Social media companies in Silicon Valley - Some monetize, most do not

Social media companies in Silicon Valley - Some monetize, most do not


Social media is dominated by Alphabet, through ownership of YouTube, and Facebook, both of which were created on the assumption revenues would flow once a large user base had been created. But other major companies, such as Twitter, have failed to monetize and posted losses which undermine the chances of eventually generating profits. The belief that social media companies can concentrate upon creating a popular product before choosing to only later work out how to generate revenues is now fatally flawed. However, rivals and potential new entrants face extremely tough challenges in competing against Facebook and Google, making the task of monetizing harder than would otherwise be the case.

Key Highlights

- Due to the dominance of Alphabet, through the purchase of YouTube, and Facebook in social media, rivals have are being squeezing out of the market because they cannot hope to compete seriously in terms of providing the best value to advertisers, undermining their business model.
- Recent success stories have been dominated by social media companies which have been purchased by Facebook despite never having made money but are then monetized under the new owners. Facebook is primarily interested in data about user behavior to improve the offering to advertisers.
- Losses incurred by Twitter and Snapchat have made big headlines. Both of these companies will struggle to monetize because they are predicated on the old model of building a user base and then working out how to make money later. As time passes, the chances of monetization taking place grow slimmer.


- Explores how Facebook and Google shape the social media advertising market
- Looks at how companies such as Twitter have failed to monetize
- Analyses how some companies have performed much better after being purchased by either Facebook or Google
- Seeks to explain why some companies will likely continue to lose large sums of money

Reasons to buy

- How do Facebook and Alphabet dominate the social media market?
- Can Twitter and Snapchat ever make money?
- Is being bought out now the best route to success?

Overview 2
Catalyst 2
Summary 2
Google or Facebook takeover appears to be secret to success 6
Instagram was not making money when purchased by Facebook, but has since transformed 6
Severe doubts would be surrounding WhatsApp had Facebook purchase for data not taken place 7
YouTube needed Google to prevent a lengthy period of loss making 8
Potential losses from YouTube matter less to Google gains are made in other areas 9
Tumblr lost out after Yahoo failed to pursue monetization vigorously 9
Facebook is dominant in social media advertising, squeezing out others 11
Facebook can provide what advertisers want information about consumer behavior and personality traits 11
Facebook is more user friendly to advertisers, creating more opportunities than rivals have so far managed 11
Holding much of the growth in online advertising demonstrates dominance but rivals could emerge 12
Usability of Facebook will retain users, keeping advertisers onboard as others struggle to create monetized and user-friendly platforms 13
Having never made money, big losses will continue to blight Twitter and Snap 14
Failure to win advertising dollars and stagnating user engagement will cause further major losses at Twitter 14
Snap is attracting the wrong audience to attract advertisers as Facebook does 15
User numbers are stagnating for Twitter and Snap, likely extending losses into the future 15
Some social media companies have been overvalued, pushing expectations high 17
Snap revealed heavy losses before IPO but is still valued very highly by investors 17
Recent performance of Twitter evidences the dangers of overvaluing 18
AFter failing to monetize core products, Twitter seeks live stream diversification 19
Twitter gambles new users can be gained through online streaming, but the company has tried to diversify before 19
Conclusions 21
Building up a large user base and worrying about monetizing later is a flawed concept made tougher by existing market 21
Appendix 22
Sources 22
Further Reading 22
Ask the analyst 23
About MarketLine 23
Disclaimer 23

List Of Tables

Table 1: Top Ten YouTube Channels (May, 2017) 8

List Of Figures

Figure 1: Number of Instagram Monthly Active Users (million) 6
Figure 2: WhatsApp Monthly User Numbers (million) 7
Figure 3: Former Yahoo CEO Marissa Mayer 10
Figure 4: Facebook revenues 2010-2016 ($bn) 12
Figure 5: Twitter losses 2010-2016 ($m) 14
Figure 6: Snap Inc quarterly average daily active users (millions) 16
Figure 7: Average Snap Inc Share Price ($) March 2017 August 2017 17
Figure 8: Twitter average minute audience NFL Thursday night matches, 2016 19

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