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  • MaryGrace Lerin

Twitter Takeover On Hold Over Pending Fake Accounts Data

Elon Musk's Twitter takeover campaign is still in full swing.

Musk recently revealed through Twitter, that his proposed acquisition of the company had been placed on hold until more information from Twitter to back up its assertion that spam and fraudulent accounts constitute less than 5% of its users.

Musk later said on Twitter:

However, many have wondered what this implies, and whether Musk is attempting to back out of the agreement entirely.

Since the claim that only 5% of Twitter's active user base is made up of bots appears implausible, considering Twitter has been reporting this precise amount of bogus accounts since its IPO in 2013.

Because Twitter, in truth, has no idea. Twitter reports to the Securities and Exchange Commission that:

“There are a number of false or spam accounts in existence on our platform. We have performed an internal review of a sample of accounts and estimate that the average of false or spam accounts during the fourth quarter of 2021 represented fewer than 5% of our mDAU during the quarter. The false or spam accounts for a period represent the average of false or spam accounts in the samples during each monthly analysis period during the quarter.”

So Twitter reaches its judgment based on a sampling of its 229 million users, which has always claimed that exactly 5% of its accounts are fake.

That also doesn't clarify why Twitter hasn't erased the bogus accounts it has found each time, except if it did, in which case a whole new 5% of accounts have popped up in their stead, varying in real numbers based on the platform's total growth.

Isn't it a little dubious? Twitter, on the other hand, acknowledges that it could be incorrect.

“In making this determination, we applied significant judgment, so our estimation of false or spam accounts may not accurately represent the actual number of such accounts, and the actual number of false or spam accounts could be higher than we have estimated.”

Twitter also claims to be constantly increasing its ability to detect and remove fake accounts, yet even with these enhancements, the overall number of fraudulent accounts has stayed constant at 5%.

“After we determine an account is spam, malicious automation, or fake, we stop counting it in our mDAU, or other related metrics.”

It begs the question, do they delete it totally off the platform or simply stop counting it?

“We also treat multiple accounts held by a single person or organization as multiple mDAU because we permit people and organizations to have more than one account.”

Although numerous social media apps utilize similar counting methodologies, there is another potentially misleading computation within Twitter's stats.

Hence, how many bogus accounts does Twitter truly have?

This has been estimated by several different researchers. In a joint study undertaken by researchers from the University of Southern California and Indiana University in 2017, they discovered that roughly 15% of Twitter's user base was made up of bots rather than humans.

More than 70 million accounts were suspended or removed from Twitter in 2018 after it was established that they were fake. Twitter had 330 million monthly active users at the time, implying that roughly 20% of its users were not actual people.

Bot networks discovered independently contradict Twitter's claim of 5%. In the aftermath of the 2016 US presidential election, for instance, researchers discovered "massive, interconnected Twitter bot networks" attempting to sway political debate, the largest of which had 500,000 bogus accounts. Bot accounts continued to dominate political news streams in 2019, according to Wired, with bot profiles accounting for up to 60% of Twitter activity around certain events.

Overall, Twitter's claim of 5% accuracy is quite unlikely.

But does this indicate that if Musk can show that Twitter misrepresented this element, he can walk away from the Twitter acquisition completely?

To begin with, as previously said, Musk has stated that he is committed to the agreement and is not seeking a way out. Although some have doubted the veracity of this claim, we must presume that Musk is simply seeking an explanation rather than a way out.

Even if Musk tried to back out of his Twitter bid because the company's false account data were incorrect, he'd have a hard time doing so, especially since Musk skipped completing comprehensive due diligence on Twitter's business in order to achieve a faster agreement.

According to The Wall Street Journal:

“Because Mr. Musk waived doing detailed due diligence on the deal, it could make it more difficult for him to back out over something like a discrepancy in the number of spam accounts. If he tries to, the company could attempt to force him to complete the deal under legal protection called “specific performance,” though that maneuver is rarely successful in practice.”

So backing out is unlikely, yet some have speculated that this was Musk's intention this entire time, and that is to get out of his proposed Twitter acquisition for various reasons.

Though everything is in murky waters, one thing is definite: we're all learning more about hostile takeovers and the securities regulations that govern them.

If Musk attempted to pull out of his Twitter takeover bid, it wouldn't be easy, given the multiple regulatory mechanisms in place to prevent it, as well as the potential penalties that could occur.

However, as others have hypothesized, Musk may be using this as a negotiation strategy in order to lower his app offer price. Twitter shares are now trading at a reduced rate to Musk's offer price, and if Musk can point to defects in the company's metrics as evidence of poor faith on their part, he may be able to fine-tune the transaction.

Each of these ideas is simply an "it's feasible, but..." scenario, with numerous complexity built in that will almost certainly result in Musk becoming the company's owner.

It's unclear how many actual users Musk will have, and what that means for his growth expectations. What does it mean for his funding and securing capital from partners if his aggressive growth ambitions are no longer attainable owing to faulty data from Twitter?

That's probably what Musk is getting at here: if Twitter's estimates aren't right, Musk won't be able to properly assess future potential, limiting his ability to fairly value the company and draw external funding for his bid.

As a result, he should be able to reduce it.

Perhaps, this is Musk's motivation behind this latest move, though it will be intriguing to see if we get any genuine insight into Twitter's bot issue, and what the true statistics on bogus profiles are.

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