The Exchange

Justin Beiber, Katy Perry and Twitter's Biggest Risk

Philip Pearlman
The Exchange
Justin Bieber
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*Canada's pop star Justin Bieber performs in concert during his Believe world tour in Buenos Aires, Argentina, Sunday, Nov. 10, 2013. Bieber's manager says food poisoning made him quit the stage during the concert, drawing boos from a huge crowd in River Plate stadium. (AP Photo/Pablo Molina, DyN)

This week the Shots of Me app for iOS launched in the Apple (AAPL) iTunes store. It looks enough like yet another variation of an Instagram clone that it's hardly groundbreaking. Sure, it's somewhat notable that users will be limited to selfies, but even that twist has  been done before (see Selfie.im).

No, RockLive’s Shots of Me app is not anything extraordinary in the least except for the fact that mega pop star Justin Beiber is an investor, reportedly kicking in $1.1 million. And for the most part, the tech media and blogosphere has yawned the launch off with just a few articles here and there, many of them focusing on the Bieber angle.

Maybe their general neglect is appropriate enough. But perhaps the larger press is missing the implication here and that is this in a world where celebrities are responsible for a disproportionately high percentage of engagement on social media, it will only be a matter of time before the stars themselves figure out how to disaggregate the largest sites and capture more for themselves.

Twitter ruled by pop singers

According to Twitaholic, the top three Twitter (TWTR) accounts by followers collectively have more than 135 million followers and all three are pop singers. Katy Perry and Justin Beiber have about 47 million followers apiece and Lady Gaga has more than 40 million.

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FILE - This Nov. 10, 2013 file photo shows U.S. singer Katy Perry at the 2013 MTV Europe Music Awards, in Amsterdam, …

In fact, seven of the top 10 Twitter accounts by follower count are pop singers, and they have in sum 266 million followers. Widen the lens further still and you'll find the vast majority of the top 100 on Twitter, by number of followers, are celebrities.

This makes sense. Celebrities have millions of fans, a growing number of which are on Twitter and Instagram, and they love to closely follow what their favorite stars say and share.

Collectively, celebrities are in no small part responsible for Twitter and Instagram’s massive engagement. Its not unreasonable to imagine, especially as the two ramp up monetization strategies, that some big stars might want to collect a share they feel entitled to based on the content they provide and traffic they attract.

The cash for content strategy is not in the least unusual. Google’s (GOOG) YouTube has a well-developed partner program in which content creators who upload videos share advertising revenues.

Further, as the technology continues to advance quickly and apps become faster and cheaper to build, some of the biggest stars might get the idea to create their own social applications for their fans, making the immediate sharing experience and control even greater.

Twitter acknowledges migration risk

In the section titled Risks Related to Our Business and Our Industry of its S-1 filed with the Securities and Exchange Commision prior to its recent IPO, Twitter acknowledges the loss of valuable content is a risk to the business:

If our users do not continue to contribute content or their contributions are not valuable to other users, we may experience a decline in the number of users accessing our products and services and user engagement, which could result in the loss of advertisers and revenue.

The S-1 goes on to mention the importance of celebrities directly:

We seek to foster a broad and engaged user community, and we encourage world leaders, government officials, celebrities, athletes, journalists, sports teams, media outlets and brands to use our products and services to express their views to broad audiences.

While acknowledging the risk to a degree, Twitter does manage to skirt the issue a bit by not specifically stressing the outsized engagement contribution of the celebrities described above.

Social media and the unbundling trend

The term unbundling is being used increasingly to describe the manner in which the Internet, the growing popularity of mobile connectivity and mobile applications are breaking up the collection of services broader and older companies have provided.

Mobile analyst Ben Evans recently described unbundling as such:

One of the recurring themes of the consumer internet is the cycle from aggregation to disaggregation - bundling to unbundling. There is a lot of value in services that pull everything together in one place, but over time that value starts to recede, the lock-ins keeping people there weaken and the appeal of having specialized products grows.

Unbundling has been catalyzed by the explosive growth in mobile applications that do fewer things better. Mobile operating systems such as iOS and Android make it easy and fast to switch between multiple applications to do different things, from checking the weather to sharing photos, so we aren't as tied to one broader site that does many things pretty well but not great.

Twitter and Facebook (FB) are attempting to counteract this trend by adding features such as photo sharing to their streams and by buying unbundled applications such as Instagram and Vine.

And the spurned $3 billion Facebook bid for SnapChat supports the view that the functionality of the larger, broader social media companies are vulnerable to narrower unbundled apps. Zuckerberg would not be bidding so much on a second fast-growing app (Instagram being the first) if this were not the case.

Eventually, though, unbundling might catch up with them, and it could be human unbundling as celebrities back their own services.

Celebrity risk, Twitter and Instagram

So how long might it be before some of the most popular celebrities on Twitter and Instagram begin to expect payment or unbundle themselves with their own smaller, narrower but potentially profitable applications?

The risk is not so much about a mass migration off of Twitter or Instagram the way it happened to MySpace. But public companies, especially those valued richly for growth, need to maintain momentum, so even modest decelerations can spur big declines in market capitalization. It's a vulnerability.

At the margins, then, celebrities who might request compensation or back their own apps could make a huge difference. Imagine if Katy Perry and Lady Gaga got together and created their own photo-sharing app, using Twitter more as a way to spam links back to their own sites. What if the app was cool and actually caught on?

Eventually, a celebrity-backed Instagram or other social-media clone could become a hit by offering access to the right performers at the right time, plus addictive functionality. Perhaps several of them will team up and get a small group of talented hackers to build them something that gains some traction?

While this might not happen tomorrow or ever, it's a legitimate risk factor and should be discounted in the valuation of publicly traded companies such as Twitter and Facebook.

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