Competition in the Social Media Market

An inside look at past, present, and future competitive shifts

By Grayson Kielhold, Trevv Colson, Kha Nguyen, Alex Thiesen, Bowen Cui, and Zach Ekeren

What exactly does competing in the Social Media industry imply for a company? We uncover the important points of consideration for companies who want to compete in the industry and an up to date look at who the current industry leaders are and how they differentiate from one another.socialmedia

Social Media as an Industry 

According to Jeremiah Owyang, founder of Crowd Companies Council, the social media industry is lathered with its fair share of problems.6 One of the biggest problems mentioned by Owyang is the low barriers to entry into the social media industry.6 The nature of the problem is that it does not take much for a new player to enter the market and begin to attract users. Another advantage for newcomers is that there is no “social media degree” that teaches you exactly how to function as a company in that industry. The fact of the matter is that if you produce good content, engage users in unique ways, and find a way to make a dollar while doing it, you are qualified to compete and compete well in this industry. In addition to that, there is not resounding profit being made in the social media industry. Companies are functioning because growth and revenue numbers increase while profitability may still lack. So how are current players managing and what keeps them differentiated?

Facebook vs. Twitter

In the current social media landscape, there are a number of “power players.” StockPlayers we will write briefly of include Facebook/Instagram, Twitter, and LinkedIn. Some have found ways to be extremely successful and some have found their success fading and need to innovate to keep up with their competition. Facebook (stock symbol FB) went public on May 18th, 2012 with an initial public offering at $381. At the close of the trading day on March 29th, 2017 Facebook stock was trading at $142.652. When comparing Facebook to other social media sites, take into consideration that Facebook’s parent company Facebook, Inc. also owns the extremely popular photo-sharing site Instagram. Compared to Facebook, Twitter (stock symbol TWTR), the 180 character per post social media site, has seen a decline in its stock price. Twitter had a stock price of $15.04 at the close of the trading day on March 29th, 2017, and had an initial public offering of $26 on November 7th, 2013. When comparing the Q4 2016 revenues for Facebook and Twitter there is also a large gap. Facebook earned a revenue of $8.81 billion, up 51% over 2015’s Q49, and Twitter reported a Q4 revenue of $717 million, up only 0.9% over 2015’s Q410.

There are many factors that could have contributed to these two popular companies having different levels of success. One of the reasons that Facebook is performing better than Twitter is that it has five times the number of users 3. Another reason is that Facebook is more successful than Twitter is that it appeals to a larger segment of the population, although Twitter leads in younger age groups 4. Facebook has also experienced a huge advantage over Twitter in advertising revenue because of its dominant market position in the mobile sphere 5. Finally, Facebook has an advantage on the corporate level as well because of its relatively stable executive team, where Twitter has had quite a bit of turnover in its executive team.

Facebook vs. LinkedIn

Although Facebook differentiates themselves well from the otherwise struggling Twitter with more capabilities and a broader reach, capturing a slightly different market in the business world is met by challenges from popular networking platform, LinkedIn. With a promising start to 2016, a share price of over $220, and Microsoft paying an estimated price tag of $26.2 billion dollars, LinkedIn seemingly had the attention of investors everywhere.7 Unfortunately it takes more than average management, revenue growth, and a promising share price to retain investor interest. LinkedIn is able to provide certain social media capabilities to a market that other social media sites have not paid specific Microsoftattention to. They compete well because they have found a niche market within the industry, however, head to head, Facebook remains the leader. LinkedIn suffered large decreases in share prices towards the end of 2016 leading to the acquisition of their company by software giant, Microsoft.8 Microsoft sees benefit in what LinkedIn has done and is doing, but the plan is to integrate their already strong capabilities with that of Microsoft’s Office programs to further enhance the business features available to the corporate market. Could this propel LinkedIn ahead of what the industry leader, Facebook, is able to keep up with? This is a question that Facebook will have to answer. Our opinion is that the two popular social media sites, while being competitors, still compete in different enough spaces within the industry that they will not eliminate each other completely. LinkedIn is not concerned with offering everything and more that Facebook offers and Facebook does not concern themselves with connecting people the way that LinkedIn has been able to. That being said, there is minor overlap in the sharing and interaction which keeps competition alive.

As we can see, even the biggest players in the game face many forces of competition from both internal and external environments. There are areas where all three giants compete day to day to capture the market’s attention and get them to spend their time surfing through content. However, there are also pockets of the market that are left touched only by certain players and only in certain ways. It is important that these social media companies recognize what their core mission and capabilities are and focus on competing in those areas. That is where differentiation will stem from and will be maintained. The last thing social media companies want is to move to far away from their main purpose that another strong player takes over or a newcomer steps in and does the job better.

 

Sources

  1. http://www.investopedia.com/articles/markets/081415/if-your-would-have-invested-right-after-facebooks-ipo.asp
  2. https://finance.yahoo.com/quote/FB?p=FB#eyJtdWx0aUNvbG9yTGluZSI6ZmFsc2UsImJvbGxpbmdlclVwcGVyQ29sb3IiOiIjZTIwMDgxIiwiYm9sbGluZ2VyTG93ZXJDb2xvciI6IiM5NTUyZmYiLCJtZmlMaW5lQ29sb3IiOiIjNDVlM2ZmIiwibWFjZERpdmVyZ2VuY2VDb2xvciI6IiNmZjdiMTIiLCJtYWNkTWFjZENvbG9yIjoiIzc4N2Q4MiIsIm1hY2RTaWduYWxDb2xvciI6IiMwMDAwMDAiLCJyc2lMaW5lQ29sb3IiOiIjZmZiNzAwIiwic3RvY2hLTGluZUNvbG9yIjoiI2ZmYjcwMCIsInN0b2NoRExpbmVDb2xvciI6IiM0NWUzZmYiLCJyYW5nZSI6IjF5In0%3D
  3. https://www.bloomberg.com/gadfly/articles/2016-02-12/social-studies-comparing-twitter-with-facebook-in-charts
  4. https://www.bloomberg.com/gadfly/articles/2016-02-12/social-studies-comparing-twitter-with-facebook-in-charts
  5. http://www.adweek.com/digital/facebook-vs-twitter-how-each-network-handles-advertising-differently/
  6. http://www.web-strategist.com/blog/2008/08/07/the-many-challenges-of-the-social-media-industry/
  7. https://www.forbes.com/sites/antoinegara/2016/06/13/linkedin-is-the-latest-fast-growing-tech-company-to-give-up-on-the-stock-market/#7b0eaf661c9a
  8. https://www.wsj.com/articles/microsoft-to-acquire-linkedin-in-deal-valued-at-26-2-billion-1465821523?mg=id-wsj
  9. https://techcrunch.com/2017/02/01/facebook-q4-2016-earnings/
  10. http://variety.com/2017/digital/news/twitter-misses-q4-2016-revenue-expectations-1201982638/

 

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