Is it the end of the beginning for Social Media companies?

with No Comments

Facebook’s latest figures are a real curate’s egg – good in parts. Profits are up, and they report continued growth in users. However this comes on the back of, as the Guardianreported last December, a terrible year. In 2018 The company was rocked by exodus of key executives, fake news, campaigns urging people to shun the platform. 

Nor was Facebook wasn’t alone amongst Social Media companies to experience difficulties in 2018. 

Ad fraud affected many of the major platfoms such as Youtube.  For a period of time in 2013, the Times reported this year, a full half of YouTube traffic was “bots masquerading as people.” 

Technical issues also surfaced. For example a Twitter “bug exposed some Android users’ protected tweets for years”  – The Verge. Similarly Whatsapp “’has a bug’ that could let strangers see all your secrets” – Metro.

Finally, a number of the Social media platforms are now under EU investigation for its data-collection issues under the new General Data Protection Regulation (GDPR) rules.

Strategic wear out ?

Sometimes you can’t fight against the tide any more

Are these all separate, small scale issues or are they a symptom of something more significant ? 

To me they signal that the Social Media model could be entering the strategic wear out phase. In this phase, “strategic wear-out occurs when an organisation no longer meets customer needs and the pursed strategy is surpassed by competitors. (Drummond and Ensor, 2001).”

There are a number of tell-tale signs that indicate to me that this may well be where the leading Social Media companies have reached.

No longer meeting customer needs

The basic model of social media for its users is that we surrender our data in exchange for free social media. We get free tools to interact with other users, and the social media companies fund this by selling advertising to us, using our data. However this model appears to be breaking down in two ways.

First, the sheer scale of data capture and the high profile cases of data misuse seems to have finally hit home to users. The Guardian summed this up really well: “no one can pretend Facebook is just harmless fun any more”. This has created a big issue around trust. According to a Statista survey, in Oct 2018 on average 42% of people worldwide believe their data is being misused on the internet.

Source: Statista Global Consumer Survey 2018, slide 20

Second, there’s increasing evidence that users are getting less responsive to adverts. According to the Guardian: –

“Consumers are very good at filtering out messages,” explains Lisa Du-Lieu, a senior lecturer in marketing at Huddersfield University. “If you don’t get their attention within the first couple of seconds, it just bounces off them.”

As a result the social media companies are having to come up with new and creative (and – frankly – sometimes scary) ways to serve their advertising message to users, including sponsored photo filters, stealth ads, adverts via home speakers.

Add to this the big issue for Advertisers: Ad fraud. Ad fraud includes a variety of malpractices including fake followers, inaccurate analytics data, placements on inappropriate website. According to AdWeek, Ad Fraud is costing Advertising $51M per day, and this is forecast to more than double by 2022

So it’s no wonder that there are now moves to introduce more regulation into this market.

The problem with regulation is that it makes life more complex as Social Media companies have to employ more people to ensure that regulation is implemented. This is increasingly add odds with the whole “grow fast and break things” model. As a result this threatens Social Media companies ability both to grow and also their profitability.

Pursued strategy surpassed by competitors

The second major symptom of Strategic wear-out is competition. At first sight there appears to be little evidence of this. Quite the contrary – over the past few years the leading players Facebook, Youtube, Whatsapp (source Hootsuite) have consolidated their positions. And total spend on digital adverts is still growing, and has now surpassed spend on traditional media.  

According to emarketer – “we forecast that overall digital ad spending for 2018 will account for 63.6% of total media ad spending, and that spending will increase 9.9% in 2019.”

However, latest figures as reported inMarketing Week indicate that total digital ad spend may have peaked as percentage growth of digital advertising has been slowing down since 2017.

And this will create a huge problem for many of the Social Media companies, who have a high-growth strategy. If there is less ad revenue around to fund the companies, and growth in users has stagnated then there is less revenue for them.

To make things worse, Social media remains a highly fragmented market. There are new challengers growing steadily – e.g. the Chinese companies such as WeChat (now 5th worldwide in users), QQ (7th), QZONE (8th), (Douyin (9th) and Weibo (10th).

Significantly, by virtue of operating in China, these have already adapted to work in a more regulated environment.

The end of the beginning

Since the early 2000s Social Media has spearheaded the whole User Generated Content revolution, and muscled its way in to the advertising market.   

However it seems to me that the old business model which drove this needs to be revised. That’s why I think that, according to the Strategic Wear out theory, now is the time to see how the Social Media companies adapt their models. 

For those that do, it could be the end of the beginning as they adjust, develop and prosper to the new world.

For those that don’t it could well be the beginning of the end. 

I’m a Freelance Marketing Consultant. Contact me to find out how I can help your transform your business for the digital world. 

Leave a Reply