by Social media is on the cusp of visceral change, and its most important players will have to adapt or be left behind.
Regulation looms in the European Union, while long-simmering concerns about privacy and security are gaining visibility in the United States. Elon Musk’s chaotic acquisition of Twitter, now X, has put the sector even more in the spotlight.
European privacy and security regulations, led by the European Digital Services Act, currently implemented in phases, have become an inherent risk for Meta (META) and its competitors.
“What’s happening with Meta in Europe… could have ramifications for our Facebook, Instagram and all of their subsidiaries,” University of Miami professor Matthew Crain told Yahoo Finance.
Meta, whose shares are up 184% over the course of 2023, is well-positioned as changes are coming: the company has overcome Apple’s privacy changes and has begun implementing options to satisfy the EU market, such as a Ad-free subscription offer. .
Meanwhile, lagging competitors like Snap (SNAP), which struggled to recover from Apple’s app tracking transparency, have updated their advertising business to, for example, limit advertising to minors in Europe.
Snap shares are up more than 90% throughout 2023, although they are still trading at less than a quarter of their all-time high in September 2021.
These changes to Meta and Snap advertising belie a deeper reality: that the traditional model is no longer enough, said Hussein Fazal, co-founder and CEO of Super.
“Basically, it’s difficult for social media companies to rely solely on advertising,” Fazal said. “I think if there are ways to expand revenue, that will be beneficial for them as companies, because that will give them more flexibility.”
A possible diversification is electronic commerce. TikTok, for example, launched “TikTok Shop” in September, with 200,000 registered sellers at the time.
The feature brings shoppable videos directly to users’ feeds, provides fulfillment services to merchants, and allows users to make purchases from a brand profile or TikTok marketplace.
During Black Friday and Cyber Monday, more than 5 million new customers made a purchase through TikTok, according to the company and Insider Intelligence.
Meta first introduced Shops for Instagram and Facebook in May 2020, when the pandemic shut down traditional retail. In November, it partnered with Amazon to allow users who click on ads to purchase the product through Amazon, while staying in the meta apps.
E-commerce was the biggest contributor to the growth in advertising revenue, Meta CFO Susan Li said in October. Hosting the entire shopping journey gives social media companies their own data on how well ads convert into purchases, an ability that was weakened by Apple’s “Ask app not to track” feature.
Snap, over the past few years, has tied its augmented reality capabilities to e-commerce, introducing tie-ups with brands like sneaker maker Puma and eyewear company Zenni Optical.
Elon Musk’s X, formerly Twitter, has also proven to be a sore point. The microblogging platform has pivoted heavily toward a subscription model, something other social media companies have tried with varying degrees of success.
Data from Apptopia and reported by TechCrunch shows that X downloads fell by about 30% in the first two months after the company rebranded. In November, data from Apptopia showed that X’s subscription offering generated $6.2 million, marking the company’s largest monthly subscription revenue to date.
However, its ad sales for 2023 have fallen to $2.5 billion, a giant drop from the $4.5 billion it posted in 2021, before Musk’s acquisition.
The billionaire’s hope, as he has said many times, is to push the subscription strategy even further and create an “app for everything.” It’s a tactic that’s unlikely to succeed in the United States, Fazal said.
“I think here in the United States we are not going to have a super app like WeChat,” Fazal said. “WeChat in China emerged from a time, a very specific set of government regulations and circumstances, creating an app to chat with your friends, pay government bills, book travel, and do almost everything else.”
Unlike WeChat, which launched in January 2011, US apps compete in a crowded market, where user preferences are varied and features like messaging, ride booking and ride-sharing already have dedicated apps with their own audience. .
Benefit, privacy and security
There is an essential tension in social media companies as they currently exist: the best targeted advertising requires access to user data. Such access, by its nature, complicates or makes privacy impossible and can quickly degrade trust.
Providing benefits to users, not just corporations, can be a way to maintain trust. Microsoft-owned LinkedIn (MSFT), for example, says its business model is not a growth-at-all-costs proposition.
“Our goal is for you to come here and get something useful from LinkedIn: knowledge, a job, a connection,” Daniel Roth, editor in chief and vice president of LinkedIn, told Yahoo Finance. “We’re very focused on what the economic outcome is of something you’ve done on LinkedIn.”
Vero, a social media startup that focuses on high-quality multimedia content and connecting creators with users, is trying to stand out by avoiding ads and algorithmic feeds. It reportedly has 6 million users and plans to launch a subscription next year.
“We consider our users as our customers, we are building a platform for them, not anyone else,” co-founder and CEO Ayman Hariri told Yahoo Finance. “We have no other agenda. We want them to be satisfied.”
To date, there are more than 900 million users on LinkedIn, although the company does not reveal how many of them are monthly or daily active users.
Meta, by comparison, has more than 3 billion monthly active users on Facebook and nearly 4 billion monthly active users across its entire family of apps, according to its third-quarter report. But the unrestricted growth strategy can also be a drawback.
The Wall Street Journal, for example, has reported substantially on Meta’s problems ensuring the safety of children on its platforms.
Going forward, social media companies will have to solve the subscription and e-commerce conundrum, while alleviating concerns about invasive and harmful practices.
And the landscape, with all its problems, is also ripe for disruption. Security solutions will come from lower down the Silicon Valley food chain, said Hari Ravichandran, founder and CEO of Aura, a personal cybersecurity app.
“If you take a platform and look at the biggest problems it faces, I would venture to guess that there will be a lot of small startups, a lot of smart community-oriented people, who have a lot of technical skills and start working on solutions for that platform,” said Ravichandran. .
Allie Garfinkle is a senior technology reporter at Yahoo Finance. Follow her on X, formerly Twitter, at @agarfinks and in LinkedIn.
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