*This is not financial advice. All content should be considered opinionated. We are not responsible for any of your gains and losses. I am neither a licensed nor registered financial expert. Please see a financial advisor before making investment decisions.

*This is not financial advice. All content should be considered opinionated. We are not responsible for any of your gains and losses. I am neither a licensed nor registered financial expert. Please see a financial advisor before making investment decisions.

Here's the podcast episode for this post

Social media is addictive. With the majority of people from all demographics having a social media account and spending at least an hour or more on it each day, social media has become a part of our daily routine. People spend hours on it scrolling through people's posts and going down rabbit holes. Usage for social media has skyrocketed during the pandemic as people can check social media while they're working at home. 

Photo by Merakist on Unsplash

Social media marketing was the first step of monetization for social media platforms. With the rise of social media came the rise of social media marketing. Many companies are spending billions of dollars in advertising on Facebook, Instagram, Snapchat, Pinterest, Linkedin, Twitter, Tik Tok, etc. 

Then came the set up of stores and marketplaces on social media profiles. By allowing people to buy a product directly on a social media platform, social media platforms can become centers of online retail. Influencers and brands can list their products for sale on the platform and the platform takes a fee from the sale. Plus, having an online marketplace encourages more and more people to spend money on social media ads. 

The Thesis

With social media ads being the biggest source of revenue for many of these social media companies, platforms are looking for ways to encourage other people, who are less popular on social media, to spend money on advertising. To picture the situation, imagine 5% of Instagram brands and influencers spending money on ads. 95% of Instagram brands and influencers aren't spending money on ads. To convert more of the 95% crowd as customers of ads, Instagram has decided to provide free analytics services as a way to encourage them to spend more money on ads. By showing them which posts have performed well and which haven't, Instagram is able to encourage users to spend money on ads to boost the performance of their underperforming post. 

During the Age of Influencers where many of the people that receive brand deals look like they're living their best lives, Instagram is encouraging people to treat their Instagram accounts like a business or a day job. By providing creators and business accounts for free, Instagram is making it easier for people to convert into accounts that give them access to buying social media ads and free analytical services. Like I mentioned in the previous paragraph, this move was made to encourage people to spend more money on social media advertising. 

The analytics not only provides users with data on how their posts are doing but also gives them demographic knowledge about their followers, helping them understand who their audience is. This will make it easier for them when creating social media ads because they'll know who to target. 

Plus, Instagram has made it easy for users to spend money to boost the performance of their posts by inserting the "boost now" or "promote" button on their posts. This lowers the barriers of buying social media ads, making it a lot easier for someone to buy ads. Most likely, it will encourage people to spend more money on advertising. 

Conclusion

Overall, by providing analytics services and reducing the barrier for influencers/businesses to pay for advertising, social media platforms are able to boost their ad revenue. This is what makes social media platforms bullish bets. 

While I've talked a lot about Instagram on this blogpost, this can be applicable to many other social media companies like Pinterest, LinkedIn, and Snapchat. In my opinion, I find Snapchat to be the least likely to follow a path that Instagram is doing. Snapchat doesn't seem like a place that can be easily monetized compared to Facebook and Instagram. Since LinkedIn, Twitter, and Pinterest follow a similar structure as Instagram and Facebook, they're more able to replicate their strategy. From my experience on Twitter and hearing from a variety of people that do social media marketing, Twitter ads are one of the worst-performing ads in the social media universe but for some, it was a great investment. 

If you were wondering about my opinions on the different social media platforms, I find Pinterest to be a monetization machine in the social media space. The place has higher conversion rates when it comes to advertising and the structure of it makes it a potentially new online marketplace. Some statistics have said that a big percentage of people that come on Pinterest usually buy something, which is shocking considering their large userbase. 

Regarding Twitter, I find the platform to have a lot more ways of monetization. Social media ads are the only way the company makes money from its users (besides data mining and selling). In the meantime, I don't see it as a massive monetization machine.

LinkedIn has the potential to give Microsoft immense riches because it has a monopoly on networking. Because their network is purely on professionalism, I see it as a big place of B2B marketing but not B2C marketing. Do I see them setting up their own online store? Highly unlikely and it's mostly because of the reasons why people go on LinkedIn. Most of the time, people go on LinkedIn to network and share ideas, not buy stuff.