Why Elon can't charge for Twitter. By Jeremiah Johnson

www.infinitescroll.us

8 - 10 minutes

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Twitter user paying to use Twitter, artist’s rendition, 2023 colorized

Earlier this week, Elon Musk made waves during a conversation with Benjamin Netanyahu by declaring that Twitter would soon be charging users a ‘small fee’ to use the site. To quote him directly:

“The single-most important reason we're moving to having a small monthly payment for use of the X system is it's the only way I can think of to combat vast armies of bots.”

Musk specified during the conversation he was aiming at a lower tier of pricing than the current charge of $8/month for X Premium. This naturally made the X/Twitter crowd go crazy, and Elon subsequently called fake news on the whole thing and said that charging every user wasn’t his intention.

Elon clearly wants to move in the direction of a user fee revenue model and away from Twitter’s traditional advertising revenue model, even if he denies wanting to make such a fee mandatory. Whether it happens or not, it’s worth thinking about why people reacted so strongly to this scenario. It seems obvious to anyone with a tiny bit of common sense - charging a fee for access to Twitter would absolutely kill the site. But how exactly would it happen?

To understand what would happen if a social media site like Twitter charged for access, it’s worth revisiting your freshman year economics course. Specifically, the concept of adverse selection. Adverse selection describes a behavioral spiral that can happen in certain markets like insurance markets. An example below describes how this works with car insurance.

The typical story is that the insurer tries to set an insurance price based on the whole population, but that average price drives away safe drivers who aren’t getting their money’s worth. But the average price is a great deal for the riskiest drivers, who all buy it. The insurer loses money because they’re only insuring risky drivers, and has to raise prices. This once again drives away the safest remaining drivers, and leaves only the VERY risky drivers for whom the insurance is still worth it, and then once again the company will have to raise prices. And so on, ad infinitum, until only a tiny slice of the top 1% riskiest drivers are in the program, making it infeasible.

This is why so many governments legally mandate that everyone must buy insurance (whether health insurance, car insurance, etc). If the entire population is forced into the insurance program, it stops the downward spiral from occurring.

Now with that model in mind, let’s imagine what happens if a Giant Social Media Site were to charge users for access. The site’s owners aren’t dumb, and they realize they’re likely going to lose some people at first. But what they may not realize is that the first wave of losses will be followed by subsequent waves due to the same dynamics as the adverse selection spiral:

The first wave of people leaving is easy to predict. But afterwards, the audience will be significantly smaller. The value of a site like Twitter is how far it reaches and how fast it moves. With fewer users, it won’t necessarily be THE place for breaking news and conversation any longer. Many people who would happily pay $8/month to use Twitter with ~200M daily users might balk at paying $8/month to use Twitter when it only has 20M daily users. Of those 20M paying users, many will find the site no longer valuable due to reduced activity and will themselves also leave. So a few months after the initial drop, you could see the site reduced from 20M to 10M active daily users, which further decreases traffic and engagements. And so on.

Every time there’s a wave of people leaving, it makes the site less valuable for those remaining and therefore causes another round of departures. Eventually you end up with a tiny core of only the most dedicated Musk/Twitter fans, and the site essentially destroyed.

This is the core reason why no large social media site charges for access. There are a handful of counterexamples, but they tend to be small in scale, focus on exclusive subcultures, and cap out in the tens or hundreds of thousands of people. Any site larger than that, and any site that aims for true social media scale wouldn’t be able to avoid the payment doom loop. This is why all large-scale social media sites are free - it’s the only price at which scale can be achieved (and social sites are often in the business of Scale as a Service).

While the adverse selection-style doom loop is a key part of our analysis, it’s not where the analysis should stop. If you look carefully, we’re assuming at the beginning of the doom loop that a large number of users won’t pay any fee at all. I think it’s correct to assume that even for a tiny fee of 50¢ a month, the outright majority of Twitter users would stop using the site. But why?

After all, there’s at least some logic to charging a fee. People presumably use Twitter because they get some value out of it. Maybe it’s only the equivalent of a few dollars a month - but if Twitter provides them a few dollars a month of enjoyment, why wouldn’t they pay 50¢ or $1 a month to access it? The benefit is higher than the cost!

There are two reasons why the situation is more complex than a simple cost-benefit analysis. The first is straightforward, but the second is deeper and due to the nature of the social internet itself.

First, we can call on behavioral economics to explain why people won’t pay. Twitter users have already anchored very strongly on the idea that Twitter should be free to use. Whether or not it’s rational, they’re used to paying nothing for the site and will heavily resist any changes to the status quo. And beyond the anchoring bias, pain of paying is a real phenomenon. Even though the monetary cost could be negligible, people will simply resist entering their credit card information into a previously free site. The psychological barrier that a paywall presents is substantial, even when payment is tiny.

But beyond the behavioral econ concepts, there’s a deeper reason why paywalls for social media don’t work. And it involves Twitter’s real competition.

Elon Musk is famous for getting petty about Twitter’s rivals. He stopped allowing Tweet embeds on Substack after the release of Substack Notes. He’s tried to mess with outgoing links to Threads, BlueSky and Mastodon at various times. But what Elon doesn’t seem to understand is that Twitter’s competition is not Threads, BlueSky and Mastodon. It’s the entire internet.

You know what most Twitter users will do if Twitter begins to charge for access? They’ll navigate away from Twitter into literally anything else. They’ll visit a celebrity gossip blog. They’ll check ESPN for sports highlights. YouTube by itself has more content than you could watch in 500 lifetimes. There are a nearly unlimited number of video games to play - some on your phone, some on your web browser, some through dedicated portals like Steam or Epic Games. Tens of thousands of movies and TV shows are seconds away on dozens of streaming services. Reddit. TikTok. Instagram. LinkedIn. The NYTimes crossword. Online poker. Fantasy sports. Quilting forums. Fanfiction arenas.

The name of this blog is Infinite Scroll. Twitter has an infinite scroll as its default scrolling feature, as do other social sites. But the infinite scroll concept applies to the social internet writ large, and to all the content we produce and consume online. The internet is for all practical purposes infinite. It is a buffet of endless content, and 90% or more of it is free. A service like Twitter is competing for attention in the all-against-all war that is our modern attention economy.

Most users of particular social media sites are not hardcore addicts. They’re just people wasting time, goofing off, having a bit of fun or mindlessly scrolling. If you put a barrier in the way of their scrolling, there are thousands of other distractions they can navigate to at a moment’s notice. It’s only a minority for whom Twitter is enough of a core service that paying really makes sense - but without the casual users, even that minority will start to leave as the adverse selection doom loop starts.

That, I believe, is the ultimate reason why Twitter (or any other social media site) won’t be able to make a mandatory charge work. Elon will either learn this the easy way (sub to Infinite Scroll, Elon) or the hard way (destroying the Bird App), but there’s no changing the infinite nature of the internet.

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