Buying Twitter is a fairy tale. #WeAreTwitter
Here’s how a cooperative could build the next generation of social networks.
Disclaimer: I don’t own any Twitter stock or have any inside knowledge. I know people who do, but they were not involved in this post.
#WeAreTwitter is a proposal to buy out the social network and run it as a platform cooperative. It’s an idea that’s gaining steam in progressive technology circles; while I’m very much in favor of cooperatives as a governing structure, I don’t think this particular deal is plausible or desirable.
Let’s consider three facets to this deal in particular: acquisition, running the business, and its social impact. And then let’s talk about doing something more impactful.
Buying Twitter
There are two main proposals for how this could work:
- 1% of active users could each buy $2,300 worth of shares. This amounts to around $6.9B; at Twitter’s current market capitalization, that’s just over 50% of the company. These users would then be paid back through Twitter membership fees.
- Interested parties could form a company with shares that grant dividend rights; invite investment; raise 20% of the funds needed to control the company and borrow the rest. Assuming the same value above, the company would need to raise $1.38B and borrow $5.52B.
Advocates have pointed out that it recently worked for Prokon, a bankrupt, German wind power company. But this company was purchased by a cooperative for just 660 million euros. As a bankrupt, private company, Prokon’s sale was almost inevitable. Twitter is a publicly-traded company, and talk of a sale could drive up the market capitalization, increasing the money needed to purchase a controlling stake — the price of its shares would literally go up as more and more were bought. It’s also far from bankrupt: post-restructuring, Prokon generates 70 million euros a year in revenue, in contrast to Twitter’s $2.22B last year.
Obtaining a controlling stake of Twitter would be one hell of a coup. Last year’s filings indicate that, after costs, its total EBITDA was -$137.21M last year, vs -$330.7M the year before. Although its growth isn’t fast enough for some investors, it is growing. In particular, its live event-streaming feature is gaining a lot of ground. This isn’t a tanking company. Acquiring Twitter today would already be next to impossible for a cooperative company; in the near term, it’s only likely to get harder.
While the cooperative needed to pull this off wouldn’t be anywhere near the largest in the world, it would be the largest ever to have spontaneously formed. Investors of the size needed to buy Twitter would want to make a profit in a subsequent funding round, not over time through drip-fed dividends that might never actually cover their initial outlay. And that’s before we get to the financial interests that are already entrenched in the company.
Running Twitter
Would a cooperative do better than the current structure? Let’s leave social goals for later, and assume that a cooperative’s financial goals would be threefold:
- Run Twitter as a sustainable business
- Transfer profit to Twitter’s users, employees, and investors
- Pay back venture capital investors and retain financial independence
To achieve these goals, Twitter would need to grow its active userbase and increase revenue at least as fast as it is currently doing. Specifically, it would need to grow large enough to break even, cement its position in the market, and be profitable on an ongoing basis. In doing so, it has to cover its very large monthly costs (technical infrastructure and development aren’t cheap), compete with companies like Facebook and Google, and continue innovating to stay relevant.
To be clear, there’s nothing intrinsic to a cooperative structure that would inherently make Twitter grow worse than it is currently, or fail to meet those goals. In fact, worker-owned cooperatives are more productive than other companies, and there would still be a tight governance structure overseeing direction, like any company. But being a cooperative would not preclude Twitter’s need for growth. It would need to grow to meet its aims. Being a cooperative doesn’t automatically remove the company from capitalism, or the wider context of the web.
I’m also certain that some of the alternative business models that have been discussed, like simply charging for access, would be abandoned on day one. Earlier this year, George Salapa wrote on the Forbes Contributor Network:
What if Twitter could become a public good — a medium of communication that is funded by its user base? It could work just fine financially, in fact.
Twitter’s market cap is around $12 billion at the time of writing. Let’s assume that only 50% of Twitter’s users commit to pay an annual membership of $20. Let’s also assume that we can add back $121.8 million in relation to the company’s traffic acquisition costs, which represent Twitter’s own advertising to attract advertising. In Twitter’s own words, these efforts are largely unprofitable, since “We might not generate advertising revenue in excess of traffic acquisition costs incurred.” After these adjustments, Twitter would earn some $592 million of net profit.
Of course, there’s not a snowball’s chance in hell of 50% of Twitter’s users paying anything at all, let alone $20 a year. It’s been tried before: back when Flickr was the place to upload and share photos, no more than 7% of its users paid for the $25 annual Pro membership. Flickr Pro added significant utility to the platform: free users could only see their last 200 photos, and couldn’t download high-resolution versions. Flickr held users’ content hostage, and they still mostly wouldn’t pay for it. Meanwhile, app.net, which attempted to create a premium, paywalled Twitter-like transport platform because “social infrastructure is too important to be free”, never caught on at all.
People don’t want to pay. Over the last 20-15 years, consumers have been trained to not pay for web applications, which are funded by advertising instead. The vast majority of people simply won’t pay for a consumer web service. That’s even before you get to the inherent privilege of assuming that everyone can pay, even $20 a year. Twitter users run the gamut of nationalities and social contexts; surely effectively barring poorer nations and communities from participating isn’t desirable. Removing the cost of entry ensures a more diverse userbase.
Instead, it’s likely that revenue would continue to come through Twitter’s existing channels:
- Promoted Tweets (which are more ethical than traditionally-targeted advertising that follows you around the web)
- Data licensing to enterprises through Gnip
- Branding and partnerships, including of its streaming events
As streaming events are turning around Twitter’s previously-stagnant user numbers, I’d expect related branding and partnerships to grow over time.
Finally, there’s a question about how decisions are actually made. Collective decision-making across 320 million monthly active users is going to be hard. You could try direct democracy, but every user comes with their own set of values and priorities. Instead, most large cooperatives have hierarchical management structures, where every unit attempts to be as flat as possible. (See, for example, Spain’s Mondragon Corporation.) This turns out to be not dissimilar to large Silicon Valley startups internally. Holocracy is one example of a less-hierarchical structure, although in practice it isn’t perfect.
Social impact
This, of course, is where advocates for cooperatives have their hearts set. Nobody is proposing to convert Twitter to a cooperative purely in order to adopt a share structure to one that grants regular dividends. Few really care about the intricacies of revenue generation (and, honestly, more probably see revenue as a distraction). Instead, they want to make sure that its users have a greater say in its direction.
There are three main central issues:
The first is Twitter’s patchy history with abuse. If Twitter’s users weren’t just listened to, but part of a structure where they had to be listened to, the problem would probably have been dealt with years earlier. This, in turn, would have helped the network grow: as then-CEO Dick Costolo told The Verge last year, “we lose core user after core user by not addressing simple trolling issues that they face every day”.
A smaller, but nonetheless important, related issue is Twitter’s decision to restrict its developer ecosystem. This is still widely seen as a misstep, and Jack Dorsey publicly apologized to developers when he returned as CEO.
But perhaps more central than anything else is this guy:
In the wake of Trump’s election, there has been a marked increase in white supremacist activity, both offline and on Twitter. Last week, Jack Dorsey had to apologize for letting through a white supremacist advertisement. There’s a widespread feeling that Twitter should be doing more to prevent the spread of hate speech, and that this should be more clearly encoded in the terms of service.
There are also worries about user safety. Will vulnerable users be safe from state intrusion? Will Twitter be compelled to collaborate with governments against dissident journalists? It’s been a good actor so far, but does internal data tracking make it a magnet for intelligence services? Could encryption be build into the core of Twitter to prevent this?
Social networks are already incentivized to listen to their users if they want to grow. However, giving users greater literal ownership in a company would give them a greater say in its products. Forming a cooperative isn’t the only model here, but it would certainly encode this as a right.
I have a tension here: user research shows that what users think they want, and what their behavior says they want, are usually two different things. As UX researcher Jakob Nielsen pointed out 15 years ago: “To design the best user experience, pay attention to what users do, not what they say. Self-reported claims are unreliable, as are user speculations about future behavior. Users do not know what they want.” Similarly, Steve Jobs famously said that “people don’t know what they want until you show it to them.”
Would giving users direct say in product direction inhibit innovation? I fear that it might. Regardless, it would certainly require a radical culture change in an existing company like Twitter.
A new cooperative network
That doesn’t mean cooperatives can’t build successful networks on the web. While I think Twitter is the wrong choice, I do believe there is another viable route. In fact, while we’ve seen remarkable technological innovation in Silicon Valley, we haven’t seen almost any radical change in corporate governance.
Earlier this month, Six Silberman, a German researcher, narrated a story of #WeAreTwitter’s future success to an audience of Association for Computing Machinery members:
In parallel [to Twitter’s rebirth as a cooperative], Facebook-alternative Boopnode was founded in 2018 and had taken a quarter of Facebook’s market share within five years. Academic research into Boopnode would play a role in its success, shaping both the product and the multi-stakeholder organization. Silberman: “In terms of the depth, breadth, robustness, and responsiveness of its democratic governance, Boopnode is by far the most successful cooperatively governed digital platform.”
Forget “Facebook-alternative”: no platform has ever succeeded as an alternative to another one. How many failed Facebook-alternative platforms can you count?
Prismatic founder Bradley Cross spoke to Slate about this a few years ago:
The social startups that have struck it big in the post-Facebook era have all started by carving out a different niche. That difference, Cross argues, can’t just be about a site’s back-end architecture or business model, as with Diaspora (an open-source Facebook) or App.net (a Twitter without ads). The product itself has to fulfill a fresh purpose for its users, like sharing snazzy smartphone snapshots (Instagram), networking and advancing their careers (LinkedIn), or showing off their taste in fashion, food, and design (Pinterest).
Trying to beat Facebook at its own game, Cross argues, is like “trying to beat Google in search.” Not only does Facebook have a huge head start, but it has vast resources with which to outmaneuver or overwhelm any direct competitors. And when all else fails, it simply buys them.
Silberman is right about two things: Facebook’s market share is not impenetrable, and building a network from the ground up is the right way to go. However, I much prefer Cross’s approach: find a concrete niche that hasn’t been covered yet.
Building from scratch allows you to solve real-world problems in a way that you couldn’t if you were simply imposing a new structure on an existing platform. The latter is very top-down: a small group of people is declaring themselves to have a better idea of what people need. It’s similar to a vanguard; an inherently elitist structure where a small group deems itself more suitable to lead than others.
In contrast, the design thinking product development cycle is much more democratic:
Here, you create a simple prototype to test your initial idea; test your idea with people to get feedback; generalize the results from your feedback; iterate your prototype based on what you think you learned; and test again. Real user needs sit at the heart of your prototype. Often, your assumptions are completely disproven, and you find yourself building something new. Real people are central to the process.
The design thinking process allows you to build products to address real, unmet needs — and, potentially, create governance structures to do the same.
Cooperatives might be a solution. Decentralized networks might be a solution. The indie web might be a solution. Design thinking can help us test these assumptions, and figure out if they’re real problems, or if we’re simply projecting what we want users to want.
I believe academia may have a role here — although not to design and build software itself. I don’t think the incentives are right in an institutional software to build and maintain large-scale platforms, and there’s a danger of a kind of vanguardism here, too. But potentially, they could provide an environment where new models could be nurtured.
One example in this direction is Matter, a venture firm dedicated to creating a more informed and connected society, whose limited partners are media companies. (Disclosure: they funded Known.) This model has been very successful, and it stands to reason that similar entities will spring up for other purposes.
What if universities could come together and collaborate on innovation labs to create new kinds of networks, built by software professionals for stakeholders other than venture capitalists?
What if cooperatives and unions could, too?
If you want to create a different model, the solution isn’t to appropriate what’s already been created and attempt to retrofit it with your own values. Instead, there’s an opportunity to create new kinds of networks, run by new kinds of entities, with new kinds of stakeholders. We have the product development tools, and the expertise of decades of innovation in Silicon Valley.
We just need to think bigger.
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