senior director of briefings, based in New York City, I believe. Coming to us live from our studio.

[Jeremy Goldman]

Today, it's Jeremy Goldman, still stuffed from Thanksgiving. Hey, Marcus.

[Marcus Johnson]

Hello. I was like, has it been that already? It has. We already did it. Glad you had a good one. We're also joined by Daniel Konstantinovich. He is one of our analysts who writes for our marketing and advertising briefing. He's also based in the city. Hello, fella.

[Jeremy Goldman]

Hello.

[Daniel Konstantinovich]

Good to be here.

[Marcus Johnson]

Hello there. Yes, indeed. Thank you for being here. We start with the fact of the day. Which animals have the best memories after people?

[Daniel Konstantinovich]

Well, I mean, there's an obvious one, right?

[Jeremy Goldman]

But what? Elephants? Yeah, yeah.

[Daniel Konstantinovich]

Elephants, they never forget.

[Marcus Johnson]

Is that our guess?

[Daniel Konstantinovich]

Whales?

[Marcus Johnson]

Whales, no, but.

[Jeremy Goldman]

Kind of cockatoos.

[Marcus Johnson]

Hmm.

[Jeremy Goldman]

Isn't that a kind of bird?

[Daniel Konstantinovich]

A cockatoo?

[Marcus Johnson]

It is a kind of bird, yeah. But what. What made you.

[Jeremy Goldman]

I have no idea. I was like, I'm stumped on this one. So I'm like.

[Marcus Johnson]

I'm just. Dolphins have a claim to the crown. Jason Bruck, an animal behaviorist at the University of Chicago, notes that the bottlenose dolphin can remember whistles of other dolphins they've lived with. After 20 years of separation, each dolphin has a unique whistle that functions, allowing the marine mammals to keep close social bonds. Why? Christine Delamour of National Geographic writes that the reason dolphins need a long term memory is technically still unknown, but could be linked to maintaining relationships. Since over time, dolphin groups often break up and reorganize into new alliances. A social system called fission fusion. And also as a survival mechanism, to try and remember who is a friend and who is a foe.

[Jeremy Goldman]

Wow. Can I just say, I think this is the third thing I've learned about dolphins from you. So it's basically everything I've learned about dolphins was either from kindergarten or. Marcus Johnson.

[Marcus Johnson]

You're welcome. Just trying to keep that kindergarten education going, you know, so much they didn't cover. Oh, also, you are kind of right, because elephants and chimpanzees are thought to have similar abilities, but tests are.

[Jeremy Goldman]

Oh, okay.

[Daniel Konstantinovich]

I mean, I'll take the technicality. So I'll Take a victory where I.

[Marcus Johnson]

Can get a close second. It's not really a victory, but that's fine. Today's Real Topic X's current position and what we can expect from them in 2025. All right, gents, we're checking in on X. It used to be called Twitter. People still call it that, so we might interchangeably in this episode, but the short history Elon Musk officially bought Twitter around two years ago for $44 billion. He reduced content moderation, laid off 80% of its staff, and turned the site's verification badges into pay to play system where you can amplify the reach your posts. Right, It's Bobby Allen of npr. Fidelity says that since Musk bought the company, its valuation has fallen 75% to around $9 billion. Looking at how its users are doing, not great. Reporting from the Financial Times notes according to similar web data, active daily users in the UK have dropped from 8 million to less than 6 in the past year. Most of that for coming after Mr. Musk made comments about the summer riots. Over the same period, X's active users in the US have fallen by about a fifth and X reported in the first half of 2024 that EU users were down 5% year on year. So all down across the board, across those countries, at least that I mentioned. Jeremy, I'll start with you. Why is X continuing to lose users?

[Jeremy Goldman]

I think part of the reason is that X is not so interested in keeping users. And by that I mean inevitably whenever you start to do things that are not necessarily use centric, obviously there's a lot of things, the ads that are there are kind of interruptive and strange and we can obviously talk about how the platform's not making more ad revenues also. But it's become a bit of a place where content moderation. Of course the person who owns the platform is not that interested in that particular topic. But it turns out generally speaking, broad content moderation is not a bad thing. It tends to attract users because it gets the 5 to 10% of whatever less pro social content off of the platform. And obviously Musk feels a bit differently than the average user in terms of how much policing should be going on. So I think that that's probably one of the top reasons right there.

[Marcus Johnson]

So Dan, you users, according to our stats, users, if we just look at the US of X peaked in 2022. That was the year towards the end of that year is when Musk bought the company. We expect that X or Twitter lost will lose 7 million users in the US from 2022, when Musk took over, to 2025. So it goes from 59 million to 52 million over that period. Can they turn around user declines, do you think?

[Daniel Konstantinovich]

I'm torn on this one, to be honest. I mean, I think not. But I think that they may be able to hang on to a share of users that's significant enough for the platform to not completely cave in. You know, there is clearly an audience for what Musk has done with the platform. There is a very, you know, devoted following and certain part of the political spectrum that is really finding a home on X, I suppose. So will all users depart the platform? I don't think so. That said, you know, we predict a pretty steady decline and some developments that have happened recently that I'm sure we'll get into could cause that decline to go even further or accelerate. Because a lot of the value in X, formerly Twitter, as a platform for users, is leaving along with the people who are leaving. It's not just that brands are not spending on there, but things that really made Twitter a destination, like high volumes of journalists and news publications, influential power users. These types of users are leaving the platform pretty consistently since Musk took over. And especially now in the aftermath of the election, it's harder to verify information found on X for a lot of reasons, partially because of the rise of AI, which makes it very easy to post fake material, which, you know, to Jeremy's point, is not really being moderated to the fact that it's pretty easy to appear to be someone who you are not on the platform. And the verification badges are now a pay to play item that anyone can get on their account. So the quality of information there has really gone down. And I think that is what made X or Twitter a platform with some degree of mass appeal.

[Marcus Johnson]

Yeah. So let's. You mentioned that you think that they can retain enough folks to make this thing work still in terms of from a dollars and cents perspective.

[Jeremy Goldman]

Sorry, go ahead. I want to say the thing about making it work, I think a very important thing to mention, obviously is did you know that Elon Musk is worth more than the three of us combined? It's true. I had to look it up. So I think that really to look at this through the lens of, for instance, the amount of money that, let's say Musk may have lost on this platform that he didn't necessarily completely want to buy, I think what he has been able to do in terms of turning it into a personal branding vehicle and an ability to essentially get his thoughts out there more than any other user by simply adjusting the algorithm to promote his own views. That's very beneficial and that's actually helped him support somebody who won the election, which then increased Musk net worth many times more than the amount of losses that he got as a result of the so that's why I say it's very difficult to say that this is not beneficial ultimately or that the platform can't keep running. I mean, it's arguably maybe healthier than pretty much every other platform around. In the standpoint that it doesn't have to report to shareholders and it just has to make essentially one person happy. It's a bit different.

[Marcus Johnson]

Danny, what do you make of this? Because this is a theory that I was reading about from Dan Primack, this idea that Elon is kind of was playing 3D chess with his ex acquisition and he did try to back out of the deal. So maybe not, but Dan Primac of Axios was suggesting as kind of Jeremy, I think you're alluding to, correct me if I'm wrong, but the Musk may have bought Twitter for power, not profit. And he writes that the gamble paid off as he used the platform to help shape public opinion during the election, artificially amplifying his political messages and giving him influence with Donald Trump the money alone wouldn't have bought. Mr. Primac notes that Trump's victory means that Musk has become the most powerful unelected American ever. And that could be a boon for SpaceX, Tesla and Xai, whose fortunes are heavily dependent on federal government contracts, policies and regulation. Those companies are much larger than X or Twitter, even at $44 billion and more core to Musk's lifelong goals.

[Daniel Konstantinovich]

Yeah, I mean, to what Jeremy said, when I say make this work, I mean to give the platform a reason to exist. Perhaps there is so much money behind the platform that it can take on losses for a long time before Musk has to worry about pulling the plug. And it's something that I don't think he would fathom doing. I don't want to comment on Musk's ability to play or do well at 3D chess, but, you know, I assume that he bought the company thinking, I'm going to be able to turn this into a big money maker. That has obviously turned out not to be the case, but I'm sure that the amount of influence and control that it gives him over news cycles was also something he really took into consideration during the acquisition. So, you know, the value that it's generated for him and for his other businesses which rely heavily on government contracts for their revenues. I'm sure that, you know, has made the balance sheet look better.

[Jeremy Goldman]

By the way, I think Danny is totally right about this. I think it's also worth saying, even though that there have been a number of missteps at Musk Social, otherwise known as X, otherwise known as Twitter, over the last few years, it's also worth mentioning that it was not the best ad platform ever. Pretty much. Therefore it always had an outsized importance to the Zeitgeist in relation to how many dollars it can make from an advertising standpoint. I think that's something that people should definitely note. Anybody who notices the fact that X has a real way of controlling the conversation to some degree as long as it's around, even though other platforms might be a lot bigger, it's the real time, short form, quick nature of the platform that makes it have an outsized impact on the public discourse.

[Marcus Johnson]

Yeah, it wasn't the most significant part of advertisers budgets before he bought it. In 2021, it was 0.8% of the total media ad spending pie in the US. The next year, 2022, it was 0.7%. So that share was going down. The dollars were also ticking down a little bit. It fell 3% from 2021 to 2022 if you look at their US ad revenues. So they were already going in the wrong direction. The problem was that 2022 to 2023 they got cut in half and we're forecasting or projecting that they're going to continue to tick down following years. Some brands are returning to the platform according to Fortune, IBM, Comcast, Warner Brothers, Discovery, Disney, they're all returning. Jeremy, you were noting in a piece that they've issued the first ever transparency report to try to help it win back advertisers. The problem is brands are spending less, it seems, on the platform. Over 25% of advertisers plan to reduce ad spending on X by 2025, according to Kantar, citing content moderation concerns and safety as well. And then also just the brand value just took a beating. In 2022, Brand Finance valued Twitter nearly 6 billion in terms of its brand value. By 2024 it fallen 90% to about 700 million. So that's also suffered as a result of this.

[Daniel Konstantinovich]

I think the recent return of a lot of advertisers is a really interesting development. I mean, the narrative that Twitter has been losing advertisers and losing ad revenues is pretty well established at this point since Musk's takeover. So the question is why, amid all of these user declines and the changing priorities of the platform, why are advertisers coming back? It's not like the advertising value has suddenly increased. In my opinion, the explanation is that these are companies that perhaps would like to win some favor with Musk or with an incoming Trump administration, which it seems Musk will play some significant role in. If you look at some of these companies, like Comcast, like Disney, like Warner Brothers Discovery, especially these companies that are interested in pursuing mergers somewhat aggressively under this new administration, you have David Zaslav, who's the CEO of Warner Brothers Discovery, saying that a Trump administration means Warner Brothers Discovery would be emboldened for M and A that perhaps wouldn't have flown under the Biden administration or under a Harris administration. So, you know, if you're one of these companies that is seeking to get through a regulatory hurdle in acquiring someone, as many of these streaming companies are trying to do, you know, advertising on X is probably in your interest, and you can devote a not majorly significant portion of your spending as an olive branch in exchange for something more significant.

[Jeremy Goldman]

It's like when you give somebody a small tip just to ensure that they don't spit in your food. I think it's kind of like the same thing. That's why you're tipping. There are moments where you're like, this person doesn't deserve anything. But in this circumstance, I just want to protect myself. In some ways, I think that this. That's what these bits and pieces of ads that are coming back from major players. I think Danny's right. Only other thing I was going to say there is that going to your point about valuation. As of end of September, Fidelity had cut its estimate of excess value by 79% since Musk's purchase. My guess is it went up a slight bit since the election, but probably not enough to make up all that had been lost in the past 23, 24 months.

[Marcus Johnson]

Yeah, well, let's look forward to the next, you know, 12. Let's say 12 months as we kind of close out this year. You know, what do we expect to see from X? I mean, one point that was made was Alex Heath of the Verge reminding us that X was supposed to be a bank by now. He was pointing out that in an internal meeting last year, Elon Musk said it would blow his mind if X couldn't handle someone's entire financial life by the end of 2024, which is, of course, this year. Daniel, I'LL start with you first. I mean, what do you expect from Twitter, from X in 2025?

[Daniel Konstantinovich]

Oh, it's hard to say.

[Marcus Johnson]

Figure it out, Danny.

[Daniel Konstantinovich]

Yeah. Let me read the tea leaves. Yeah. Which are falling in like a strange sort of Musk face shaped pattern. I suspect that it will continue to stay the course. I suppose. I mean, that's the safest bet of all, is that it'll just keep doing what it has been doing, which is trying to convince advertisers to come back. Increasing transparency somewhat, but still staying a platform that is first and foremost about what Elon Musk wants it to be about and one that serves his political interests. I think how X will fit into the picture with all of these competitors that are sprouting up is another interesting question. Like which one of all these competing platforms will emerge on top? If there will be one that is clearly on top, I think that's something to look out for.

[Marcus Johnson]

Yeah. And we're going to talk a bit about Blue sky, tomorrow's episode, and who they are, why they've had this surge, what their staying power looks like. Jeremy, I guess a lot of this is predicated on these two remaining Mr. Musk and Mr. Trump remaining friends for the next four years.

[Jeremy Goldman]

Yeah, I think that that's true. I think that in the short term, you know, you can probably expect them to be relatively chummy. And I think it is also true, going back to your point about the innovation that was promised, probably expect a few gradual improvements, but largely for it to be the same public square that it's been of late. It doesn't actually look all that different than it did, let's say, a year ago. So there's not really a great reason to assume that all of a sudden there should be a ton of dollars put into it in terms of remediating and investing in the platform. I can see content moderation getting a little bit better edges. They have made some efforts to some degree along those lines. But the flip side is the more people you get onto the platform, generally speaking, the more you need to invest in content moderation. So very much remains to be seen if X is willing to do that.

[Marcus Johnson]

Yeah. All right, well, that's all we've got time for for today's episodes. Me and these gents will see you for tomorrow's episode. They're going to join me to talk about Blue Sky. Thank you so much to Jeremy.

[Jeremy Goldman]

See you tomorrow.

[Marcus Johnson]

Yes, sir.

[Jeremy Goldman]

Thank.

[Marcus Johnson]

Thank you to Danny.

[Daniel Konstantinovich]

Thanks. See you tomorrow.

[Marcus Johnson]

Yes, indeed. Thank you to Victoria. She edits the show Stuart runs the team and Sophie does our social media. Thank you to them. Thank you to everyone for listening and we hope to see you for that very episode tomorrow of the behind the Numbers Daily and Emarketer podcast made possible by Live Ramp.