Beyond the sleek design and the HD screen, what do you see in a modern smartphone? Mostly a clutter of apps. Some apps play a vital role in everyday life, but many apps have little or no value at all.
One of the most popular apps within the smartphone universe is Facebook. Sure, various businesses, entertainers and some political campaigns have leveraged Facebook to their advantage, and there’s no doubt that it has social utility, allowing people to connect and communicate with friends and relatives, but overall it just seems like a way to spend mindless hours, similar to watching TV.
Still, its popularity is hard to ignore. The company claims over one billion active users, making it the darling of online and mobile advertisers, alongside Google. This success has invited a host of similar apps, which, on some level, sought to replicate or leverage the Facebook experience. A few entries have been successful. Instagram was so successful that Facebook bought it, while others like Google+ haven’t been so phenomenal.
Amid this influx of new apps, there hasn’t been a parallel rise in the number of total users that are active on social media. The overall level of engagement per social media vehicle is being diluted. That means the same eyes are now looking at more apps for less time. This is not a great trend for the big social media companies and forces them to continue to acquire the next big app to protect their market share.
It’s easy to see why this is a troubling trend for Facebook, which relies on high levels of engagement to generate ad revenue. But it’s also a bad thing for advertisers on social media, who will now have a more difficult time reaching their targeted audiences because user activity has become more diffuse. It also means that no one app platform is enough to reach your potential customers.
Making things worse is that many of these emerging platforms are not as ad friendly as Facebook. In fact, some have made their refusal to sell ads and collect data from users a core value. So even if advertisers know where users are spending their time, it’s not clear that they can reach them.
Ultimately, all apps need to generate revenue and most rely on advertising. Within this fragmented environment, advertisers will need to determine where they can get the most bang for their buck. Facebook, along with other major online players Yahoo and Google, will have to find ways to get more active users back on their platforms.
The following apps have built large engaged audiences and continue to generate new users:
Instagram – Perhaps sensing the landscape was becoming more challenging, Facebook gobbled up Instagram nearly two years ago for $1 billion. At the time, it was a hefty sum for a picture sharing app, but it now looks like a bargain compared to its recent $19 billion deal to acquire WhatsApp, a mobile-messaging service that, despite having a worldwide reach, has questionable revenue potential given its aversion to ads and a public commitment to user privacy. In part, Instagram’s rise was due to the fact that it was ad free. That has changed. It started running ads in November for a select number of advertisers. So far, users seem to have responded well, with many noting that their ‘feeds’ have not become cluttered, yet. The question moving forward will be can it maintain this delicate balance as Facebook faces more pressure to create additional revenue streams.
Tumblr – Yahoo’s decline has been well-documented. With its own platforms eroding, CEO Marissa Mayer went on a buying spree last year to defend many of the company’s dwindling positions and Tumblr was among her many acquisitions. The microblogging community has over 175 million users and is popular with younger users. And much like other emerging social media sites, it owed much of its popularity to its clean, ad-free platform. Though it still doesn’t feature traditional ads, it has begun to run ‘sponsored posts,’ which the company says have been successful in generating revenue. Its central problem moving forward will be the same problem that will haunt others within the space: How will it successfully navigate an environment in which every time a company monetizes its platform, users tend to move to another one.
Twitter – Twitter experienced a meteoric rise, even by tech standards, following its IPO last year. And while its market valuation has since come down a bit, it remains one of the most influential communication platforms in the world. The real question is whether it is a monetizable format over the long term, for now advertisers are happy. Not only have ad rates drifted downward but user engagement is up, according to the Wall Street Journal. The company said in its annual report earlier this month that the number of users that ‘re-tweeted’ or interacted with sponsored content – which is how Twitter gets paid – shot up in the fourth quarter. That is welcome news in light of recent reports that indicated that user-growth and engagement was declining.
SnapChat – Perhaps the most intriguing social media property of last year, SnapChat allows users to send photo messages that disappear seconds after the recipient has opened them. The service is wildly popular with young people and could be the forerunner to other technologies that reduce each person’s online footprint – which has made it an attractive acquisition target for larger companies looking to defend its position. But SnapChat has already turned down a well-publicized bid from Facebook. Will deep pocketed Google make SnapChat an offer it can’t refuse? Time will tell.
Tinder – This is the future of online dating. Even though traditional dating sites are still popular Tinder is the app for young single people. By linking to your Facebook account, users can meet and communicate with other users with similar interest near you. If two people think that the other is attractive, you’re connected to set up a date. Tinder has backing from IAC and will be the next big dating site for their portfolio. Tinder has built a large following and continues to eat away at traditional dating sites, making an acquisition very likely.
Diffusion across the app space will likely continue, as ad-adverse users continue to seek out platforms that are not packed with sponsored content. As new apps become popular they take time away from other apps. It’s equally likely that these same platforms will become acquisition targets for the biggest players in the industry that have to find a way to recapture the eyeballs to view their properties. This constant desire to protect market share will continue to fuel innovation and acquisitions.
Ross Gerber is CEO and president of Santa Monica, Calif-based Gerber Kawasaki, an independent investment advisory and wealth management firm with approximately $200 million in assets under advisement. Clients and employees may own positions in various companies mentioned in the article, but readers shouldn’t buy anything without doing their own research.