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Facebook, Twitter squash competition

Johannesburg, 02 Apr 2015
Facebook launches in-house apps to take on third-party parasites.
Facebook launches in-house apps to take on third-party parasites.

Social media giants Facebook and Twitter are stamping out the competition by creating in-house apps that aim to squash entry-level disrupters that are threatening to take away their user bases.

Twitter recently unveiled live-streaming app Periscope, to compete with Meerkat, and followed that with this week's announcement of new app Curator, which allows users to create stories using their tweets, which competes with Storify. In addition, Facebook's On this Day feature, launched last week, seeks to compete with Timehop.

Facebook and Twitter see these apps as "parasite" apps that feed off the companies' audiences, channelling eyeballs away from them. The third-party apps have built complete business models around the use of a particular social network and would not be able to survive alone.

App appeal

Arthur Goldstuck, MD of World Wide Worx, says the giants' latest offerings are partially because they want "to stamp out competition". He adds these moves also indicate the social media networks are evolving, and filling in the gaps that other, third-party, apps were seeking to capitalise on. "Most of these [third-party] apps should expect at some stage to disintermediate."

Retroviral MD Mike Sharman notes the networks are targeting early disrupters in their space, but instead of buying them out, are now creating their own apps so they can gain mass appeal before the newcomers grow market share.

"When a disrupter enters the market, you either buy it out or launch a competitor. It is a timing thing and to launch their own, they need to get in early before the disrupter has mass appeal."

Facebook bought Instagram for $1 billion in 2012 after trying unsuccessfully to launch its own photo sharing app, Facebook Camera. The company then bought WhatsApp for $19 billion after noticing its own Facebook Messenger was not as popular as the instant messaging service.

Facebook and Twitter's international growth. (Source: Statista.com)
Facebook and Twitter's international growth. (Source: Statista.com)

Twitter acquired Tweetdeck for $40 million in 2011 and video sharing app Vine for $970 million in 2013.

Makes sense

"It is more economical for brands to develop their own apps, because when you buy a network, you pay a premium," says Sharman. "The Instagram example illustrates that: $1 billion for a network that had no business model. However, you do get access to the already established user base when you purchase a network, obviously."

Facebook currently has 1.4 billion users globally, of which 11.8 million are in SA, and it has shown consistent growth over the past three years. Twitter has reached 280 million global users - from 140 million in 2012, of which 6.6 million of its current users are local.

Sharman notes, since Twitter has gone public, it has had to concentrate on monetising its offerings. He explains Facebook's advertising model is a lot smoother than Twitter's.

Explaining the difference between the two network advertising models, Sharman says: "The ease of ad creation and the ability to ad admins and ad managers to fan pages on Facebook is a simpler process than what is available on Twitter. I have to give you my password if I want you to promote my tweets. It's not a secure method."

Facebook and Twitter's local growth. (Source: World Wide Worx)
Facebook and Twitter's local growth. (Source: World Wide Worx)

Last year, Facebook turned over $12.5 billion, a 58% increase on the $7.9 billion it pulled in the year before. Its earnings - on a Generally Accepted Accounting Principles (GAAP) basis - also increased dramatically, from $1.5 billion to $2.9 billion.

Facebook, which listed to much acclaim in May 2012, also reported daily active users of 890 million on average in December, an 18% year-on-year gain.

Twitter, meanwhile, is pulling in revenue, but not showing a profit. Last year, its top line gained 111% to $1.4 billion, but its GAAP loss was $578 million, an improvement on the $645 million it lost the year before.

The micro-blogging site, which made its debut on the New York Stock Exchange in November 2013, saw average monthly active users increase 20% year-on-year in the fourth quarter, to 288 million.

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