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Elon Musk may have ‘an escape hatch’ yet in Twitter saga: Professor

Sinan Aral, author and professor of management at MIT, joins Yahoo Finance Live to discuss what's next for Twitter should the deal with Tesla CEO Elon Musk go through.

Video Transcript

- We're going to pivot from legal battles and financial wrangling to a bigger picture take on Elon Musk's potential takeover. Tesla CEO has labeled himself a free speech absolutist. And while heralded by some, it has stoked fears from civil rights organizations in equal measure. Now from Twitter as a business to the flow of information, we're joined by Sinan Aral, an MIT Sloan School of Management professor and author of "The Hype Machine." Sinan, always great to see you here. So what's your take on this situation and its meaning for the future of Twitter?

SINAN ARAL: Great to see you. Thank you for having me. I predicted that this is exactly what would happen, that this deal would go through. I actually predicted it would go through at a slightly lower price. Is the market choosing that price for me at the $50 range? There could be some negotiations about a slight price decrease in order to get assurances on the Twitter side from Musk and the financiers, more tight language about how they could or couldn't be required to go through with the deal. We'll see whether the prediction bears out exactly.

Obviously, when the investors came in, it was a different climate. Now there's higher interest rates. There's inflation. There's a lot of uncertainty to the Ukraine war. Just this week, oil prices, OPEC and Russia constraining supply. So it's a much different environment to finance debt. The banks could try to back out and could trigger this escape hatch for $1,000,000,000 by Elon Musk. But there could be some negotiations. And Twitter could say, we want assurances. And we'll negotiate something to get those assurances. Because, remember, for the Twitter board, this was a no brainer at $54. This was a great deal for them. And they'll want this deal to go through.

Assuming the deal goes through, first thing you're going to see is a mass exodus due to firings and people quitting. People who are currently at Twitter, inside information says that they do not want to work for Elon Musk's new Twitter organization. Mostly many of them would leave on their own volition. Elon Musk has indicated that much of the Twitter leadership he does not approve of their decision making. So he might get rid of some people.

So the compensation negotiation I think is less important because you're going to see a wholesale cleanout and a wholesale change in the approach. You're going to see Donald Trump return to the platform almost immediately. You're going to see moderation rules relaxed towards this more free speech environment, although you can't get rid of moderation entirely. You're going to see attempts at the subscription model be more forthcoming in the short term. A lot more bot detection and bot removal as well. That's in the short term.

And I think we should also talk a little bit about the long term. Expect Web3 strategies to enter Elon Musk's vocabulary. Will there be a Twitter coin? Will that be related to the subscription model? How will that be financing the business going forward?

- Well, you touched on monetization there, a key pillar of turning the business of Twitter around. I've seen some ideas floated that the business model could follow that of LinkedIn, incorporate some of YouTube. What does this look like to you? And what does this mean for the platform?

SINAN ARAL: Yeah. I think Elon Musk has made clear that he thinks that an advertising alone business model cannot save this company. There are a lot of people that agree with this opinion. I think that Twitter has struggled to succeed with a advertising only business model. Twitter Blue as a subscription model was kind of a toes dangling in the water attempt to see how it would go. You can expect much more heavy commitment towards paying subscribers for premium services and/or for institutional accounts to be part of the strategy of an Elon Musk Twitter.

In addition, I think that you can imagine that there will be other types of subscription models. For example, selling access to particular types of institutions in terms of information that is packaged up as information services for institutions, whether it be for prediction purposes or for other types of purposes. And given that it will be a private company, there will be a lot less oversight from the public sphere over what's going on. And you can also imagine an attempt to be more inclusive of conservative voices, which would try to get at the user numbers that have been steady but not really increasing at the rates that Elon Musk would like to see.

- Well, we've got to leave it there, Sinan Aral. But really appreciate you stopping by and all of those insights, as always.