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On October 27th, Meta’s shareholders lost another 25% of their value when the stock plunged to $97, its lowest since 2016. Meta has lost almost half a trillion dollars of its valuation since the beginning of 2022. There are a lot of factors that are going against Meta, including Metaverse expenditure on Reality labs, Apple Privacy issues, and challenges from TikTok/YouTube Shorts.

In part 1 of this series, I focused on Meta’s problem as a Metaverse company. In that blog, I concluded Metaverse vision set by Mark Zuckerburg is not the vision world is looking forward to. Metaverse, in my opinion, will be limited to gamification. Such fields will be limited to video games, education, entertainment, business modeling, etc.

In this blog, I will focus on Instagram vs TikTok vs YouTube Shorts. Within that my comparison is only focused on Reels. We all know Instagram is also a photo and video creation platform, but Reels are the most watched and forward way to entertain users. According to the WSJ report:

Meta has said that Reels, which was launched in the U.S. in August 2020, accounts for a fifth of the time people spend on Instagram

So let’s get to it.

TikTok winning the User Acquisition and Engagement War: Instagram vs TikTok vs YouTube

Creators are customers of social media who are responsible for putting up content. They may range from an unknown guy sitting in his living room posting about assembling furniture to a celebrity who has done hundreds of movies and TV shows.

The Creator economy is important for social media companies. You want as many creators as possible. This drives the content strategy and attracts more consumers as the content increases. Think of it from the long-tail effect (I wrote about Long Tail here). More content means more viewers.

Creators become happy only when their content is liked and shared by consumers. It’s the motivation factor. More likes or shares mean more virality for the creator. Considering these factors, TikTok is winning the battle with Instagram. According to an internal Meta report reviewed and analyzed by WSJ.

The document, titled “Creators x Reels State of the Union 2022,” was published internally in August. It said that Reels engagement had been falling—down 13.6% over the previous four weeks—and that “most Reels users have no engagement whatsoever.”

One reason is that Instagram has struggled to recruit people to make content. Roughly 11 million creators are on the platform in the U.S., but only about 2.3 million of them, or 20.7%, post on that platform each month, the document said.

The reason creators are moving to platforms outside of Instagram is the views. The same content has a much higher probability of going viral on TikTok or YouTube Shorts compared to Instagram. And all of this has to do with the algorithms each platform uses to operate. I created the image below to highlight the algorithms used by different social media companies to share reels.

Synopsis of the above image:

TikTok uses what is called “Universal Basic Distribution”. It allows TikTok to share every reel with random 100 users. If these users like the content, it is shared with 10x more users, and so on and so forth. YouTube on the other hand uses AI recommendations based on your likes and dislikes. It has a ton of data about your tastes and promotes videos that it feels will click with you.

Instagram on the other hand works based on your social graph. You have your friends, family, and celebrities you like and follow. It puts their content at the top of the user’s feed. When the content is created it send to your social circle and based on their reaction it reaches other folks. See the difference? TikTok and YouTube work towards making your content go viral. Whereas Instagram limits it to your circle.

So why can’t Instagram just follow suit and become like TikTok? Well, it tried and users pushed back.

👉👉 First look at this video from Adam Mosseri, CEO of Instagram.
(https://www.wsj.com/video/watch-instagram-head-adam-mosseri-responds-to-users-decrying-changes/1C571337-D33D-4D46-82CF-2FA7EDF0CC51.html)

Instagram has moved towards the model where it is rewarding creators or users who post more short videos including reels. It has also updated the algorithm that prioritizes reels over other content (like photos). But Instagram users are not fully ready for this change. From WSJ:

Ms. Jenner, 24, and Ms. Kardashian, 41, are the third- and seventh-most followed users on Instagram, according to Social Blade, a website that tracks follower counts. The sisters have built business empires in part by advertising their products directly to their followers on the platform.

That kind of influence gives them the power to sway markets, as Ms. Jenner did in 2018 when she said on Twitter that she didn’t use Snapchat anymore. Snap Inc.’s shares fell 6.1% after that, erasing $1.3 billion in market value in one day.

Meta’s shares slid 1.5% on Monday after Ms. Jenner and Ms. Kardashian shared their posts.

Instagram is winning the Ad Revenue War: Instagram vs YouTube vs TikTok

As the total time spent on social media has stagnated at around 150 mins per user per day (see chart below). It would be interesting to use this segment of the user group and understand how it is impacting the ad revenue and marketing budgets.

According to a research firm Insider Intelligence, more than 70% of Instagram’s audience is 25 years or older, compared with 56% for TikTok. This means at the moment Instagram users have more disposable income and hence provide better revenue opportunities for Insta and Advertisers. This is also visible from the influencer marketing spend on different social media platforms (see chart below)

At this point in time, this is what separates Meta from other reels or short video format platforms. The targeted ads based on the social graphs are more engaging and have a higher conversion rate. TikTok or YouTube is best for promoting the brand. Remember your Cable TV, there is an ad that is viewed by everyone who is watching that TV channel. It’s not targeted to anyone specific. Insider Intelligence principal analyst Jasmine Enberg said

TikTok is surging in popularity for influencer marketing, but it’s still nowhere near Instagram in terms of spending or marketer adoption. That’s in part due to the higher prices Instagram creators charge for content, but also because of its wide array of content formats, most of which are now shoppable. Still, Instagram is trying to be more like TikTok so that it can attract smaller creators, which TikTok is known for. That’s key for Instagram to retain its lead in the influencer marketing space, especially as many creators on TikTok now boast follower counts that rival or surpass those on Instagram and YouTube.

Conclusion

I believe Instagram’s social graph is a key differentiator as to how brands select social media platforms for marketing and advertising. See the chart below.

The point is Instagram knows the future is reels and videos. At the end of the day, you are not only competing with TikTok but also for users’ time. There is clear evidence that reels are engaging and they keep the users on for more time on the platform. Social Media started with friends and family and has slowly become a creator’s platform.

TikTok is winning the creator war as it has the power to make anyone a star. This is contradictory to Instagram which already has stars and they want to continue to have the spotlight without sharing with others. Mega influencer celebs like the Kardashians could lose out if Instagram shifts its algorithm to feature a greater number of smaller creators.

My business sense suggests, TikTok is the way forward. You need more creators to attract users. More users mean more advertisers. Even though the ads may not be effectively placed but the reach is enormous. Over time you will collect enough data to enable the right ad placement even on platforms like TikTok.

Cheers