Social media is on the cusp of visceral change — and its biggest players will have to adapt or be left behind.
Regulation looms in the European Union, while long-simmering concerns about privacy and safety are gaining visibility in the US. Elon Musk's chaotic acquisition of Twitter, now X, has thrust the sector even further into the spotlight.
European privacy and safety regulations — headlined by the European Digital Services Act, currently applied in phases — has become a built-in risk for Meta (META) and its competitors.
"What's going on with Meta in Europe … could potentially have ramifications for our Facebook, Instagram, and all of its various subsidiaries,” Miami University professor Matthew Crain told Yahoo Finance.
Meta, which saw its shares climb 184% over the course of 2023, is well positioned as changes loom — the company has gotten past Apple's rattling privacy changes and has started rolling out options to meet the EU market, like a no-ad subscription offering.
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 rose more than 90% throughout 2023, though it’s still trading at less than a quarter of its record high in September 2021.
These shifts in advertising from Meta and Snap belie a deeper reality — that the traditional model isn't cutting it anymore, said Hussein Fazal, co-founder and CEO of Super.
"Fundamentally social media companies relying on pure advertising is tricky," said Fazal. "I think that if there are ways to expand revenue, that's going to be beneficial for them as companies, because then that gives them more flexibility."
One potential diversification is e-commerce. TikTok, for one, launched "TikTok Shop" in September, with 200,000 sellers signed up 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’s profile or a TikTok marketplace.
Through 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, as the pandemic shuttered brick-and-mortar retail. In November, it partnered with Amazon to allow users who click through ads to purchase the product via Amazon, while remaining on Meta apps.
E-commerce was the biggest contributor to boosting ad 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 to purchases, an ability that was kneecapped by Apple’s "Ask App Not to Track" function.
Snap, for the last couple years, has linked its augmented reality capabilities to e-commerce, featuring tie-ins with brands like sneaker maker Puma and glasses company Zenni Optical.
Elon Musk's X, formerly Twitter, has also proven to be a flashpoint. The microblogging platform has pivoted hard towards a subscription model — something that other social media firms have tried with varying degrees of success.
Data from Apptopia and reported by TechCrunch shows that X downloads dropped by about 30% in the first two months following the company's rebrand. In November, Apptopia data showed that X's subscription offering pulled in $6.2 million, marking the most per-month subscription revenue for the company to date.
However, its ad sales for 2023 have fallen to $2.5 billion, a giant drop from the $4.5 billion it clocked in 2021, prior to Musk’s acquisition.
The billionaire’s hope, as he's said many times, is to push the subscription strategy further and create an "everything app." It’s a tactic that’s unlikely to succeed in the US, Fazal said.
"I believe that we are not going to have a super app like WeChat over here in the US," said Fazal. "WeChat in China came from a very specific time, set of government regulations, and circumstances, creating one app to chat with your friends, pay government bills, book travel, and do just about everything else."
Unlike WeChat, which launched in January 2011, American apps are competing in a crowded marketplace, where user preferences are varied and features like messaging, travel booking, and ridehailing already have dedicated apps with their own audience.
Profit, privacy, and safety
There's an essential tension in social media businesses as they currently exist — the best targeted advertising requires access to users' data. That access, by its nature, makes privacy complicated or impossible, and can degrade trust quickly.
Providing benefits to the users, not just the corporations, may be one way to maintain trust. Microsoft-owned (MSFT) LinkedIn, for example, says its business model isn't a growth-at-all-costs proposition.
"Our goal is for you to come here, get something out of LinkedIn that's useful to you — knowledge, a job, a connection," Daniel Roth, LinkedIn editor in chief and VP, told Yahoo Finance. "We're very focused on what the economic outcome is of something that you've done on LinkedIn."
Vero, a social media startup that focuses on high-quality media content and connecting creators with users, is trying to stand out by eschewing ads and algorithmic feeds. It reportedly has 6 million users and is planning to launch a subscription next year.
"We're looking at our users as our customers, we're building a platform for them, not for anybody 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, though the company doesn't disclose how many of those are monthly or daily active users.
Meta, in comparison, has more than 3 billion monthly active users for Facebook, and nearly 4 billion monthly active users across its family of apps, according to its Q3 report. But the no-holds-barred growth strategy can also be a liability.
The Wall Street Journal, for example, has reported substantially on Meta's troubles ensuring children's safety on its platforms.
Going forward, social media companies will need to figure out the subscription and e-commerce puzzle, while assuaging concerns about invasive and harmful practices.
And the landscape, with all its problems, is also ripe for disruption. Safety solutions will come from further 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's facing, I would venture a guess that there would be a lot of small startups, a lot of smart people that are community-oriented, that have a lot of technical chops and start working on solutions for that platform," said Ravichandran.
Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on X, formerly Twitter, at @agarfinks and on LinkedIn.
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