Social media companies are finding themselves in a challenging position at the moment. With increased competition, difficulty in tracking performance after a number of high profile tech and regulatory changes, share prices are continuing to drop and investors begin to question the value of social media moving forward.
One of the main drivers behind all of this is likely the loss in ad revenue that these platforms have experienced recently, and the forecasted longer-term impact. Most social media platforms rely heavily on ad revenue to fund their growth and development. This reliance on external factors, such as ad revenue, puts social media companies in a highly vulnerable and unstable position. As a result, many are looking to diversify, exploring new opportunities to capture revenue, and bring people in, or back, to their social space.
Ad Revenue Is Getting Harder To Capture
Despite digital ad revenue continuing to grow globally, social media platforms have recently seen highly public panic from investors as revenue forecasts are not met due to a reduction in ad revenue for social media companies. By having such a reliance on external factors, it makes it a lot harder when something like Apple’s AppTrackingTransparency (ATT) comes into place. This change, which saw Apple reduce the tracking capabilities that advertisers could use to target consumers, in addition to regulatory changes, such as General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) have removed a number of key selling points that advertisers used to reach consumers.
As a result, there have been a number of high profile companies who have seen a massive reduction in ad revenue, including Meta losing $300bn NZD, over 20% of their value, overnight earlier this year after they announced that they are forecasting a big reduction in ad revenue due to Apple and industry ad tracking regulations. This impact saw the share price of all other social media platforms drop as well, as investors become nervous around the importance of social media platforms in the future.
Social Media Is Unlike To Disappear, But It May Need To Evolve
Social media has become such a crucial part of human behaviour, as the endless social scroll consumes hours a day for the majority of people. It is hard to imagine consumers moving away from social media platforms anytime soon. However, while consumer engagement is still strong, the fight for user attention is intensifying across all the social media platforms.
The objective of social media platforms is to get users to spend as much time as possible within their platforms. This allows companies to build a better understanding of user interests, and sell more ad slots. With more competition from a growing list of social media platforms, and a reduction in ad revenue due to losses in tracking and performance, social media companies are looking for new ways to maintain user engagement and attention, while also exploring new potential revenue streams. As a result, we are seeing a few different innovations coming through to address this.
The Future Is Hard(ware)
Meta’s shift towards building new hardware to get consumers into the metaverse has been highly publicised. However, it has not been a smooth transition for Meta, who have seen share prices continue to drop, and have recently announced they are already dropping some of their planned hardware. This includes their foray into the smartwatch market, currently dominated by Apple, and changing their strategy with Portal, which was initially designed for consumers to call friends and family, but will now pivot towards being a tool for offices and companies, putting it in direct competition with the likes of Cisco, Logitech, and Microsoft. Snap, owner of Snapchat, recently unveiled Pixy, a compact drone designed to take selfies to be uploaded to Snapchat.
Despite these challenges, the objective for Meta is clear: get people to use Meta products for all their connectivity and creativity needs. With social media at the heart of everything they do, Meta is looking to build new solutions to help people explore the burgeoning metaverse, but also hinting at real world applications and augmented reality solutions.
While the metaverse has yet to truly take off in the short term, technology that helps with shareability is becoming the key innovation for social media platforms. Meta’s partnership with RayBans is a prime example of this, putting cameras into the frames of RayBan glasses to make it easier for people to take photos and upload to Facebook and Instagram through the glasses. Snap has experimented with the same thing over the last couple of years with their Spectacle range.
Consumers have yet to flock to these solutions, however, as they are met with high costs to purchase and are yet to see a compelling reason for these glasses, compared to simply taking their phone out of their pocket or bag. Sensing this, Snap are looking to build on this technology, by also including augmented reality into their glasses, allowing people their Snapchat lenses as they wander around the real world. Snap CEO, Evan Spiegel, recently highlighted that he feels the term ‘metaverse’ is too ambiguous, leading many to invest too heavily on something that is still relatively theoretical. However, by contrast, AR is already established and used globally, with “250 million people engaging with AR every day in just the Snapchat application.”
Why Build Hardware, When A Platform Could Offer The Whole Internet In One Place
In somes ways, the future of social media could already be here, in the form of WeChat. While WeChat is already the largest social media platform in China, it hasn’t really grown outside of China yet. While a social media platform, it offers so much more and is often referred to as ‘the Chinese Internet’. For those unfamiliar, WeChat is a platform that allows users to do almost anything you would do on the internet through the app. People are able to book taxis and accommodation, purchase anything (both online and using your phone to buy in real life), and listen to music. That’s just a small example of what is possible, in addition to being the most widely used system to chat with people.
As he goes through his challenging acquisition of Twitter, Elon Musk has pointed to WeChat as a potential aspiration for what he would like Twitter to eventually become. While he did state that this would not necessarily need to be built into Twitter, he stated that it “could be something new, but I think this thing needs to exist”.
From a tech company perspective, this would be an obviously advantageous situation, keeping users engaged and constantly connected, not to mention all the data they would have on each user. Ad revenue would flow as an insurmountable amount of data on user preferences, purchase intent, and behaviours would be too hard for advertisers to pass up. Meanwhile, consumers could simplify their lives, having one destination to take care of so many aspects of life, not just connecting with people through social media. While lawmakers globally might look to block such a technological powerhouse from dominating the market, it’s hard to imagine someone like Elon Musk being concerned about that.
Conclusion
We are now beginning to move away from social media being a standalone service, to one which supplements other products. This has resulted in many companies looking to diversify into new avenues to attempt to grow a more sustainable revenue stream. While companies are still testing what the future could look like for them, based on some of the trends we are seeing from the likes of Meta, Snap, and Twitter, social media is likely to expand what is possible.