Social media is dominated by Alphabet, through ownership of YouTube, and Facebook, both of which were created on the assumption revenues would flow once a large user base had been created. But other major companies, such as Twitter, have failed to monetize and posted losses which undermine the chances of eventually generating profits. The belief that social media companies can concentrate upon creating a popular product before choosing to only later work out how to generate revenues is now fatally flawed. However, rivals and potential new entrants face extremely tough challenges in competing against Facebook and Google, making the task of monetizing harder than would otherwise be the case.
- Due to the dominance of Alphabet, through the purchase of YouTube, and Facebook in social media, rivals have are being squeezing out of the market because they cannot hope to compete seriously in terms of providing the best value to advertisers, undermining their business model.
- Recent success stories have been dominated by social media companies which have been purchased by Facebook despite never having made money but are then monetized under the new owners. Facebook is primarily interested in data about user behavior to improve the offering to advertisers.
- Losses incurred by Twitter and Snapchat have made big headlines. Both of these companies will struggle to monetize because they are predicated on the old model of building a user base and then working out how to make money later. As time passes, the chances of monetization taking place grow slimmer.
- Explores how Facebook and Google shape the social media advertising market
- Looks at how companies such as Twitter have failed to monetize
- Analyses how some companies have performed much better after being purchased by either Facebook or Google
- Seeks to explain why some companies will likely continue to lose large sums of money
- How do Facebook and Alphabet dominate the social media market?
- Can Twitter and Snapchat ever make money?
- Is being bought out now the best route to success?
Google or Facebook takeover appears to be secret to success
Instagram was not making money when purchased by Facebook, but has since transformed
Severe doubts would be surrounding WhatsApp had Facebook purchase for data not taken place
YouTube needed Google to prevent a lengthy period of loss making
Potential losses from YouTube matter less to Google – gains are made in other areas
Tumblr lost out after Yahoo failed to pursue monetization vigorously
Facebook is dominant in social media advertising, squeezing out others
Facebook can provide what advertisers want – information about consumer behavior and personality traits
Facebook is more user friendly to advertisers, creating more opportunities than rivals have so far managed
Holding much of the growth in online advertising demonstrates dominance but rivals could emerge
Usability of Facebook will retain users, keeping advertisers onboard as others struggle to create monetized and user-friendly platforms
Having never made money, big losses will continue to blight Twitter and Snap
Failure to win advertising dollars and stagnating user engagement will cause further major losses at Twitter
Snap is attracting the wrong audience to attract advertisers as Facebook does
User numbers are stagnating for Twitter and Snap, likely extending losses into the future
Some social media companies have been overvalued, pushing expectations high
Snap revealed heavy losses before IPO but is still valued very highly by investors
Recent performance of Twitter evidences the dangers of overvaluing
AFter failing to monetize core products, Twitter seeks live stream diversification
Twitter gambles new users can be gained through online streaming, but the company has tried to diversify before
Building up a large user base and worrying about monetizing later is a flawed concept made tougher by existing market
Ask the analyst
List of Tables
Table 1: Top Ten YouTube Channels (May, 2017)
List of Figures
Figure 1: Number of Instagram Monthly Active Users (million)
Figure 2: WhatsApp Monthly User Numbers (million)
Figure 3: Former Yahoo CEO Marissa Mayer
Figure 4: Facebook revenues 2010-2016 ($bn)
Figure 5: Twitter losses 2010-2016 ($m)
Figure 6: Snap Inc quarterly average daily active users (millions)
Figure 7: Average Snap Inc Share Price ($) March 2017 – August 2017
Figure 8: Twitter average minute audience NFL Thursday night matches, 2016