Musk vs Zuck – Virtual cage fight

I think Musk wins this cage fight.

• Meta Platforms is releasing an alternative to Twitter which will give all those who say they want to leave an opportunity to do so and will be a real-world test of the power of the network.
• Meta’s new app will be called Threads which will be a text-based platform where users can post comments, reply, like and share in a very similar way to Twitter.
• This is not the first time that Meta has “cloned” competing apps and services but this one will be a real test of the power of Twitter’s network.
• Twitter has market power because it is known as the go-to place to post comments or to find news and the views of other users.
• Furthermore, outside of China, it has been unopposed in the niche of microblogging which so far has meant that all attempts to dislodge it have been dismal failures.
• However, Twitter is not the same company that it was the last time this was tried and there is no shortage of users who have expressed discontent with the way Twitter is now run.
• Hence, Threads offers them an opportunity to go somewhere else, but I suspect that the power of Twitter’s network will mean that these users do not live up to their word.
• There are plenty of Twitter alternatives already in the market such as Mastodon, Hive, and Bluesky to name but a few, but none of these have really made a dent in Twitter.
• This is because going somewhere else means having to re-build the base of followers from scratch which will be very difficult to do.
• Twitter followers are there because the content creators are there, and the content creators are there because the followers are there.
• This is the virtuous cycle which once going is very hard to compete against.
• Furthermore, Twitter also receives a lot of traffic from users who are not signed in which further adds to the draw of the platform.
• The general rule of thumb for a network is that the utility or value of a network increases by the square of the number of users that are connected to it which means that once it is established, it is very difficult to break.
• This is a common characteristic across internet-based businesses such as Uber, Amazon, DiDi, Craigslist, WhatApp, WeChat, iMessage and so on.
• The other issue that Twitter users face is that quitting Twitter and going to Threads will in most cases greatly diminish their reach for a sustained period of time and possibly, permanently.
• To anyone relying on reach to make money or to maintain their public image, this is a significant problem and also explains why most users who post on YouTube rival Rumble also still post on YouTube despite complaining about YouTube policies.
• Hence, I suspect that most users faced with the prospect of rebuilding their base of followers from scratch will decide that Twitter is not so bad after all and remain on the platform.
• In contrast to Reels which has seen good traction, (partly due to fears of TikTok scraping US user data for the Chinese state), I suspect that Threads will fail to achieve critical mass and challenge Twitter.
• Even if it does, its ability to generate revenues compared to the behemoth of Facebook will so small that it is never like to have any meaningful impact on Meta Platforms’ financial performance.
• Meta Platforms has been the best performer this year as Zuckerberg has surprised the market with his willingness to cut costs which has allowed estimates to recover far faster than anyone expected.
• However, at $294 per share, much of this has been priced into the shares and I would not be inclined to chase it here.