Glass Giants: Social Media’s Sudden Weakness
Social media’s biggest companies have never looked so weak simultaneously. One of the world’s most polarizing industries may be about to enter a period of massive reorganization.
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Actionable Insights
If you only have a few minutes to spare, here’s what investors, operators, and founders should know about social media giants and their vulnerabilities.
TikTok changed social media’s rulebook. Facebook and Instagram rose to prominence by creating the world’s most robust social graph. Those network effects made them defensible against newcomers. TikTok has neutralized this advantage. Rather than trying to create a social graph, it leverages A.I. to serve users the most palatable content possible. The result is a “social” media platform that requires no friends to work.
Apple’s privacy updates have crushed ad revenue. Tougher market conditions in 2022 contributed to a slowdown for platforms that monetize through advertising. Apple’s privacy changes were more damaging, making mobile tracking considerably harder. These shifts have cost Meta billions in lost revenue.
Expensive mistakes are adding up. Mark Zuckerberg’s company may spend up to $100 billion on its metaverse plans. It currently invests between $10 billion to $15 billion per year. So far, the initiative hasn’t produced much enterprise value. Meta’s pursuit may be a distraction and a costly strategic mistake.
U.S. governmental sentiment toward TikTok has reached a new low. The possibility of an American ban on the Chinese-led app looks increasingly plausible. In recent months, critical political and governmental figures have called for TikTok to be pushed out of the country. Many state and federal employees have also been prohibited from using the ByteDance-owned service.
Giants chase different, distant dreams. Meta pines for the metaverse, Snap pins its hopes on an A.R. revolution, and Twitter fantasizes about becoming a “super app.” Though such foresight and ambition are to be commended, none of those visions seem likely to bear fruit anytime soon.
Social media is a beautiful idea. At the highest, most abstract level, its goal is to connect humanity. To give us better places to meet and share and learn and speak. There are few finer missions and grander canvases. It is easy to see how this potential has romanced many dreamy builders and investors. This is a chance to unite, to alloy, to put Babel back together. If humanity is to become enduring and intergalactic, global connectivity is a prerequisite.
History is full of beautiful ideas perverted by their implementation. Market forces do not care how pure a founder’s intentions are or how grandiloquent their vision is. Dr. John Pemberton may have wanted his cola-flavored drink to cure morphine addiction, but it became the world’s most famous sugary drink instead. As the military idiom goes, “No strategy survives first contact with the enemy.” The same applies to business: even the best-laid plans rarely survive contact with the market.
The past two decades have demonstrated the extraordinary power of social media as a concept and how easily it can be corrupted. In many respects, the movement has succeeded. It is easier than ever to stay in touch with friends and family, learn from the world’s foremost experts, and share an opinion. Businesses and relationships have been built off its back, producing perhaps trillions of tiny moments of connection, joy, and laughter.
It is also a monstrosity. This is barely metaphorical. Today’s social media giants steal our attention, cloud our minds, distort our relationships, sharpen our tongues, and obscure truth. They have made us cruel, jealous, and dishonest. They have fostered an anxious, depressed generation and eroded trust in democracy. To greater and lesser extents, we live in a state T.S. Eliot would characterize as “distracted from distraction by distraction.” In another age, we would refer to the source of such ills as demonic, pestilent, an agent of dark magic.
Despite social media’s many failings, its most prominent companies have looked economically invulnerable in recent years. Mark Zuckerberg’s Meta rose to a peak valuation of $1.08 trillion after creating an ad-machine second only to Alphabet’s. While remaining private, TikTok scaled to an estimated 1.8 billion users and a valuation that hit $450 billion in secondary sales. Even smaller entities like Twitter – acquired by Elon Musk for $44 billion – appeared unshiftable. Though the “town square” had not found as effective a business model as its titanic peers, no legitimate player challenged its position. The result was an industry both frequented and reviled. Despite 64% of U.S. adults believing social media has a “mostly negative” effect on society (just 10% consider it “mostly positive”), users continue to flock to these platforms. These products are more powerful than we are.
It is too early to pretend this era is coming to an end. Though tech stocks are far off their highest valuations, enormous enterprise value remains locked up in these businesses, protected by deep moats.
But there is the sense that something might be changing – that a window could be opening. Never before have social media giants shown such combined vulnerability. Over the past 18 months, every relevant platform has undergone some upheaval that appears more than transitory. Economic pressures, escalating competitive dynamics, changes to core technological infrastructure, geopolitical drama, shifts in ownership, and business model uncertainties have descended on Facebook, Instagram, TikTok, YouTube, Snap, and Twitter all at the same time. These players appear vulnerable to disruption for the first time since their ascendance.
This increasing fragility is coinciding with a new wave of social media startups. In many instances, these insurgents seek to respond to the businesses that came before them, righting perceived wrongs, smoothing over obvious flaws, and messaging their desire to prioritize social media’s original goal: meaningful connection. Players like BeReal, Poparazzi, and Mastodon have attracted millions of users partially because of this counter-positioning. The newcomers’ avenues of attack illustrate the current state of affairs and where the industry may be headed. They also raise intriguing questions about media’s future, building digital connection, and monetizing attention.
Today’s briefing is part of a two-part series.
In Part 1, we’ll cover the weaknesses of today’s giants and how the landscape is changing around them. An exhaustive analysis of the sector might incorporate any number of products, including Reddit, Discord, Roblox, Telegram, YouTube, WhatsApp, LinkedIn, Twitch, Quora, Pinterest, and many more. We will focus on the four companies with the most global impact and cultural power: Meta, ByteDance, Snap, and Twitter.
In Part 2, next week, we’ll look at the startups hoping to disrupt these incumbents and the strategies they leverage.
Meta
Perhaps I have exaggerated the frailty of social media giants. Are they really in such bad shape? Are their wounds more superficial than they might appear? Let us look upon the industry’s convalescing titans, its limping colossi.
There’s only one place to begin: Meta. Twenty years after Mark Zuckerberg first pecked out the code for FaceMash in his Harvard dorm room, the world’s dominant social network is experiencing an early midlife crisis. Meta’s scale and product sprawl mean unpacking its ailments requires several steps; this is a millefeuille of dysfunction.
First, let’s look at the numbers. Meta was one of the S&P 500’s worst-performing companies in 2022, with its stock falling nearly 65%. For comparison, the benchmark’s “Information Technology” sector fell by roughly 29%.
Zuckerberg’s firm was the primary victim (and partial catalyst) of the public’s volte-face on all matters metaverse. In the heat-death of 2021, the concept of a digital “third place” that rivaled reality seemed inevitable, desirable, just around the corner. No one bet more heavily on this possibility than Meta, whose rebrand reflects the organization’s revamped priorities. Facebook was about connecting the world; Meta was about building a virtual one.
Last year’s cold snap prompted a reappraisal. As companies began to be valued on their fundamentals again, Meta’s $10 to $15 billion gambit was increasingly perceived as a money-burning farrago with no end in sight. Estimates that expenditures may eventually crest $100 billion showed the company’s commitment but did little to soothe investors.
From a strategic perspective, it’s hard to know what to make of Meta’s initiative. Perhaps the metaverse will be as important as many expect it to be – but when? And how, exactly? Though Zuckerberg’s willingness to transform his business and bet aggressively is admirable, his boldness has yet to be rewarded. While we should expect teething pains with any new technology, it’s also not unreasonable to think Meta’s return on its investment appears rather paltry.
It will be of concern to Meta that its initiatives in the space have little public support. One of the tech press’s most gleeful moments in 2022 was lambasting Horizon Worlds, the company’s V.R. experience. There was particular delight in highlighting that users’ digital avatars didn’t have legs, hovering through Meta’s universe as a floating head and torso.
Was this really such a misstep? Was it so bad? Rather than revealing the technical limitations of Meta’s vision, LegGate demonstrated a different truth: no one wants Meta to win.
OK, there are perhaps a few employees at 1 Hacker Way, a clutch of loyalists, and pot-committed investors that might still cheer for the good ship Zuckerberg. But they are a rounding error compared to the vast wall of negative sentiment that meets the business at each turn. More than any other, this is Meta’s greatest challenge in the years to come. It may hope to own the future, but no one else wants it to.
Beyond the metaverse, the company’s two primary social media properties are beginning to show weakness. Facebook and Instagram have been negatively impacted by changes to the ad business, not least Apple’s privacy changes. In conjunction with its App Tracking Transparency (A.T.T.) initiative, the Cupertino company allowed users to opt out of app tracking, with a reported 62% choosing to do so. It introduced other features like VPN access and email cloaking to further its privacy tooling. Along with the economic downturn and greater competition from Apple, Amazon, Netflix, and TikTok, Meta saw its revenue fall to $27.71 billion in Q3 of 2022. That represented a 4% decline from the same period a year earlier. As a whole, Meta’s U.S. digital advertising share fell from 20% to 19.6% over the past year.
In recent months, Meta has shown signs of recovering from these shifts. The company is leveraging its A.I. capabilities to compensate for Apple’s changes, rolling out a feature called Advantage+ that finds relevant audiences algorithmically. Some advertisers already see an improvement thanks to shifts like this.
Plenty of headwinds persist, however. A few weeks ago, for example, the European Union found Meta culpable of avoiding the General Data Protection Regulation (G.D.P.R.), forcing users to accept personalized ads. The company has been hit with a $414 million fine. It’s unclear what changes to Meta’s policy the E.U. will consider acceptable. The company may be forced to ask users whether they agree to personalized targeting; as the results of Apple’s opt-out option demonstrate, many may decline. That would be another significant hit for Meta to weather.
Beyond deterioration in their underlying business model, both Facebook and Instagram have been de-positioned by TikTok. As well articulated by author Cal Newport, Meta’s properties succeeded partly because of their social graphs. You joined Facebook and Instagram because your friends were using them, and you came back to talk, play, or catch up on their lives. In time, this created network effects that guarded against upstarts. “Why would you join a new network dedicated to connection with people you know if everyone you knew was already on Facebook?” Newport writes.
Over time, however, these properties became less about connection and more about attention. They discovered that the optimal way to increase app usage thus increasing the advertising money that could be made – was by surfacing appealing content, irrespective of social ties. “Algorithmic” feeds replaced linear ones.
TikTok took this revelation to its logical extreme, as we’ll discuss. Instead of trying to create a social graph and compete head-on with Facebook and Instagram’s legacy advantages, it uses A.I. to surface content you can’t stop watching. You don’t need to have your six closest friends on TikTok to find it appealing; it works out of the box.
Facebook and Instagram have been forced to play catch up, releasing “Reels” as an alternative. Meta is no stranger to this strategy, of course. One of its most dastardly brilliant moves was to steal Snapchat’s “Stories” concept and roll it out across its properties. It became a vital part of its offerings.
So far, Reels hasn’t matched that success. Internal documents from August 2022 revealed that Instagram Reels were watched for 17.6 million hours per day, compared to 197.8 million hours on TikTok. More discouragingly, Reels usage had fallen 13.6% in the four weeks before the report’s publication. Meta may turn Reels into a winner with time, but for now, it is unproven – potentially taking user attention away from better-established advertising products.
Of course, Meta has no choice but to try. TikTok’s emergence has threatened Meta’s fundamental source of defensibility (the social graph) and its longevity. For some time now, Facebook has struggled to win over younger generations. A Pew Research report demonstrated that the percentage of U.S. teens that “ever” use the platform fell from 71% in 2014 and 2015 to 32% in 2022.
Instagram is faring better, with 62% of teens using the platform, up from 52% over the same period. While that’s encouraging, it nevertheless lags behind TikTok’s 67%. From a sentiment perspective, Instagram has slipped. A Piper Sandler study in 2015 noted that teens considered Instagram their favorite social platform; in 2021, it trailed both Snap and TikTok.
Ten years ago, Meta might have been able to arrest this decline with an acquisition. Indeed, in 2012, Zuckerberg purchased Instagram for $1 billion to protect his company’s relevance. There is little chance of that happening in 2023. Concerns over Meta’s power mean that any significant M&A activity will likely be blocked. If the company wants to retain its relevance over the next two decades, it must rely on its ingenuity.
ByteDance
The most memorable scene in David Fincher’s film, The Social Network arrives when Sean Parker, played by Justin Timberlake, tells Jesse Eisenberg’s Zuckerberg to shorten the name of his platform, then called The Facebook. “Drop the ‘the,’” he says, “it’s cleaner.”
To uncover what kind of social media platform TikTok is, we follow a paraphrasing of Parker’s advice and “drop the ‘social.’” At a structural level, the ByteDance-owned product is simply a media business – much closer to YouTube, or even Netflix, than the original flavor Facebook.
As we’ve discussed, TikTok doesn’t care about a user’s social graph. It simply serves the most captivating content possible. Its ability to do so stems from its powerful but simple A.I. engine. As extremely well-outlined by the Wall Street Journal as part of an in-depth investigation, TikTok primarily learns what a user wants by tracking how long they watch certain videos – and then pushes toward the tail.
The gourmand is greeted with cooking videos of ever greater specificity; the extreme sports fan watches a wingsuited daredevil skim the surface of the earth; the animal lover that lingers over a puppy is pressed into a parade of bulldogs, then French bulldogs, then French bulldog puppies in increasingly precise circumstances.
There are darker versions of this maneuver. The politics obsessive that watches debate clips is baited into a tunnel of conspiracy theories; the depressive young adult that hovers over mental health content is pushed into a rabbit hole of suicidal ideation.
Across the board, this is a process of exploration and exploitation, of niching down and over-serving, of finding the perfect formula that tickles your neurotransmitters. TikTok can learn one’s implicit tastes in as little as forty minutes. Critically, this process occurs irrespective of a user’s stated interests or goals. I may say I love literature and history and Lionel Messi, but if I spend more time watching people fall over or hit their heads, that is what I will be served. Caveat spectator.
In its fundamental essence, TikTok calls to mind the work of David Foster Wallace. Among his many gifts, Foster Wallace was also television’s most expressive critic. “T.V.’s ‘real’ agenda is to be ‘liked,’ because if you like what you’re seeing, you’ll stay tuned,” he said. “T.V. is completely unabashed about this; it’s its sole raison.” In TikTok, society has created a kind of hyper-television, palatable beyond control. It is our very own Infinite Jest, the movie in Foster Wallace’s novel that is so addictive it is inescapable. Viewers watch it over and over again until they die.
If this all sounds rather bad from a human perspective, it seems miraculous from a financial one. What better business is there than an ineludible attention trap? What vulnerability could there be to a perfectly efficient ad-machine?
TikTok’s approach has, indeed, brought furious growth and meaningful spoils. ByteDance was valued at a high of $450 billion by some secondary purchasers, though more recent transactions peg it around $200 billion. While exact figures are hard to come by, it reportedly earned $10 billion in revenue last year. It holds just 2% of the U.S. ad market, compared to Meta’s 20%, but is expanding rapidly. Its share doubled from 2021 to 2022 and is expected to increase by 0.5% this year.
As we’ve discussed, TikTok is the most popular app of its ilk among younger generations – it is also a universal phenomenon. In 2021, it became the most popular website in the world, surpassing Google. In 2022, it was anticipated to reach 1.8 billion users. It may have more room to monetize – as discussed in our breakdown of Sea Ltd, TikTok’s Chinese sister app, Douyin, has developed a robust e-commerce engine. In 2022, Douyin processed $208 billion in volume, up 76% year-over-year. ByteDance is now experimenting with rolling this feature out globally, focusing on the U.S. market.
So, where is the flaw in this grand, accelerating money apparatus? We can find the answer in Foster Wallace: a tool of such awesome, addictive power can quickly become a weapon.
To call ByteDance a Chinese company is about right, but not entirely. Western firms Coatue, SoftBank, and General Atlantic own 60% of it. Nevertheless, it is headquartered in Beijing and managed by primarily Chinese leadership. The Chinese Communist Party (C.C.P.) has not been shy in making demands of national tech companies, ordering Tencent, Alibaba, and ByteDance to share data.
Because of this connection, some Western politicians have called for TikTok to be banned. While there is concern among states in the European Union, the U.S.’s rhetoric has been fiercest. Fundamentally, there are four core arguments proponents make to support a ban:
Social media is societally damaging, especially for the young. Apps in the space have been shown to negatively impact mental health. This argument is not specific to TikTok, though its increasing hold over younger generations makes it a leading culprit.
TikTok is undercutting the mental capabilities of America’s youth. Digital ethicists like Tristan Harris have noted the difference between TikTok and its Chinese counterpart, Douyin. The latter reportedly features educational content and limits usage for children under 14 to 40 minutes daily. Douyin is only accessible for this age group from 6 am to 10 pm. The thinking goes that TikTok feeds America’s kids mind-rotting garbage while China’s children are educated.
TikTok is surveilling us and passing on data to the C.C.P. As mentioned, the C.C.P. is known to demand data from Chinese tech companies. Many fear this is happening with TikTok. The extent to which the app surveils users seems particularly acute. An analysis from developer Felix Kraus revealed that TikTok logs every keystroke or tap a user makes in an in-app browser. That includes sensitive information like passwords or credit card numbers. Though TikTok may not use this data, it illustrates how granular the information it gathers can be.
TikTok is algorithmically shaping public perception. TikTok has the power to amplify or suppress certain types of content. In the past, the company has told moderators to muzzle videos from “ugly, poor, or disabled” users. A similar instruction was given concerning content that threatens “national honor.” Previous reports show that TikTok has censored videos referring to politically sensitive topics like the internment of Uyghurs. Proponents of a ban fear that, over time, TikTok may use its power to undertake a kind of PSYOP, subtly advancing the C.C.P.’s views.
While it’s possible that fears over TikTok fade in the coming months, it looks unlikely at the moment. The U.S. and China are locked in a technological and economic Cold War that may be heating up. As discussed in our T.S.M.C. briefing, Biden has moved aggressively to curtail China’s chip-making abilities. Though a TikTok ban wouldn’t harm Beijing technologically, it would severely undercut one of its most influential companies.
The last few months have seen a flurry of activity. In November, a chair of the Federal Communications Commission (F.C.C.) called for TikTok to be banned. A month later, F.B.I. director Chris Wray made a similar statement. In late December, President Biden approved a bill banning the app on federal devices. Twenty-seven states have followed that lead in 2023, with some speculating the private sector will follow. A total ban is not out of the question.
While TikTok was banned from India in 2020, getting kicked out of the U.S. would be a much harsher blow. By some distance, America is the largest digital advertising market, pegged at $232 billion in 2022, with China’s spending estimated to be $141.8 billion. The U.K. is the third largest market with $33.8 billion, a steep drop off. While ByteDance’s Chinese apps Douyin and news-platform Toutiao would ensure it remained a nationally important business, its ability to become a true global leader would disappear. Perhaps the natural step would be for ByteDance to sell its foreign divisions. Microsoft and Oracle were mooted buyers in 2020 when former President Trump threatened a ban.
Though TikTok’s emergence changed the social media game, its geopolitical overhang makes it vulnerable. Even if Western governments permit it to remain, the specter of a ban will linger.
Snap
We are leaving behind the world of towering, sun-blotting titans. Though a significant player in the social media space, Snap is a comparatively small company, currently valued at approximately $15 billion. That is a far cry from Meta’s $360 billion valuation, or indeed, from the “camera company’s” $28 billion it managed on its first day of public trading in 2017.
The fact that Snap has remained sub-scale nearly six years after its I.P.O. indicates the company’s fundamental issues in turning popularity into revenue. It remains widely used, even among younger generations. The Pew Research report mentioned earlier showed the percentage of U.S. teens that used the app grew from 41% to 59% between 2014 and 2022. Its number of daily active users (DAUs) continues to grow, up 19% year-over-year.
That figure was one of the few bright spots in Snap’s most recent quarterly report. The Q3 filing showed the company’s growth slowed to 6%. Average revenue per user (ARPU) declined by 11% to $3.11. This fall was partially thanks to the same headwinds afflicting Meta. Apple’s privacy ban also harmed Snap, as did the bear market’s impact on advertising spend.
But Snap has never been able to monetize as effectively as Meta. (For comparison, Meta’s was $7.53 for the same quarter.) It has struggled to build comparable advertising infrastructure and has been unable to replace missing revenue with other experiments.
For several years, Snap has maneuvered itself to capture the opportunity it sees in augmented reality (A.R.). That includes building an ecosystem around A.R. filters, rolling out A.R. e-commerce functionality, and shipping hardware devices like Spectacles smartglasses and Pixy, a selfie-taking drone. These initiatives often showcase Snap’s impressive creativity and differentiated product sense, but none seem to have given them unique leverage.
Even if A.R. does take off in the manner Snap hopes, it’s not clear that it would be especially well-positioned to capitalize. Despite its experiments with Spectacles and Pixy, Snap seems a long way from being an elite producer of consumer hardware. Apple, Microsoft, and Google are all superior in this respect, though Snap is a much younger company, earlier in its maturation.
Even looking beyond the hardware layer of an A.R. revolution, it’s not clear that Snap has a particularly pronounced advantage. Meta and ByteDance have not made A.R. such core parts of their identities, but neither have they ignored its potential. Much of Meta’s lavish metaverse spending is dedicated to A.R. initiatives; ByteDance acquired Pico, a manufacturer of V.R. headsets that also seems to have designs on the space.
Snap has invested in intriguing products like Scan, a visual search engine, and mapping features. Though eye-catching, none look like a killer feature. Nor do they seem to be extraordinarily defensible – beyond the capabilities of better-capitalized competitors.
As with Meta, time may demonstrate the wisdom of Snap’s management. Perhaps AR will arrive sooner than we think, and the company’s investments will pay off tenfold. For now, though, Snap is a platform that has failed to nail its business model as it searches for another.
Twitter
For much of its life as a public company, Twitter’s problem was inertia. Though home to many of the internet’s most lively conversations, it often felt like a bereft, dead organization. Simple feature requests, like the ability to edit a Tweet, were debated for years, parsed as if they were one of society’s great unanswerable questions.
The pendulum has swung in the opposite direction. Under Elon Musk’s new ownership, Twitter has started to act like a submarine taking on water, a frantic capsule of flashing lights, blaring alarms, and competing instructions. Somewhere, the captain wonders if it is strictly necessary to go down with his ship.
I was among those quietly excited by Musk’s takeover. Here was the most productive entrepreneur of his generation taking a swing at one of the modern world’s great blights. I subscribe to Tristan Harris’s idea that social media’s current incarnation affects our capacity for “shared sense-making and governance.” Could Musk fix that?
For now, the answer is no. Musk walked into Twitter’s office as if he had raided a skip, sink hoisted in his arms. He has preceded to smash through the rest of the company like a mad-cap demolition crew. Is this a supporting wall?, he asks while taking a hammer to the content moderation team. Is anyone using this?, he wonders after blasting away a suicide prevention feature.
It does not help that Musk has a terminal case of main character energy. Even among billionaires (hardly a group lacking self-confidence), Musk has a pathological need for attention. He will pontificate on seemingly any hot-button issue from Taiwan to Ukraine. Even if his views were thoughtful on these subjects (they are usually not), there is nothing to be gained by wading in. These pronouncements are joined by puerile Twitter spats and vengeful fits against journalists – skirmishes in which there is no winning. For all his genius, for all he has done to improve the world, Musk can be extremely difficult to root for. We can be grateful that Elon Musk exists and exhausted by his presence.
The instability of the platform and its leadership has caused a flight of advertisers. Within about a month of taking over, 50% of Twitter’s top 100 advertisers had halted spending on the platform. Even the frenzy of a World Cup, usually a significant boon, failed to spark much optimism. Reports suggested Twitter’s U.S. ad revenue was 80% lower than expected during the tournament’s opening week. It downgraded revenue estimates for Q4 from $1.6 billion to $1.1 billion.
The bloodletting does not look like it is about to stop. Insider Intelligence expects the company to lose 39.1% of its advertising revenue by the end of 2024. Before Musk’s takeover, advertising made up 90% of the firm’s revenue.
Users are also leaving. In Musk’s first week on the platform, more than 1 million accounts departed. Insider Intelligence expects the company to shed 3.6 million U.S. users next year and 32.7 million by the end of 2024.
Will Twitter’s other initiatives make up for this shortfall? Could we see a new kind of small but highly profitable social media company emerge?
This seems to be the bet Musk is making, cutting costs and exploring new revenue lines. He expects to reduce the size of Twitter’s previous employee base by 75% and has already fired thousands of workers. Much of this has been poorly managed, with Musk firing and rehiring some employees and decimating teams essential to the platform’s performance and safety. Still, it will reduce Twitter’s cost base and allow it to move more nimbly.
Twitter Blue is the most notable monetization experiment. For $8, users receive a blue verification badge, prioritized ranking in conversations, the ability to “undo” a Tweet, and other trinkets. Once again, the implementation of this process was ham-fisted with Musk adding and dropping features and changing the price seemingly because Stephen King found it too expensive. Deciding your corporate strategy based on whether the King of Horror will like it isn’t the soundest method, but it has helped Twitter ship what seems like a plausible if uninspired subscription product.
In time, Twitter may be able to add enough features to build a reasonably-sized business – but probably not a massive one. Even if Blue amassed 1 million subscribers paying $8 per month, it would be a sub-$100 million revenue line for a business that did more than $5.1 billion in 2021 revenue. Reaching that figure would require either an influx of new Twitter users or an elevated conversion rate from free to paid. Recent estimates suggest Blue has about 100,000 subscribers, with many paying less than $8.
With Blue unlikely to make up the shortfall, Musk may pin his hopes on other revenue lines. The introduction of payments, a username auction, and types of creator monetization have all been mentioned. The primary goal is to drive users to transact on Twitter, a critical part of Musk’s plan to turn the platform into an “everything app.” Though prevalent in other geographies (think: WeChat in China, Kaspi in Kazakhstan, or Mercado Libre in Latin America), super-apps haven’t caught on in the U.S.
For a time, I thought this was Jack Dorsey’s plan as joint C.E.O. of Twitter and Square (now Block). Between those two businesses, he had all the ingredients: a high-volume social network, news, messaging, peer-to-peer payments, spending, investing, and in-store checkout. With some squinting, you could imagine a world in which you existed primarily through a Twitter-Square hybrid app, reading news on Twitter, talking to friends in private messages, sending money to a family member with Cash App, and paying for your shopping with Cash App and Square’s point-of-sale solution. Square’s otherwise bizarre acquisition of Tidal supported this thesis: music streaming is another high-frequency activity that keeps users returning to an app.
Without Square’s involvement, Twitter doesn’t look particularly well-positioned. Its core product may still feel differentiated (at least from the other giants), but it is not winning the younger demographics, with TikTok, Snap, and Instagram all more popular. Its messaging function is decrepit, and as a standalone entity, it has done little to support financial transactions. All the major players discussed are further ahead in facilitating payments and e-commerce.
There is still a chance Musk will turn it around. His ingenuity may allow him to see solutions others have missed; his drive may spur Twitter to a new level of efficiency. Whatever happens, this period will become a case study taught in many business schools. To Musk’s credit, he is attempting to build a different kind of social media company.
For a brief period in the 17th century, a small group of people worried they were glass. That despite the appearance of skin and muscle and bone, they were, in fact, comprised of this most fragile of materials, liable to crack or shatter. France’s King Charles VI was among those that suffered from “glass delusion,” wrapping himself in blankets, terrified his buttocks would smash.
It is a relief to know that we cannot suddenly turn to glass. But while it may not happen to us, it can to the businesses we create. Organizations that look strong and vital one year can appear vulnerable the next. The very traits that marked them as robust, dynamic entities can become brittle and cool. Out of nothing, a crack appears – then another. In time, even the greatest, most invincible companies may be undone like this, fracture by fracture, piece by piece.
Only time will tell whether social media giants have become as fragile as they appear or whether this is a kindred delusion, another case of someone looking at a living thing and seeing only glass.
In Part 2, published next Sunday, we’ll explore the companies seeking to disrupt these social media giants.
The Generalist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. Our work may feature entities in which Generalist Capital, LLC or the author has invested.