Elon-gated

Hubris all round in the Twitter wars

You’d need to have a heart of stone to follow Elon Musk’s calamitous first days at Twitter without dissolving into tears of laughter.

Yet it still felt hubristic when the European commissioner for the internal market met the new owner’s anodyne virtual toast with an immediate regulatory warning:

Breton would do well to heed Uncle Ben’s warning to his gifted nephew: “With great power comes great responsibility”. The EU may be a military and diplomatic “dwarf”¹ but, since the completion of its single market in 1993, it has developed into one of the world’s two regulatory superpowers. Soon to be reinforced by the Digital Services Act (DSA) and the Digital Markets Act (DMA), the European Commission can bring the world’s richest man to heel and impose the EU’s political and cultural preferences on the tech giants. But, fun as this is, Europe’s politicians should resist the temptation to pursue a career in refereeing over improving their game.

Europe is a laggard but, after a decade of US (and growing Chinese) dominance in tech-based services, things are starting to move. While they are still minnows compared to FAANG – Meta (Facebook), Apple, Amazon, Netflix, and Alphabet (Google) – audio-streamer Spotify and payments specialist Adyen have emerged as global players. This year’s StackOverflow survey found that Europe-based developers now outnumber their US-based counterparts by close to 2 million. Although it has cooled globally this year, venture-capital tech funding in Europe smashed records in 2021 and has outperformed the US this year, according to Dealroom. Much as I love rules-based economic policy – an affection only reinforced by the 2019-22 British experiment – building the industries of the future in Europe will need a lot more than regulatory prowess.

Musk, moderation, and the Brussels effect

Breton’s display of the instruments of torture played only a small part in Musk’s humiliation this week. Like every pub-stool football manager, Musk could never understand why Twitter’s brass couldn’t make this thing work. So, egged on by his left-baiting online mates, he decided to give it a crack.

Twitter could never match the tech giants, he knew, but it could be made profitable by cutting staff (especially the wokerati in content moderation), selling more ads at higher price points to companies attracted by more active tweeters, and charging for services (paying to tweet, edit, get verification, or license mini-Twitters). Ending or scaling-back moderation would bring back the content-mad but alienated right, restore Twitter as the world’s “digital town square”, and swell the number of monetisable users to attract advertisers.

The trouble with this idea is that effective content moderation is essential if Twitter is going to hang onto its mass-followed politicians, celebrities, sports commentators and journalists. An internal report for Twitter found these tweeters – the ones who attract advertising, incidentally – were already in decline before Musk’s takeover and were being replaced by cryptocurrency and "not safe for work" content. This is what killed Craigslist and will kill Twitter too.

Pre-acquisition warnings from Breton had some effect but it has been the market itself that has forced Musk to row back on his planned content de-moderation. Since the bird was freed, Twitter revenues have collapsed as advertisers suspend campaigns pending clarification of the new moderation regime. As a result, despite the occasional troll-on-troll wobble …

… Musk is now in hard reverse, promising that no one will be allowed back on the platform before the new rules are agreed while providing reassurances that “marginalized communities” and “election integrity” will be protected. In the meantime, in a desperate attempt to reassure his creditors after overpaying by more than 40% for the company, Musk is halving headcount – including, of course, in moderation. Ultimately, nothing will help. "The fundamental problem is that Twitter is not a business; it's a utility,” said Jonathan Last on the Bulwark’s never-to-be-missed The Next Level podcast this week. “All the imperatives that go towards making more money for Twitter in the short term, which is what he has to do, are also the kinds of actions that are going to drive Twitter into the ground as a platform".

From mid-November, Twitter or whatever replaces it won’t have any choice but to moderate. The EU’s DSA will force any company offering services to the 450 million people in the European Economic Area (EEA) to remove posts considered illegal in the countries where the content appears and submit to an external audit on how they handle harmful material or face fines up to 6% of annual global sales.

If experience is any guide, the DSA will quickly be replicated outside the EEA due to the Brussels effect – a concept first identified by Anu Bradford ten years ago. Due to the EU’s market size and regulatory capacity, companies with a global footprint find it easier to apply the EEA’s standards everywhere while the union imposes them through free-trade agreements. Two years into its adventure in regulatory divergence, the UK is paralysed by the effect. However, as new research to quantify the Brussels effect found, the trade and welfare impacts are limited by growing regulatory competition with the US and China, especially for the newest innovations in climate change, artificial intelligence and quantum technologies.

Effective policing is great but it can’t be everything. As the EEA’s tech talent pool and risk-taking cultures grow, its labour markets, corporate administrations, and tax and pension mobility are failing to keep up. This has to change but control over labour, taxation, welfare, and pensions has become central to EU member states’ definition of themselves as they cede powers in exchange for unfettered EEA access. The EU’s internal borders, say Anna Triandafyllidou and Ruby Gropas in What is Europe?, have come to define “the territorial limits of particular redistribution policies rather than the sovereign control exercised by the nation-state”. Time to let go and make the changes needed to free the digital nomads.

“The US will always hold a magnetic draw for many tech startups,” writes tech venture capitalist Danny Rimer. “But as the country reckons with deep structural, political, and economic uncertainties, Europe should seize its moment and encourage its culturally risk-averse corporates to ‘buy in’ to the innovative products being built on their doorstep—fueling the next generation of truly transformative businesses and retaining their confidence to maintain operations on the continent. Roughly a third of the global tech spend lies across the Atlantic. No future ‘global tech titan’ can ignore such a large and influential market. But with new and more sophisticated ways to expand, long-held dreams that the next Amazon, Google, or Facebook is not only made but stays, in Europe could, at last, become reality”.

1. “Europe’s foreign policy is divided. Europe is an economic giant, but still a political dwarf” - Romano Prodi, Hanoi 18 March 2013.