Social media is on the verge of internal change, and its biggest players will need to adapt or be left behind.
As regulation looms on the horizon in the European Union, long-standing concerns about privacy and security are gaining visibility in the United States. Elon Musk’s chaotic acquisition of Twitter, now X, brought the industry even more into the spotlight.
European privacy and security regulations, headlined by the currently phased-in European Digital Services Act, have become an established risk for Meta (META) and its competitors.
“What’s happening with Meta in Europe… could potentially have ramifications for Facebook, Instagram and its various subsidiaries,” University of Miami professor Matthew Crain told Yahoo Finance.
Meta, whose shares are up 184% through 2023, is well positioned to face the upcoming changes; the company overcame Apple’s tough privacy changes and began offering options to cater to the EU market, such as an ad-free subscription offering.
Meanwhile, laggard rivals like Snap (SNAP), which has struggled to get around Apple’s App Tracking Transparency, have updated their advertising businesses to limit ads to minors in Europe, for example.
Snap shares are up more than 90% through 2023 but are still trading at less than a quarter of their record high in September 2021.
Hussein Fazal, co-founder and CEO of Super, said these shifts in Meta and Snap’s advertising belie a deeper truth that the traditional model just doesn’t cut it anymore.
“Social media companies, which basically rely on pure advertising, have a tough job,” Fazal said. “If there are ways to increase revenues, I think that would be beneficial for companies because it would give them more flexibility.”
One potential diversification is e-commerce. TikTok, for example, launched “TikTok Shop” in September, where 200,000 sellers signed up.
The feature brings shoppable videos directly to users’ feeds, provides fulfillment services to merchants, and allows users to shop from a brand’s profile or TikTok marketplace.
More than 5 million new customers made purchases through TikTok during Black Friday and Cyber Monday, according to the company and Insider Intelligence.
Meta first introduced Shops for Instagram and Facebook in May 2020, as the pandemic shut down physical retail. In November, it partnered with Amazon to allow users who click on ads to stay in their Meta app while purchasing the product through Amazon.
Meta CFO Susan Li said in October that e-commerce was the biggest contributor to increasing ad revenue. Hosting the entire shopping journey gives social media companies their own data on how well ads convert into purchases; it’s a capability that’s been brought to its knees by Apple’s “Ask App Not Track” function.
Snap has been linking its augmented reality capabilities to e-commerce for the past few years, connecting with brands like sneaker maker Puma and eyewear company Zenni Optical.
Elon Musk’s X (formerly Twitter) has also proven to be a flashpoint. The microblogging platform has made a sharp pivot towards a subscription model, which other social media companies have tried with varying degrees of success.
Data from Apptopia and reported by TechCrunch shows that X downloads dropped nearly 30% in the first two months following the company’s rebranding. In November, Apptopia data showed that X’s subscription offering earned $6.2 million, marking the company’s highest monthly subscription revenue to date.
But 2023 ad sales fell to $2.5 billion, a giant drop from the $4.5 billion it generated in 2021 before Musk’s acquisition.
The billionaire’s hope, as he has said many times, is to take his subscription strategy even further and create an “everything app.” This is a tactic unlikely to be successful in the United States, Fazal said.
“I believe we will not have a super app like WeChat in the US,” Fazal said. “WeChat in China came from a very specific time, a set of government regulations and circumstances that created a single app for chatting with friends, paying government bills, booking travel, and doing just about everything else.”
Unlike WeChat, which launched in January 2011, the American apps are competing in a crowded market where user preferences vary and features like messaging, travel booking and ride-hailing already have dedicated apps with their own audiences.
Profit, privacy and security
There is a significant tension in the social media businesses that currently exist; The best targeted advertising requires access to users’ data. This access inherently makes privacy complicated or impossible and can quickly diminish trust.
Providing benefits not only to companies but also to users can be a way to maintain trust. Microsoft-owned (MSFT) LinkedIn, for example, says its business model is not a growth-at-all-costs proposition.
“Our goal is for you to come here, get something from LinkedIn that is useful to you — information, work, connections,” LinkedIn editor-in-chief and vice president Daniel Roth told Yahoo Finance. “We are very focused on what the economic outcome is of something you do on LinkedIn.”
Vero, a social media startup focused on high-quality media content and connecting creators with users, tries to stand out by avoiding ads and algorithmic feeds. It reportedly has 6 million users and plans to launch a subscription next year.
“We look at our users as our customers, we’re building a platform for them and no one else,” co-founder and CEO Ayman Hariri told Yahoo Finance. “We don’t have any other agenda. We want them to be satisfied.”
To date, there are more than 900 million users on LinkedIn, but the company does not disclose how many of them are monthly or daily active users.
By comparison, Meta has more than 3 billion monthly active users on Facebook and nearly 4 billion monthly active users across its family of apps, according to its third-quarter report. But a strategy of growth without borders can also be a liability.
For example, the Wall Street Journal published significant news about Meta’s difficulties in keeping children safe on its platforms.
Going forward, social media companies will need to solve the subscription and e-commerce puzzle while also addressing concerns about invasive and harmful apps.
And the landscape, with all its problems, is ripe for disruption. Hari Ravichandran, founder and CEO of personal cybersecurity app Aura, said security solutions will come from further down the Silicon Valley food chain.
“If you take a platform and look at the biggest problems it faces, I predict there will be a lot of small startups, a lot of community-focused, a lot of smart people with a lot of technical skills. “Start working on solutions for that platform,” Ravichandran said.
Allie Garfinkle He is a Senior Technology Reporter at Yahoo Finance. Follow him on X (formerly Twitter): @agarfinks and on LinkedIn.
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