by Social media is about to change wildly – and its biggest players will have to adapt or be left behind.
Regulation is emerging in the European Union, and privacy and safety concerns have long been evident in the US. Elon Musk’s chaotic acquisition of Twitter, now X, highlighted the sector even more.
European privacy and safety regulations — titled the European Digital Services Act, which are currently being phased in — are a built-in risk for Meta (META) and its competitors.
“What’s going on with Meta in Europe … could have ramifications for our Facebook, Instagram, and all of their various subsidiaries,” University of Miami professor Matthew Crain told Yahoo Finance.
Meta, which has seen its shares rise 184% through 2023, is well positioned for change – the company has taken issue with Apple’s privacy changes and has begun rolling out options to accommodate EU market, like an ad-free subscription offer. .
Meanwhile, weakened rivals like Snap ( SNAP ), which has 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 have risen more than 90% during 2023, although it still trades at less than a quarter of its all-time high in September 2021.
These changes in advertising from Meta and Snap belie a deeper reality – that the traditional model is no longer cutting it, said Hussein Fazal, co-founder and CEO of Super.
“Social media companies are basically relying on pure advertising which is difficult,” said Fazal. “I think if there are ways to increase revenue, that will be beneficial for them as companies, because that gives them more flexibility.”
One possible diversification is e-commerce. TikTok, for one, launched “TikTok Shop” in September, and 200,000 sellers signed up at the time.
The feature delivers marketable videos directly to users’ feeds, provides fulfillment services for merchants, and allows users to make purchases from a brand’s profile or TikTok marketplace.
Through Black Friday and Cyber Monday, more than 5 million new customers made purchases through TikTok, according to the company and Insider Intelligence.
Meta introduced Shops for Instagram and Facebook for the first time in May 2020, as the brick-and-mortar retail pandemic closed. In November, it partnered with Amazon to allow users who click through ads to purchase the product through Amazon, while waiting for Meta apps.
E-commerce was the biggest contributor to boosting advertising revenue, Meta CFO Susan Li said in October. Hosting the entire shopping trip gives social media companies their own data on how well ads convert to purchases, a capability that Apple’s “Request App Not to Track” function has had for generations.
In the past few years, Snap has tied its augmented reality capabilities to e-commerce, which includes tie-ups with brands like sneaker maker Puma and eyewear company Zenni Optical.
Elon Musk’s X, formerly known as Twitter, proved to be a flashpoint. The microblogging platform has struggled with a subscription model — something other social media firms have tried with varying degrees of success.
Data from Apptopia and TechCrunch reported that X downloads dropped by about 30% in the first two months after the company’s rebrand. In November, Apptopia data showed that X’s subscription offering pulled in $6.2 million, marking the company’s biggest monthly subscription revenue to date.
However, its ad sales for 2023 have fallen to $2.5 billion, a huge drop from the $4.5 billion it hit in 2021, before Musk’s acquisition.
The billionaire’s hope, as he has often said, is to push the subscription strategy further and create an “everything app”. It’s a tactic unlikely to succeed in the United States, Fazal said.
“I believe we’re not going to have a great app like WeChat here in the US,” Fazal said. “WeChat in China came from a very specific time, a series of government regulations, and circumstances, creating a single app to chat with your friends, pay government bills, book travel, and do almost everything else. “
Unlike WeChat, which launched in January 2011, American apps are competing in a crowded market, where user preferences vary and features like messaging, travel bookings and ride-hailing already have dedicated apps with their own audiences.
Profit, privacy, and safety
There is a necessary tension in social media businesses as they are today – access to user data is required for the best targeted advertising. That access makes privacy difficult or impossible, and can quickly degrade trust.
Providing benefits to the users, not just the corporations, may be one way to build trust. Microsoft-owned ( MSFT ) LinkedIn, for example, says its business model is not a growth-at-all-costs proposition.
“Our goal is that you come here, you get something out of LinkedIn that’s useful to you — information, a job, a connection,” Daniel Roth, LinkedIn’s editor-in-chief and vice president, told Yahoo Finance. “We are very focused on what is the economic result of something you have done on LinkedIn.”
Vero, a social media startup that focuses on quality media content and connects creators with users, is trying to stand out by avoiding ads and algorithmic feeds. It is said to have 6 million users and plans to launch a subscription next year.
“We are looking at our users as our customers, we are building a platform for them, not for anyone else,” said co-founder and CEO Ayman Hariri Yahoo Finance. “We have no other agenda. We want them to be happy.”
To date, there are more than 900 million users on LinkedIn, although the company has not disclosed how many of those are monthly or daily active users.
Compared to Meta, Facebook has more than 3 billion monthly active users, and nearly 4 billion monthly active users across its family of apps, according to its Q3 report. But the unfettered growth strategy can also be a liability.
The Wall Street Journal, for example, has made a significant report on Meta’s troubles ensuring the safety of children on its platforms.
In the future, social media companies will have to figure out the subscription and e-commerce problem, while respecting concerns about invasive and harmful practices.
And the landscape, with all its problems, is also ripe for interference. Safety solutions will come out of the Silicon Valley food chain further down, said Hari Ravichandran, founder and CEO of Aura, a personal cybersecurity app.
“If you take a platform, and you look at the biggest problems it’s facing, I would guess there would be a lot of small startups, a lot of smart people who are community-focused, with a lot of tap their technical skills and start working on solutions for that platform,” said Ravichandran.
Allie Garfinkle is a Senior Technical Reporter at Yahoo Finance. Follow her on X, formerly known as Twitter, at @agarfinks and on LinkedIn.
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