This goes some way to explaining why a few large US companies have become dominant, with niche players focused on lucrative target markets, either by type of person or geography. The leading social networking site boasted 1.5 billion active monthly users in 2015, with a billion users in a single day.
Smartphones and particularly smartphone GPS allow companies to ‘track’ users and provide ever more targeted advertisements, just as internet browsing provokes a slew of related marketing material. In future, there may be another revenue stream from people willing to pay not to have to look at ads. As long as the annual fee for ad-blocking exceeds the ARPU, it makes sense for the provider, even though it looks like subscription by the back door.
The largest, most obvious hurdle is maintaining growth of active users and revenues – every quarter, investors scrutinise earnings reports for signs of faltering momentum. Some companies are diversifying revenue sources, for instance developing artificial intelligence around their services.
In common with other multinationals, prominent social media companies are increasingly under scrutiny for their tax affairs. Most have suffered data breaches and service outages, some multiple times. In some regions, censorship is an issue, while in others, policing the content is a more pressing concern. All of these areas are potentially costly, whether financially or in terms of reputational risk.
Frances Hudson is global thematic strategist at Standard Life Investments
