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Big tech tumult is deeper than just losing advertising dollars

Over the past couple of weeks, the world of large technology platforms has seen major upheavals. While Twitter Inc. saw a long-awaited ownership shift, Inc., Meta Platforms Inc. and Alphabet Inc. witnessed significant challenges to revenue growth.

The tumult within platforms also comes at a time when business models are shifting, as is apparent from Alphabet seeing growth in its cloud business while Amazon grows its digital advertising business.

The Curious Case Of Meta
The case of Meta, which witnessed a decline in revenue, merits particular attention as its average revenue per user was lowest in two years, even as it anticipated another quarter of declining revenue.

The politics over Meta aside, there seems to be a cautionary tale on the road ahead for the social media platform that dominated attention spans and smartphone real estate over the past decade.

While the rapid decline in its market capitalisation has grabbed headlines for obvious reasons, there seems to be a fundamental personality difference between the way other technology majors have evolved and Meta.

Amazon is perhaps the best example of diversification along multiple dimensions from retail to e-commerce, from cloud computing to smart consumer devices, and from digital goods to video streaming.

The breadth of businesses Amazon has been able to develop, almost all of which are either commerce-based or subscription-based, stands in stark contrast to other platforms that offer consumer services for free and are predominantly dependent on advertising revenues.

Other attempts at diversification, such as its virtual currency initiative Libra and its plans to launch satellite internet, have also fallen by the wayside for a variety of reasons—ranging from regulatory concerns to viability. Even its express Wi-Fi service, popular in Africa, has seen a quiet winding earlier in 2022.

Interestingly though, the commerce ecosystem that has evolved in Africa around FreeBasics seems to contribute to Facebook’s popularity. Competitive moves by Apple Inc. to take a slice out of Meta’s revenues through its iOS AppStore policies have not helped either.

However, the biggest challenge for Meta seems to be a generational shift with Facebook and Instagram losing out younger users to TikTok, Discord and Twitch.

The political case being built in the U.S. for a ban on TikTok could have the intended effect of infusing life into Meta’s short video offerings, but clearly the platform has failed to figure out the secret sauce on how to engage the new generation users born in the early 2000s.

The hype around the metaverse has also not helped, with little clarity on viable business models that will spur both user growth and revenue.

On the contrary, it is the interactive gaming platforms that seem to have figured out how to engage the new generation digital users better.

With social gaming and closed peer groups, that are insulated from the politics of algorithms and the polarising debates over manipulating public opinion that have come to define Facebook and Twitter in recent times, these new-age platforms have marked a quiet growth and will likely define the future of the metaverse.

Digital regulations being shaped by different nations will likely accelerate this phenomenon, as legacy technology platforms get impacted the most and the public square that social media sought define becomes increasingly fragmented into tailored, specialised apps and platforms away from the political cacophony.

Billionaire Elon Musk’s acquisition of Twitter comes at this critical juncture, as the platform seeks to rethink its core advertisement revenue model by charging for premium services, such as verification, amongst other features.

While debate rages on the likely offtake of such a premium service and the price point at which it becomes viable, larger questions remain on Twitter as the public square where news breaks, politicians make public pronouncements and advocacy around issues happens.

Techno-nationalism could throw a further spanner in the wheels for the global technology platforms, as countries like India seek to boost home-grown platforms that are natively designed for local languages, while communication services like WhatsApp could further come under the regulatory ambit.

Evolution Of The Internet
The tumult within the technology platforms is a natural evolution from an era of relatively regulation-free, borderless internet to one where borders are beginning to matter in line with geopolitical shifts, and user behaviour is rapidly witnessing a generational shift.

Opaque algorithms and overarching content moderation powers will also fall by the wayside, with the recent amendments to the I.T. rules in India requiring transparency and accountability on the part of the platforms.

Viable business models of the future will likely be those that rely less on advertising and more on delivering tangible value at a reasonable price premium.

Artificial Intelligence, the secret sauce behind sticky and addictive consumption behaviour on apps and services, will be the differentiator between winners and losers, as datasets become fragmented and paywalls rise to create competitive barriers. Bloomberg

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