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Social Media Sector Analysis

Table of Contents:

Social Media Sector Overview

Introduction

The introduction of social media revolutionized the way people communicate and interact with each other. It transformed the way society consumes information, while also giving rise to new modes of entertainment and commerce. Social media comes primarily in 2 forms - the web and the app. These online platforms and applications enable users to create, share, and exchange content and information with others. These platforms allow people to connect with one another and engage in various forms of communication, such as text-based messaging, photo and video sharing, and online discussions. In this analysis, we will carefully explore some of the key arising trends, models, challenges, and opportunities in the past and recent years.

1. Sector overview:

According to the annual report by Statista, as of 2022, the global social media industry market size is $226 billion, and is still growing at a compound annual growth rate (CAGR) of 22.3%. What this means is, by 2027, the market size will be worth $385 billion. However, this data by Statista proves to be rather optimistic. Looking at the CAGR from 2017 to 2022, we see that this number is quickly declining year over year. In 2017, its growth rate was 30%, five years later this number was 18%. Assuming this declining trend continues, by 2027, the market will only be growing at a 10.8% CAGR (accounting for the 40% decline rate over a 5 year period), a much slower growth rate than projected. This assumption is also reflected in IBIS world’s projection of social media growth in the US, where they predict that the growth rate from 2022 - 2027 will be 13.7% compared to that of 20.7% from 2017 - 2022. However, taking into account the penetration rate of social networks on a global scale, which is only 60% in 2022, there is still huge potential for sustained growth in the foreseeable future.

Exhibit 1. Social Media Advertising segment revenue in billion USD. Source: Statista

As of 2022, there are approximately 4.76 billion people actively using social media globally, making it one of the most popular digital activities. In the US alone, there are a total of 302.25 million social media users, and the market recorded a revenue of $80.7 billion in 2022. Compared to the global market size ($226 billion), we can see the majority of the market share belongs to the US market, taking up almost 36% of the total market size. The global social media industry is dominated by a few key players: (1) Meta, who owns Facebook, Instagram, and WhatsApp; (2) ByteDance, who owns TikTok and Douyin; (3) Microsoft, who owns LinkedIn; (4) Snapchat; (5) Twitter; (6) Reddit; and (7) Pinterest. In almost every major market except China, Meta dominates thanks to its ownership of the 3 biggest networks: Facebook, WhatsApp, and Instagram. The user counts for these platforms are 2.958 billion, 2 billion, and 2 billion users respectively, according to a report by Datareportal.

2. Revenue:

** **The revenue sources for social media companies vary depending on each platform’s unique business offerings and strategies. However, the main sources of revenue for these companies are still centered around advertising, subscriptions, and e-commerce.

1. Advertising revenue:

Most social media platforms derive their revenue from advertising, where they help businesses reach their targeted audience through targeted ads. These platforms collect data on user interests, demographics, and behaviors in order to deliver relevant content and relevant ads. The data collected, when synthesized, helps increase the effectiveness of marketing campaigns and attract more advertisers, ultimately generating more revenue for the platform. According to Meta Platforms’ Form 10-K released in December 2022, their main source of revenue on all of their platforms is advertising, which is $113.6 billion, accounting for approximately 96% of their total revenue.

Exhibit 2. Meta Platforms’ revenue sources. Source: Meta’s 10-K report page 99

Similarly, according to [their 10-K](https://investor.snap.com/financials/sec-filings/sec-filings-details/default.aspx?FilingId=16353304), Snap Inc. generates their revenue from different forms of advertising offerings, even though in multiple different forms. To be more specific, they are offering ads spaces in AR (Augmented Reality), Snap Ads (full screen ads), Story Ads (branded tiles in their Discover section), Collection Ads (tappable tiles for product showcase), Dynamic Ads (targeted ads based on Machine Learning models), and Commercials. AR ads, a relatively new feature, creates interactive and engaging user experiences through the phone camera. Further, according to their [2021 annual report (page 40)](https://s22.q4cdn.com/826641620/files/doc_financials/2021/ar/FiscalYR2021_Twitter_Annual_-Report.pdf), Twitter makes $4.51 billion from ads, equalling nearly 89% of their total revenue. 

LinkedIn, despite having a different revenue model, which will be discussed below, still generates a portion of their revenue from advertising, although not to the extent of their competitors. They call advertising revenue “Marketing solutions.” According to LinkedIn 2021 Business Highlights, they make over $1 billion from this model. Compared to the $10 billion revenue mark that they achieved that year, advertising only makes up approximately 10% of the total revenue.

2. Subscription revenue:

   LinkedIn has long implemented their Premium Subscription feature where subscribers can connect and send direct messages to people outside of their networks. They also allow for premium search where they can find potential matches more easily. More recently, we’ve been seeing social media companies exploring different forms of monetizations besides traditional advertising. Twitter, after the takeover by Elon Musk last year, first introduced their subscription offerings called Twitter Blue. They now include various features such as sharing ad revenue with users, allowing NFTs in their profiles, the ability to edit Tweets, custom app themes, and much more. According to an article by The Information, Twitter after 2 months of launching their subscription offerings, had 180,000 people in the U.S. subscribed to them. This bold move sparked interesting conversations in the industry and prompted other big platforms to experiment with the subscription model. If the subscription model turns out to be successful with Twitter, it could signal a future trend for the industry.

3. Social-commerce:

The biggest social media platforms on the planet, Instagram, Facebook, TikTok, and Pinterest all integrate a form of marketplace on their platforms. These marketplaces allow businesses to set up online shops and sell their products directly to the users. According to McKinsey & Co., in 2021, $37 billion in goods and services were purchased through social-commerce channels in the U.S. alone. By 2025, they projected this figure to be $80 billion and $2 trillion globally. This incredible growth rate doesn’t simply indicate another revenue stream for the social media industry, it also indicates social media potentially becoming the biggest and most effective e-commerce channel. The social-commerce ecosystem isn’t a future trend in the industry anymore, it has become a reality in one of the world’s biggest markets (China) and will likely be the future in all markets around the globe.

According to this article by Entrepreneur, for platforms, they make a percentage from product sales, and also from businesses pushing ads through their platform. Platforms have already liaised with each other to create the ultimate social commerce experience, for example, TikTok and Shopify have partnered up to push merchants on the platform. For each product sold, TikTok and Shopify will take a certain percentage of the revenue, and TikTok also benefits by making the funneling process easier for merchants, and make the purchase easier for their platform users. According to a report by Accenture, “sales made through social commerce will reach $1.2 trillion by 2025.” With a 26% CAGR, this goes to show how hugely profitable social commerce can be.

4. Data Licensing:

The majority of social media firms gather massive amounts of information about users' habits, interests, and demographics. These data are not only used to assist their advertising endeavors, but they are also sold to other businesses, more specifically analysts, marketers, and researchers, who utilize them to learn more about the industry and develop more effective strategies. Twitter, according to their 2021 annual report (page 40), derived 11% of their total revenue from data licensing and other revenue.

5. Other revenues:

Advertising revenue as the main source is the case for most social media platforms except for LinkedIn. According to Microsoft’s 10-K filing in 2022, LinkedIn has a more diverse set of revenue generating offerings. They have 4 different forms of monetized solutions: Talent Solutions, Marketing Solutions, Premium Subscriptions, and Sales Solutions. Marketing solution belongs to the advertising revenue, and premium subscription belongs to the subscription revenue. Talent Solutions is actually their main source of revenue. The service, whose main customers are recruiters and employers, help companies hire, build, and maintain their workforce. These include LinkedIn Recruiter (a hiring platform to quickly find and manage candidates), LinkedIn Jobs (where employers target and post their jobs to the qualifying candidates), and LinkedIn Career Page (where companies can tell candidates about their company’s story and culture). Additionally, a new emerging revenue stream is sale solutions, where they help companies build, keep contacts, and maintain customer relationships through the LinkedIn Sales Navigator and LinkedIn Sales Insights platforms.

Companies like Meta also deploy different revenue sources too, though not to the extent of LinkedIn. In their 10-K, it is reported that they also derive revenue from Reality Labs revenue and payment structures fees and revenue from WhatsApp platform. These are sales from selling hardware products like their Meta Quests, related contents, and wearables. There weren't any exact numbers on these different revenue streams, however they only account for 4% of the company’s total revenue.

3. Cost and expenses:

** **Most social media companies are essentially tech companies. They are powerhouses that invest heavily in cost of revenue (infrastructure, maintenance), research and development, as well as sales and marketing, and general administration.

1. Cost of revenue/ Infrastructure and maintenance:

Social media was created to connect people from all over the world. The difficulties of obtaining adequate computing power go hand in hand with these goals. In order to overcome this challenge, they spend heavily in building servers, data centers, and network infrastructure, as well as paying staff to maintain and update them. Through these investments, social media companies assure stability even with massive volumes of traffic and user activity in their operations and expansions. This cost presents itself as one of the biggest expenses in the operations of big social media companies. For Meta, this takes up to 28.8% of their total expenses (Meta Platforms 10-K 2022). For Twitter, this takes 32% (Twitter 10-K 2021), and for Snap Inc., this was 30% (Snap Inc. 10-K 2022). Looking at the trends from the past 3 years of operations, this cost usually takes up one third of their total revenue, and it also goes hand in hand with the growth of their platform’s revenue. This means the more revenue they generate, the more money they have to spend on maintaining them.

2. Research and Development:

   The social media industry is a constantly evolving and highly competitive space. In order to stay competitive, companies constantly need to come up with new features and improvements of established ones in order to keep up with user's needs and preferences. Nowadays, what this translates to is the heavy investment in marketing automation, artificial intelligence, machine learning, and virtual reality. Further, there are also investments in content algorithms designed to keep users hooked to their platforms. For the big companies, this is another area where they spend the majority of their money. This part of cost and revenue has a trend of increasing over the years, and the increase is very drastic. In fact, it is responsible for most of the increase in year-to-year costs and expenses. From 2020 to 2021, in this segment alone, Twitter’s cost went up 42.7%, Snap Inc.’s cost went up 42.1%, and Meta’s cost went up 32.9%.

3. Sales and Marketing:

   In order to attract and retain users on their platform, social media companies constantly invest in marketing and advertising. These include the money spent on marketing related salaries, advertising costs, market research, trade shows, branding, public relations, and other supporting overhead costs. The cost of these activities also goes up as the platforms get bigger and bigger. For Snap, the number more than doubles (100% increase) during the 2020-2022 period. Similarly with Pinterest, we can see the positive correlation with their platform’s size as their annual revenue also increased more than 80% during this period. The cost of sales and marketing can take up to 30% of the total cost like in the case of Meta. However, they are usually lower than the cost of revenue and research and development.

4. General and Administrative:

In order to ensure stable day-to-day, and even future operation, companies invest heavily in management, finance, legal, information technology, human resources, and other administrative expenses. These also include third-party legal, accounting, and consulting services. The amount of money spent on these operations is usually the lowest.

4. Market leaders:

According to Statista 2022 report, in the social media market, Meta dominates with a 55% market share, next is LinkedIn at 15%, and the rest, including Snapchat, Reddit, Twitter, ByteDance, and Pinterest all account for 5% each. The exhibit below by Statista shows the breakdown of market shares between these companies last year.

_Exhibit 3. Global market share of Social Media Advertising Segment, _

rounded to the nearest 5%. Source: Statista.

An analysis of 5 of the biggest companies/ platforms is presented below:

1. Meta

   Gathering data from Meta’s 10-K report over the period of 5 years, we can see that its revenue was growing at a very fast rate from 2017 to 2021. In 2022, for the first time since its launch, the company reported a decline in revenue compared to the previous year. This decline in the 2021 - 2022 period could be due to the loss from its Reality Labs division, or also popularly known as Metaverse. According to a report by CBS, Meta so far has lost $9.4 billion on the Metaverse. It is still unclear how the heavy investment in the virtual reality segment is going to pan out for Meta in the future, even though we’ve already seen some very bad signs.

Exhibit 4. Meta Platforms revenue from 2009 to 2022. Source: Statista

Adding to Meta’s failed launch of the Metaverse segment, Facebook usage by teenagers has also dropped nearly 55% since 2014 according to a [research by Pew Research](https://www.pewresearch.org/internet/2022/08/10/teens-social-media-and-technology-2022/), signaling a further decline of the platform in their teenage audience. The trend of decline is apparent in Facebook’s decline in US usage. According to [Statista](https://www.statista.com/statistics/265071/use-of-social-networks/), Facebook usage in the US went from 65% to 47% in the 2015-2021 period, a 38% decline. Globally, the number of monthly Facebook users are still increasing, however at a much slower rate. According to [Datareportal](https://datareportal.com/?utm_source=Statista&utm_medium=Data_Citation_Hyperlink&utm_campaign=Data_Partners&utm_content=Statista_Data_Citation), the number of growth they saw in 2022 was 1.6% compared to 15.9% in 2017, an incredibly quick decline, signifying even worse things for Meta. 

However, also in the 2015-2021 period, the popularity of Instagram, another Meta-owned platform, increased at an amazing pace (450% increase), balancing out the loss of Facebook’s market share in the US. From 2017 to 2022, the platform’s number of users increased by 280% from 700 million to 2 billion users, according to Business of Apps Analysis, showing Instagram's incredible potential for growth in the future.

2. ByteDance’s TikTok

   TikTok is a relatively new player in the social media industry with its first introduction into the global market in 2017. Its parent company, Bytedance has been very secretive of its operations and its number of users, however, according to Statista, as of January 2022, the platform has amassed 29.72 million daily active users (DAU) over a 3 year-period, a 480% increase from January 2019. Globally, it has a total of 1.051 billion monthly active users, and is still growing. Even though it still has only 5% of the market share revenue wise, this number is predicted to increase for 2 primary reasons: (1) it’s still a new player and is growing very quickly in its popularity compared to other platforms; (2) Its parent company, ByteDance, is still expanding very quickly and could explore more monetization opportunities in the future. In the US, its user share reached 39%, making it the 3rd most popular social media network, not counting Youtube.

3. LinkedIn

   LinkedIn, founded in 2002, has grown significantly over the years to become the world's largest professional networking platform. In 2016, LinkedIn was acquired by Microsoft. Fast forward 7 years later, as of 2023, LinkedIn has over 900 million registered members in more than 200 countries around the world. Revenue wise, it is one of the fastest, if not the fastest growing in the industry, with a 600% increase over the past 5 years.

Exhibit 5. LinkedIn revenue from 2017 to 2022. Source: Statista.

The platform has experienced explosive growth with an amazing increasing number of professionals and businesses using LinkedIn to network, recruit talent, and market their products and services. According to statista, their reach is predicted to skyrocket to 1.9 billion users in 2023, and their user share in the US, as of 2022, is 21% and growing.

4. Twitter

   Twitter is one of the most popular topics of discussion in the social media industry today. With its recent takeover by Elon Musk, The company has encouraged the spirit of experimentation and innovation, both in its technology and business models. It has integrated NFT (non-fungible tokens) and AI into its system. It also helped popularize the subscription model, which is being considered on other platforms. According to the information from Twitter’s 10-K filings over the years, its revenue is growing at a very fast rate, especially in the 2020-2021 period, a 207% increase to be specific. Twitter user share in the US, as of 2022, is 31%, making it the 5th most used social network.

_Exhibit 6. Twitter Revenue from 2017 to 2021. Source: Compiled from [10-K reports](https://investor.twitterinc.com/financial-information/annual-reports/default.aspx)._

5. Snap Inc.

Snapchat, founded in 2011, is also one of the fastest-growing companies in the industry. Snapchat has been particularly popular among younger users, growing from [166 million users to 375 million users](businessofapps.com/data/snapchat-statistics/) over the 2017-2022 period, a 323% increase over a 5-year period. However, the platform has faced increasing competition from other social media platforms, particularly Instagram and TikTok, which have introduced similar features such as Stories and short-form video content. Their revenue increased drastically from 2017 to 2022, from $825 million to $4.6 billion, a 558% increase. However, according to their most recent [10-K report](https://investor.snap.com/financials/sec-filings/sec-filings-details/default.aspx?FilingId=16353304), they are still losing money. In 2022 alone, they lost almost $1.4 billion dollars. To put this in perspective, it is 30% of their total revenue for that year. It is unclear how things are going to turn out for Snapchat, despite them making an effort to release their new product offerings like AR and image overlays. Snapchat, stands just behind Tiktok and Instagram at a 33% user share in the US. 

Exhibit 7. Twitter revenue from 2017 to 2022. Source: Compiled from 10-K reports.

5. Target Audience:

** **The social media industry is very diverse in its user base across all platforms. Each platform knows and targets their audience very well. However, according to Pew Research Center, the main demographic for social media users in general are still from 18 to 29 years old. These are young adults, and the trend of their social media usage is actually declining in recent years. On the other hand, usage by older adults, particularly those above 50 years old, is actually increasing. In 2021, this number in older adults hovers around the 40% mark.
Between the different platforms, there are major discrepancies in the targeted demographic. According to the data by Statista, adults aged 25-34 are the ones who most frequently use Instagram and Facebook, with Facebook being a more popular platform for those 45 years old and up. For TikTok, the majority of users are much younger, with 67% of the reported teenagers aging from 18-19 using the platform. For Twitter, their main demographic are young adults from 18-29. Looking at the current trend that Facebook is heading, their target demographic is projected to either decrease in number or to increase in age in the next few years, while the other platforms hope to remain popular in their targeted demographic groups.

6. International Markets:

** **The international social media market is vast and is growing very rapidly. According to a report from Statista, in 2022, the U.S. is still the largest market in terms of revenue at $80.7 billion, and in second place is China at $79.7 billion. These two markets are the biggest in the world and are very close in terms of size and scale. We see the biggest social media companies originating from these 2 countries, and they are the elites, constantly competing with each other for the bigger market share. No other markets even come close in terms of size compared to these two. The third biggest market, the UK, leading Europe at $11.3 billion, is still only 14% compared to either of the top markets.

However, the markets above are only the well-developed ones, the focus is recently shifting to rather less-penetrated and developing markets. According to the report by [Datareportal](https://datareportal.com/reports/digital-2022-october-global-statshot), a majority of the population in Central Asia and Southern Asia, as well as Middle Africa and Western Africa, still doesn’t have access to social media. These markets are the ones that have the most population, and are also projected to grow the fastest, despite them having much lower purchasing power. 

Further, according to the same report, more than half of the world’s population spend more than 2 hours a day on various social media platforms, and the platforms are not limited to the biggest ones. Each country or region has their own unique social media platform, and are competing with the dominant players coming from the US. For example, Facebook is outright banned in China, and the dominant social media platforms there are WeChat, Weibo, QQ and Line. In Europe, there are popular and emerging players like BeReal, who according to [eMarketer](https://www.insiderintelligence.com/content/social-media-trends-watch-2023), are used by ⅓ of US Teens monthly. There are also Viadeo and XING, respectively France’s and Germany’s version of LinkedIn.  

Exhibit 8. Social Media Users versus Total Population. Source: Datareportal.

7. Conclusion:

Overall, the social media industry remains an exciting and competitive space with endless possibilities for innovation and growth. The rise of video content, the growing importance of social commerce, and the advent of virtual realities are just some of the areas where we can expect to see significant growth and development. Social media, at the pace it is growing right now, has the potential to continue transforming the way we connect and engage with each other for years to come.

Company Profiles

Introduction:

The social media industry, over the past 2 decades, has grown to be a $94 billion industry ([IBISworld](https://www.ibisworld.com/industry-statistics/market-size/social-networking-sites-united-states/)). However, accompanying its incredible growth is also its constant change. These changes include the evolution and variation of different business models, the rise of user-generated content, virtual reality, AI integration, data and privacy and government intervention, social-commerce, and more. Through the careful analysis of two industry leaders (Meta, Snap Inc.) and an emerging company (TikTok), this paper hopes to provide a deeper insight into the past, current, and future state of the social media industry.

1. Meta Platforms Inc.

Business and Mission:

It is almost impossible to discuss the social media landscape without mentioning Meta, who owns and operates 3 of the world’s largest social media platforms (Facebook, Instagram, and WhatsApp). Originally founded in 2004 with the launch of its first platform, Facebook, the company’s mission has been to “give people the power to build community and bring the world closer together.” Meta hopes to achieve this by building “technology that helps people connect and share, find communities, and grow businesses.” (p. 7 10-K)

Its business model revolves around two different business segments: Family of Apps (FoA) and Reality Labs (RL).

The FoA segment encompasses all of their social media products: Facebook, Messenger (the Facebook messaging app), Instagram, and WhatsApp. This segment makes money by selling targeted ad placements on their platform. Meaning businesses pay Meta to get their ads directly to the consumers. On the other hand, their Reality Labs division, per the name, focuses on virtual reality products, which revolves around the virtual space they call the “Metaverse.” In order to profit from this newly created segment, Meta hopes to sell VR-related physical products (Meta Quest VR headset, Ray-Ban Stories Smart Glasses, and accessories), as well as digital goods (software and contents available through their Meta Quest Store) (p. 7-8 10-K).

**Business Fundamentals: **

In terms of size, Meta takes up to 55% of the global market share (Statista 2022), and owns the 3 platforms with the biggest number of users (Facebook: 2.958 billion; Instagram: 2 billion; WhatsApp: 2 billion).

Meta’s products are very popular among all demographic groups. However, according to a Statista report, the largest demographic for 2 of its largest platforms, Facebook and Instagram, comes from the 25-34 age group. These two platforms, despite sharing the same largest demographic group, are considered very different when looking at the entirety of their user base. For Instagram, the percentage of young adults ranging from 18-25 per the total number of users takes up 16.5% more than that of facebook ( 25.5% compared to 18% respectively), meaning that Instagram is more popular among its younger users. On the other hand, Facebook seems to be much more popular among older users from 55 years old and up, with the percentage of users in this group reaching 22.6%, compared to Instagram’s 11% per total users.

Further, according to a Pew Research study in 2022, teen Facebook usage has decreased by about 55% since 2014, signaling a negative future trend. It was estimated that Facebook's usage in the US between 2015 and 2021 decreased from 65% to 47%. Internationally, the number of monthly Facebook users is still rising, yet at a snail’s pace. Datareportal estimates their growth in 2022 was 1.6%, as opposed to 15.9% in 2017. This decline and slow growth raises questions about the future of the platform, and adds to the existing discourse regarding its status as “only for the old people.”

Their Family of App (FoA) segment generates nearly all of their revenue from selling advertisement placements, $113.6 billion to be precise, accounting for approximately 96% of their total revenue. This means that their primary customers are businesses and organizations of all sizes from all over the world. It also means that they need to keep their customers by spending heavily on maintaining these platforms, and also on creating new propositions to attract even more platform users. To be more specific, these costs include cost of revenue, research and development, marketing and sales, and general and administrative. Meta’s cost of operations has increased significantly in recent years, as also their revenue. However, 2021 to 2022 is a turning point as their income from operations dropped by almost 39% in one year, this was a direct result of a 43.3% increase in research and development cost for the Reality Labs division. (10-K)

Further, their total revenue figure, for the first time ever, declined in 2022 by 1.1%. The cause for this revenue decline, reported by the New York Times, was a result of the overall global decrease in ads demand in a slowing economy, with the passing of the “peak pandemic” where people go out more, thus slowing down e-commerce and time spent online. Further, Meta has recently faced increased challenges in collecting user data for effective advertising, per pressure from Congress as well as Apple’s user data-privacy changes. The less effective their ad placement, the less marketers and businesses will pay to place ads on their platforms.

Recent and Current Initiatives:

In Zuckerberg’s (Meta CEO) bid to potentially skyrocket the company’s growth, his venture into the Virtual Reality market is responsible for the massive increase in research and development cost. In a CNBC article regarding his plan to monetize the Metaverse, it was reported that he plans on selling the VR accessories for as cheap as possible, and make the majority of the revenue through the “virtual economy.” This strategy is similar to the razor business model, where by selling a primary product at a low or even subsidized cost, the business then generates recurring revenue by selling complementary products or services. In this case, the primary product at low cost is the VR set, and the complementary product is the software and contents made available through the Metaverse.

This venture, despite sounding promising when it started, has proven to be ineffective, expensive, and was widely criticized. It was reported that Meta lost $13.7 billion on Reality Labs in 2022 alone (CNBC). The ripple effect from this loss can be felt by its massive layoffs spanning from the end of 2022 all the way to 2023. According to Social Media Today, 11,000 Meta employees lost their jobs last year, and as of March 2023, it is speculated that they will cut thousands more jobs by the end of the month.

Besides the downfall of the Metaverse, the company also has to deal with the continuous crackdown on user-privacy rights and restrictions in the past 5 years. In 2018, Zuckerberg had to testify in front of congress for the data leak of 87 million Facebook users (CNBC). This data leak raises questions and concerns about the privacy and security of user information, and the user’s rights to them. It also sparked many political concerns as the company who acquired the data (Cambridge Analytica Consulting), openly supported Donald Trump in his election. In the years that followed, Apple decided to let their users choose whether to give up their information or not through their App Tracking Transparency feature, putting even more pressure on Facebook and social media platforms who use large amounts of user data.

In response, according to Social Media Today, Meta has recently introduced Artificial Intelligence (AI) into their ad technology, where the ad’s production quality is artificially enhanced, and the process of targeting the right audience is automated. This feature is called the Meta Advantage program. The interesting thing about this feature, as we will continue to see in the next companies below, is the effectiveness of AI integration. AI it seems, in this respect, has the potential to replace the Metaverse as the future for Meta.

On another note, Meta has now also introduced their Subscription service, which is now a real on-going trend in the social media industry. According to Social Media Today, after Elon Musk introduced this service where people can buy “verified blue ticks,” Meta is apparently heading in the same direction. Their blue tick can now be bought on both of their biggest platforms (Facebook and Instagram) for the price of $11.99 per month, and they call this their Meta Verified Program. This trend is also apparent in other companies besides Meta and Twitter, as Snapchat also introduced their Snapchat+ subscription service, which will also be discussed below.

2. Snap Inc.

   **Business and Mission: **

Snap Inc. is a technology and social media company that operates the popular multimedia messaging and photo app, Snapchat. The company was founded in 2011. Since then, it has grown to become one of the most innovative companies in the industry. In their 10-K filings, Snap Inc. identified their mission as: “to contribute to human progress by empowering people to express themselves, live in the moment, learn about the world, and have fun together.” (p. 3) This is most apparent in the way their entire social media platform is created, and the features within it.

Snapchat, the company's flagship product, allows users to send messages, photos, and videos that disappear after being viewed, creating a unique and ephemeral messaging experience. “To live in the moment” is to take a photo in real time and show the people your current state, and the text messages sent disappear the next time someone opens them, simulating a real conversation even though they are physically far apart. The company also embraced the “fun together” and “express themselves” proposition through a range of filters, lenses, and a map that allow users to show themselves and others in creative ways. In addition to Snapchat, Snap Inc. has also launched several other products and services, including Spectacles, a line of camera-equipped sunglasses, and Bitmoji, a personalized emoji app.

According to their 10-K filing, Snap Inc. makes 99% of their revenue in the past 3 years (2020-2022) from advertising (p.15). They sell ad placements through 2 main segments: AR Ads and Snap Ads. AR Ads take advantage of the augmented reality environment. Through the camera, users can try on beauty products from brands, or have the brand ads act as 3d elements, interacting with the world through the camera. On the other hand, the Snap Ads segment focuses on placing ads in between the user active actions. These ads appear when the user is browsing the app in the form of single images or videos, stories, collection tiles, and non-skippable commercials.

Their new form of revenue involves selling AR glasses called “Spectacles” that allows users to record videos, see the world with 3d elements integrated into it, and more. The newest version of the glasses cost $380. Further, following the trend of subscription services mentioned in the section above, Snap Inc. offers their Snapchat+ service, where the users can pay only $3.99 a month for exclusive access to new experimental features that haven’t been yet released.

**Business Fundamentals: **

Snapchat, as of 2022, brings in over $4.6 billion in revenue. This number was just over $4.1 billion in 2021, meaning there was a 12.2% increase. However, the revenue growth from the year prior (2020-2021) was 104% (from $2.5 billion to $4.1 billion). This sudden decrease in growth indicates a negative trend for the company (decrease from 104% to 12.2%). While growth slowed tremendously, their spending still steadily climbs, thus also increasing their net loss. Snapchat is currently not generating any profit, as their reported loss in 2022 was almost $1.4 billion, doubling their loss from 2021 ($702 million)(p. 79 10-K). This negative financial landscape for Snapchat also stems from the downward demand trend for advertising (mentioned in the Meta section), and the user-privacy crackdown which made it harder for them to target the right consumer (p. 3 10-K).

In regards to their demographic, according to Statista, it was reported that Snapchat is most popular among users from 18-24 (p. 40). Compared to Facebook and Tiktok, Snapchat has more of a presence among younger users. In fact, 21.1% of Snapchat users come from the 13-17 age group. With their new, fun approach to capturing life through the camera lens, it attracts the younger demographic more than its competitors. According to Social Media Today, as of February 2023, there are 750 million Monthly Active Snapchat users. Compared to its figure from April 2022, this is a 25% increase. This has been an impressive gradual growth in the number of Snapchat users over the years, and the trend doesn’t seem to slow down soon. Yet despite this constant user growth, Snap’s income loss seems to be exponentially higher, and it’s hard to predict how long it will be before Snap Inc. can turn in a positive profit.

Recent and Current Initiatives:

Snapchat, as mentioned above, in recent years has made tremendous push towards its Augmented Reality (AR) feature. According to this article by The Verge, Snap’s goal is to be the center of the AR universe. Rather than trying to create an entirely new virtual reality like the Metaverse, Snap’s goal is to enhance the real world experience, which aligns more with their vision and mission statement. This also prompted the unique AR Ads as the consumer now has the chance to see how the product would actually look like on them without having to physically try them on. Taking this one step further, they also introduced their own AR glasses called “Spectacles.” They’ve also recently introduced “ray tracing,” a popular technical term for realistic 3D light simulations which were only previously possible on heavy-duty computers, to their AR feature (Social Media Today). Now, users can experience an almost “real-life” product experience through their lenses.

Following the subscription service trend, it was reported that Snapchat launched their own Snapchat+ subscription plan. With just $3.99 a month, users can now have exclusive access to new, not-yet-released features like custom story expiration, custom notifications sound, badge, border colors, and more. Further, with the loss of access to user data, Snapchat is also turning to the power of Artificial Intelligence to bring in new advertising propositions. The company recently announced that it’s launching its own chatbot service named “My AI,” powered by the popular ChatGPT, and this is only available to Snapchat+ subscribers. Thus hope to drive even more revenue towards subscription. It’s quite clear, from what we’re seeing in the two biggest companies, that the trend for the social media industry nowadays is AI integration and creating an attractive subscription model.

3. ByteDance’s TikTok

   Business and Mission:

TikTok, the social media platform, is a product of TikTok LLC, who is subsequently a subsidiary of China’s tech giant ByteDance. ByteDance also owns and operates many apps in China, one of which is Douyin, who is considered to be the original iteration of TikTok and can only be downloaded in China. For the purpose of this analysis, we’re going to be taking a close look at only TikTok. According to ByteDance’s website, TikTok has only been introduced to the international market in 2017. However, it has quickly risen to be one of the biggest social media platforms in the world. To quote a Bloomberg article regarding its growth, “There are several ways to measure TikTok’s success: It took just four years to reach 1 billion monthly users; its average user in the US spends more time with the service than with Facebook and Instagram put together.” This kind of growth is incredible to see, and it’s safe to say that TikTok is one of the biggest disruptions we’ve yet seen in the industry.

The social media platform made the short-form video content popular around the world. Following its popularity, Facebook, Instagram, Youtube, Reddit, and many other social media platforms also introduced the same feature. The algorithm and the model it pioneered is deeply studied and discussed in this article by the New York Times. By scrolling through hundreds of short videos over the span of minutes, the feature keeps the users hooked to the screen for a constant period of time. Through tracking user data and interests over the videos, the platform presents the viewer with videos that they know the users like, thus keeping their attention and increasing their watch time by hours on end.

TikTok’s mission, according to their website, is: to be “the leading destination for short-form mobile video. Our mission is to inspire creativity and bring joy.” To achieve this mission, TikTok has employed resources to maintain the app, and to attract more creators to their platforms. By bringing more creators, they bring more diversity and creativity.

Even though there aren’t specific reports on how TikTok makes money, according to the information gathered from their TikTok for Business, TikTok Shop, and TikTok Coin website, it can be seen that they make money in 3 main venues:

1. In-app Advertising: TikTok provides a platform for brands to advertise their products and services to its large user base. The platform has various ad formats such as in-feed ads, brand takeovers, branded lenses (AR filter), and more. TikTok's powerful recommendation engine and advanced targeting capabilities make it an attractive platform for advertisers.
2. E-commerce: TikTok is also exploring e-commerce opportunities through its new feature, TikTok Shop. This feature allows users to buy products directly within the app from select merchants, and they take a cut from each product sold. TikTok also has partnerships with e-commerce platforms such as Shopify (Shopify), making it easier for brands to sell their products directly to TikTok users.
3. In-App Purchases (IAP): TikTok IAP consists of “coins” that users may purchase to tip creators while they stream on TikTok Live. The smallest offering is 70 coins with the price of $0.74. These coins are used by viewers to purchase gifts, which go to the streamer and are rendered as quick animations that play during a stream.

**Business Fundamentals: **

It is hard to find the exact revenue number for TikTok since the company does not release public materials. However, according to the New York Times, the platform is “on track to make nearly $10 billion in ad revenue, more than double what it generated last year, according to estimates from the research company Insider Intelligence.” To put this in perspective, TikTok now makes double the money Snapchat makes, with half the time since existence, and on Ads revenue alone.

Further, according to Forbes, for the In-App Purchase segment, TikTok generated “over $350 million in in-app revenue. In 2020, the same quarter hit just $150 million. Both numbers pale before its full-year revenue from last year.” They further wrote: “TikTok has had IAPs [in-app purchases] since its very beginning and its app revenue last year was a whopping $1.5 billion,” What this means for the industry is that more platforms need to recognize the significance of IAPs, as it is simply a piece of revenue too big to be ignored.

For TikTok Shop, according to TechCrunch, its features are still being tested in the U.S.. However, they also reported that Shop might not be viable after all in the American and European market following the disappointing launch in the UK.

In regards to demographic data, eMarketer and Insider Intelligence reported that it has surpassed Snapchat as the favorite platform for teens from 12 to 17. In 2023, there are 17.3 million people in the U.S. in this age group using TikTok at least once a month. Further, according to Datareportal’s report, 38.9% of TikTok users are adults from 18-24, while 32.4% are from 25-34. From these data, it is apparent that TikTok is an app dominated by teens and young adults.

**Recent and Current Initiatives:**

TikTok has recently undertaken a number of initiatives aimed at improving user experience as well as supporting creators and businesses. Some of these initiatives include:

1. Creator Fund: In July 2020, TikTok launched a $200 million Creator Fund, which provides financial support to eligible creators on the platform. The creators are the heart of TikTok’s user-generated content focused business, thus supporting them is crucial to its success.
2. AR Filters and Effects: TikTok regularly updates its AR filters and effects to keep the platform engaging and entertaining for users, similar to Snapchat who’s aiming at young adults. These features let creators “create,” hence align with their values on promoting creativity.
3. Social-commerce: As discussed above, the TikTok shop is a new initiative by TikTok as an effort to replicate its tremendous success in the Chinese market, though it is not proven to work in Western ones.
4. New social media platform Lemon8: According to TechCrunch, TikTok is under heavy scrutiny from the governments outside of China due to its link with the Chinese Communist Party. The concern stems from the fact that they are collecting user data from all over the world, and this poses risks to national defense, as well as the integrity of the user’s privacy. Amidst the struggle, TikTok seeks to push users towards its other platform - Lemon8. This initiative can be seen as a potential alternative to TikTok should a ban happen. The platform had previously successfully launched in the Chinese and Japanese markets, where it positioned itself as a “lifestyle app focused on health, wellness, and beauty.” Recently, it was reported by TechCrunch that the app just hit Top 10 in the US Top App Charts, showing its potential for incredible growth in the North American Market.

Conclusion:

** **Social media plays an integral part in our lives, and it is constantly evolving each and every day. These evolutions stem majorly from our advancements in technology, as well as concerns in both the economic and international-political landscape. While some are making wild success like the TikTok short content, some prove to be missteps like the Metaverse. Despite the various directions the industry is taking, it still is making an impact in the way we interact and communicate with each other, and it’s definitely fascinating to see where the industry is heading in the future.

Current Trends & Future Developments

** **Word Count: 2074 words

Introduction:

Social media companies operate on the foundation that is the development of society, technology, and innovations. They always seek to enhance their platform in order to grow, to stay competitive and relevant in the ever changing industry. Nowadays, what this translates to is the integration of the latest technology, as well as the pursuit of emerging models and strategies that are both profitable and fitting to the socio-political compass. This section aims to explore the latest social media trends, and analyze their impact on various aspects of both business and society.

1. Core Business Summary:
2. Revenue:

Social media companies generate the majority of their revenue by selling ad space on their platforms, leveraging their massive user base to collect data on user behaviors and interests. By doing so, they ensure that advertisements are delivered efficiently to the appropriate target audience, thereby satisfying their clients.

Other revenue sources, despite not taking as much percentage, include subscriptions, where users pay monthly for extra features like a verification tick, early access to features, and the ability to use NFTs. Platforms targeting a specific audience like LinkedIn also generate revenue from solving or advising on companies’ human resources and marketing problems.

2. Cost:

   The costs to operate a social media platform includes Cost of Revenue (or infrastructure and maintenance), Research and Development, Sales and Marketing, and General Administration. Cost of Revenue takes up on average a third of total cost, and generally directly proportional to the platform’s growth/ expansions. The same can be said for sales and marketing. Research and development takes up a major portion of cost, typically the biggest portion, while general administrative costs are usually the lowest and the most stable.

3. Recent Changes / Disruptions:

For the past two years, Social ad revenue shows signs of slow growth (eMarketer). TikTok’s ad revenue is expected to “grow much more slowly (43%) in 2023 than in 2022 (115%). Meta’s advertising revenue will be expected to increase just 8.2% in 2023. This pushes companies to seek other revenue streams, most notably a subscription model, which was pioneered by Twitter and LinkedIn. The subscription comes with offerings of the blue verification checkmark, and the ability to exclusively use new features like AI and NFTs (Non-Fungible Tokens).

Further, we see the cracking down on data privacy in the industry by the government. Madi Richardson touched on this in her blog, where she mentioned Congress' negative view on the act of data collection, especially by ByteDance’s TikTok. They see it as a tool to surveil and exploit the personal information of Americans, thus posing a national security threat. She also mentioned how the ban will affect other issues like music discoverability in the US, and the overall economic impact a ban will cause. This also prompts TikTok’s other social media app, Lemon8, to climb the top app ladder. Ziyu Deng covered this in detail, reasoning that it can be viewed as a backup plan should TikTok be banned in the States.

This crackdown also leads to data licensing, which was partially a revenue source for Twitter, becoming questionable moving forward. The already-in-place restrictions, not just from the government but also private companies as well, forced social media companies to seek other unique selling propositions like AI (artificial intelligence), AR (augmented reality), and more.

Additionally, the vision for a potential virtual reality proved to be a costly gamble, as according to a report by CBS, Meta so far has lost $9.4 billion on the Metaverse. The loss influenced many rounds of layoffs at several media and tech companies, impacting the lives of tens of thousands of people. Following these reports, Lancer Zhang also wrote in his blogs about how Tencent is also lowering their VR ambitions, yet the topic is still in discussion. Companies are focusing more on the offering of their platforms and the different strategies to gain the next generation of audience, through enhancing their existing experience rather than creating something completely new.

2. Current Trends:
3. AI (Artificial Intelligence integration):

With the “slowing down” of The Metaverse/ Digital Reality (Meta is still pouring billions into developing this vision, according to Social Media Today), companies are looking to invest in the next big thing to make sure they capture the user’s attention. And this next big thing seems to be AI.

It was recently reported that Facebook is finding success in its new AI-powered Advantage+ offerings, where AI makes the process of targeting and running ads automated for businesses. Further, they are also integrating AI to make personalized stories, where stories are made automatically by combining different memories or images. These AI offerings mostly target businesses, and keep them coming back to advertise on the platform as access to personal data is increasingly restricted.

On the everyday user’s side, AI is integrated directly to enhance the user experience. TikTok recently revealed their Generative AI profile images to make personalized profile pictures based on images the user uploads. For Snapchat, their most recent initiative is the My AI chatbot assistant, powered by the famous ChatGPT. The chatbot helps answer any questions one might have, right in their inbox. However, the execution and placement of these bots has recently received negative feedback from the users. According to this article by TechCrunch, where it was revealed that there was a huge surge of 1-star reviews since the bot’s launch, hindering the true value of an AI Chatbot on their platform.

We also see the launch of new players that base their unique selling proposition on the integration of AI like Artifact. The emerging platform recommends articles that they think the user will like to read, through AI. Krystal Wan covered this in her article, where she noted that “the publication of Artifact again proves the growing popularity of AI in social media.” However, she also raises issues regarding how AI decides which content should appear, and that could be seen as a form of censorship, which increases political biases and polarization.

2. Short-form Content:

The second trend appears to be short-form content. Following TikTok’s explosive growth, social media companies are realizing that short 30-second videos keep the users hooked constantly, and therefore keep them on the platform for longer. According to reports by eMarketer, “adult TikTok users will spend nearly 56 minutes on the app per day in 2023.” This means a 103% increase in time spent per day for TikTok in a 4 year period. To put this in perspective, time spent on Youtube is only 15% over the same period. Taking advantage of the user’s short attention span, the addictive nature of the short-form content is the driving force behind TikTok’s recent growth and domination.

Over the past two years, Meta and Youtube have all integrated short-form content into their platforms. They are Facebook and Instagram Reels, and Youtube Shorts. In the same report, eMarketer acknowledged that this content is both “helping and hurting Meta,” as the view time increases, but the time spent on their feed and stories features is “cannibalized,” thus leading to fewer ads being presented to their audience. It will be interesting to see how these companies can further monetize this form of content, and how they can improve it to stay competitive.

3. **Social Commerce and Live Streaming/ Live Shopping: **

   Social commerce, as defined by Accenture, is the “integration of social experiences and ecommerce transactions in a single path to purchase, enabled by a platform,” and it has already established a major market in Asian countries, especially China. According to Statista’s 2023 report, worldwide social commerce sales is valued at $992 billion USD in 2022, and is expected to reach up to $1.7 trillion USD in 2024. These experiences are not only related to advertising, but also includes innovative product showcases, better brand representations, and most importantly, platforms for direct-to-consumer (D2C) sales.

   According to Accenture’s report, social commerce works because of 3 principal engagement factors: content-driven, experience-driven, and network-driven. Through social media platforms, unique contents are created by the brand, and it allows constant, authentic discovery and actions. The content brings higher results when being endorsed by influencers or individuals. This can be seen as word-of-mouth marketing, but on steroids. They put a face to the product, they bring authenticity, and most importantly, a wider reach towards specific customer segments.

Experience driven is enabled through different types of engagements like AR/ VR. There are also “game experiences” that businesses can take advantage of to drive engagement to their products. Once they’ve tried the product and decided to proceed to the next funneling step, the platform makes it easier to make direct purchases right after. For example, Instagram businesses can set up their own store in the app; the ads or stories come with a ‘shop now’ button to take them directly to the product’s page; TikTok began a partnership with Shopify to directly push dropshipping products directly on their store; etc,... The emphasis is on the direct-ness of these features, and how they’ve enabled millions of purchases with ease.

Lastly, it is network-driven. Brands connect, chat, and help their customers on these platforms with ease. But this not only restricts to customer service, the platform also facilitates networking capabilities between businesses, thus driving trends like bulk discount procurements. This promotes good will in between vendors, and also supports ‘live streaming commerce,’ where live streamers earn commission for each product sale they make.

In China, eMarketer reported that live streaming commerce (or live shopping) sold over $514 billion USD in 2022, and it is growing at 19%. This is more than 17% of all e-commerce sales in China. By establishing networks among influencers and creators, brands achieve better product sales, and not only that, the platforms themselves gain more revenue from potential ad spend. However, despite achieving major success in Asian markets, recent initiatives by social media platforms in the US hinders the true growth of such a proposition. In early 2023, The Verge reported that Instagram will no longer let creators tag products in livestreams starting in March. While Meta conserves itself, other platforms like TikTok and Youtube hope to work on their live-shopping features.

4. Focus on Creators:

   Rita Vinnik, TikTok’s Director of Creator Initiatives, said in her presentation that “Creators are the heart and soul of TikTok.” The creators are those who both attract and retain new as well as existing users. The traditional social media platform model thrives on interactions between users, but now, they thrive on content and keeping a constant supply of entertainment. The longer the users stay on the platform, the better, and the way to keep them using it is by constantly feeding them content. To ensure their growth, social media companies, not only TikTok but also Meta and Youtube, provide their own initiatives to keep creators creating.

   These initiatives, for TikTok, come in the form of educating businesses on the power of influencer marketing and helping facilitate connections between the two. They also have funds that reward creators for their contents. Meta introduces the “Creators of Tomorrow” Initiative in September 2022, helping creators “build an audience, and monetize that attention, in the hopes that this will see them increase their reliance on its apps and tools, and keep them posting more often.” Youtube provides training and grants through their Youtube Creator Academy, where they help creators perfect their video production and marketing skills. In today’s social media industry, content is king, and everyone is making their best effort to gain the most viewing time from their audience.

Conclusion:

In recent years, companies have constantly been trying to reinvent themselves with new unique propositions. For Facebook it’s the Metaverse, for Snap it’s Virtual Reality, for Twitter it’s subscription models, and more. However, with the information gathered from recent developments, it’s quite clear that the next major trend that’s coming to the industry is artificial intelligence, and also the increased refocus on improving existing platforms rather than branching out to radical ventures.

Going further, the rise of social commerce has opened up new opportunities for businesses to connect with consumers and drive sales directly through social media platforms. Debates arise around the impact of social media on data privacy, the spread of misinformation, and the role of tech companies in regulating content. As we move forward, the social media industry will continue to shape and influence our personal and professional lives, but it is still crucial for individuals, businesses, and policymakers to navigate this landscape with a critical eye and a commitment to responsible usage.