Why the so­cial me­dia small fry find it so hard to grow into big fish

The Observer - - BUSINESS -

Noth­ing stands still for long in the fast-mov­ing world of so­cial me­dia. Just ask Twit­ter, or Snap, owner of Snapchat. Once upon a time – only eight months ago in the case of Snap – these were musthave in­vest­ments at flota­tion.

The in­vest­ment bankers whipped up the ex­cite­ment. The world agreed that the val­u­a­tions looked rich but, hey, this was a chance to own a slice of a busi­ness that could be the next Face­book or Google. The shares flew out of the traps. Snap, priced a $17 a pop, hit $27 al­most im­me­di­ately. Twit­ter, whose IPO in late 2013 was pitched at $26, reached $69 at the start of 2014.

Look at them now. Snap has drifted close to $12 af­ter yet more dis­ap­point­ing fig­ures. New users are ar­riv­ing at a “lower rate than we would have liked”, con­ceded co-founder Evan Spiegel.

Over at Twit­ter, the shares have re­cov­ered ground since lows this sum­mer but are still below the IPO price, at $20. And it, too, is try­ing new tricks. The orig­i­nal 140-char­ac­ter limit on tweets is be­ing in­creased to 280, in­fu­ri­at­ing some users and pleas­ing oth­ers.

If there’s a com­mon ex­pla­na­tion for their woes, it’s that Snap and Twit­ter are cor­po­rate min­nows with niche prod­ucts com­pared with Face­book and Google. Ad­ver­tis­ers fol­low eye­balls re­li­giously, and the ar­rival of au­to­ma­tion to sell ad­ver­tis­ing re­in­forces the process and drives rate down.

It’s easy to for­get just how small Snap is. A daily av­er­age user base of 178 mil­lion sounds enor­mous un­til you see quar­terly rev­enues of just $208m. Net losses tripled to $443m in the lat­est pe­riod. At least rev­enue is still grow­ing at Snap: for Twit­ter, third-quar­ter rev­enues were down 4% to $590m. On the other hand, the com­pany is at least close to mak­ing a profit, un­like Snap.

It all feels like splash­ing around in the shal­lows while Face­book makes the so­cial me­dia waves. Twit­ter has 330 mil­lion monthly av­er­age users, whereas Face­book has 2 bil­lion. In­vestors are be­lat­edly get­ting the mes­sage: some­times Go­liath wins.

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