The Metaverse Is Hanging By A Thread

In an era where social media has become a dominant force, Meta (formerly known as Facebook) continues to explore new avenues to expand its presence and maintain its competitive edge. With the introduction of Threads, the newest product in its portfolio, Meta aims to be the one and only company under which every social interaction happens online.

Social networks traditionally operate on a zero-sum principle, where user attention and engagement are limited resources. The more time spent on one network, the less is available for others. With the scale of social networks, even a one per cent drop in user retention leads to losses of millions of dollars, as fewer users engaging on your platform means lesser revenues through fewer impressions on ads - as we saw when Facebook’s DAU fell for the first time. Meta recognizes this inherent risk and competition, and so seeks to provide users with tailored experiences to win them (and get their data) onto their platform. 

Strategic Initiative Behind Threads

Meta already has a grapple-hold on the social media space. With its trifecta index of Facebook, Instagram, and WhatsApp, Meta owns 77 per cent of all social media traffic, with an estimated 3.7 billion people using at least one Meta product. However, it finds itself facing a wall. While having roughly 45 per cent of the world’s population on your platform is certainly impressive, it brings up the issue of growth. Meta cannot capture a larger share of the market unless it expands what it can offer to the people still not on-board. 

Meta’s goal, therefore, is to have a robust portfolio so that almost everyone has at least one platform they use regularly. WhatsApp has always been primarily a one-to-one or one-to-few messaging app where users can communicate with their friends and acquaintances. Facebook is the “closed” and private circle of friends where long-term life updates are shared. Instagram is a visuals-first app where users can showcase more mundane moments of their lives through posts or stories, again to their existing friends but in a necessarily visual format. 

As we can see, most of the current portfolio is for private circles around people you already know. It is difficult to see the contents of mutual friends and discover other people’s thoughts and ideas. As such, Threads was primarily launched to “plug-in” this flaw in the Meta portfolio. Using the Twitter formula of open-forum communication, Meta would be able to provide users who wanted such fast-paced and open conversations a place to have it on their platform. As such, Threads is very complementary to the Meta ecosystem.

Threads’ Combustive Popularity & Competition
Within a week of launch, Threads already has 90 million users signed-up for the platform. This explosive growth is not a surprise, however. Meta launched a pop-up notification on Instagram (an app with over one billion MAU) for Threads, and thus mass-imported users from Instagram to Threads. Credit where it’s due, Meta smartly minimized the friction to open a Threads account. Users could create the account and follow all their Instagram friends in just two clicks, shortening the funnel of acquisition further.

This makes Threads one of the few real competitors to Twitter. The problem faced by other social networks, like Bluesky or Mastodon, is gaining a critical mass of users for network effects to take place. Using the connection with Instagram, Threads was able to circumvent this issue. Meta also utilizes the principle of least resistance - your Instagram and Threads accounts are smartly linked to each other in the other app with a single button, smoothly moving your session from Instagram to Threads seamlessly, again increasing time spent on the platform (and thus playing the zero-sum game). Another particularly artful move by Threads is the capacity to post a thread directly on Twitter with a link to Threads, further increasing “user leakage” from Twitter to Threads.

Threads also launched with immaculate timing. Elon Musk’s mismanagement of Twitter has led to a loss of good-will for the site. As Musk has fired 80% of Twitter’s staff, the platform has started to be less reliable and more glitchy (in fact, it DDOS attacked itself in an insane comedy of errors). This has led to users churning and looking for alternatives. The further introduction of rate-limiting, which severely restricts users from engaging with Twitter unless they pay up ₹900/month for a subscription, will push away even more users. Chris Cox, Chief Product Officer at Meta, states that users will flock to a Twitter alternative if it is “sanely run.” Musk’s random experimentation on Twitter and unhinged tweets have repelled advertisers in particular, who no longer see the platform as “brand-safe”, and led to a 28 per cent drop in Twitter’s revenue. Furthermore, Elon Musk is the largest celebrity in the world. Zuckerberg’s acceptance of the cage-match between them may have been a savvy move to capitalize on Musk’s status and implicitly drive attention towards Zuckerberg through celebrity news outlets and internet memes.

Meta has devoted Threads to the Fediverse, a decentralised social network. The idea of the Fediverse is to connect multiple social platforms via user actions - for example, liking a photo on Instagram through your Twitter feed would be theoretically possible. However, it is unclear if Meta will commit to this promise. The Fediverse boosts the awareness and adoption of new social media disproportionately, but that is not a concern due to Threads' instant popularity. Threads is already the biggest player in the Fediverse (by far), which means exposing users to other platforms will mostly lead to churn with little hope of cross-pollination towards Threads. It is likely joining the Fediverse was a strategy to increase the discoverability of Threads and increase the user-generated content present in it, but there is little reason to go through with it now besides good PR (especially when it is unclear how the Fediverse will be monetised).

Monetization & Competitive Advantage
Zuckerberg has stated that they will not monetize Threads until it reaches 1 billion users. Considering Threads accounts cannot be deleted without also deleting the respective Instagram, it is unlikely the number of users will go down. With already 90 million users (without even launching in the EU), it is likely Threads will reach this benchmark soon.

It is likely that Threads will be monetized in the same way Instagram is - via ads and a “blue-tick” subscription fee. Other Meta monetisation models, like Facebook Marketplace and Facebook Dating, have failed so it’s likely Meta will stick to a winning formula here. Primarily because Threads’ revenue is undoubtedly another cushion for Zuckerberg to experiment with his “Metaverse” initiative, a risky bet on AR/VR which aims to blend the digital and physical world. 

However, a new model of monetization can be leveraged for Threads’ open and text-driven nature. With the onset of ChatGPT and generative AI, a premium is placed on text corpuses to train large language models. This is the reason Reddit and Twitter have tried changing their API rules in a rush to monetize their treasure trove of words and sentences. Before Threads, Meta never had this large dump of text - as WhatsApp and Messenger are end-to-end encrypted (preventing Meta from reading messages) and Facebook encourages smaller-form content. However, Threads is the perfect opportunity for Meta to delve into the realm of data scraping and utilizing it to either create their own language model or creating APIs for other businesses - diversifying its revenue stream. Furthermore, Meta can create a larger moat by combining Threads’ text data with Instagram’s visual data to have potentially the largest corpus of user data in the world.

What’s Next for Meta?
Meta’s long-term goal is to create the Metaverse, following a blue-ocean strategy of being the first to market with a social AR/VR platform merging online and offline social interactions. While ambitious, the project has yet to see any meaningful developments, launch roadmaps, or revenue models and is bleeding Meta $1 billion per month. The Metaverse also aims to be a platform for other apps, similar to how phone operating systems are platforms. Apple’s iOS privacy changes have lost Meta $10 billion in revenue, and so Metaverse is an attempt to escape from its grasp.

To sustain this, Meta is likely going for more traditional platforms to drive up revenue to fuel the Metaverse. If Twitter indeed falls because of Threads, the only other major social media untouched by Meta’s influence would be LinkedIn, a professional-focused social network. It is likely that Meta will try for this market next, although competing with Microsoft (which owns LinkedIn) and their moat of Microsoft Office and Teams data that props LinkedIn would be a more uphill battle than toppling Twitter.

A more “anonymous” version of social media, such as Reddit, is also prone to being replicated, as no such user experience exists in Meta’s current portfolio. Meta is not new to copying ideas - Instagram’s Stories and Reels were direct copies of their main competitors, Snapchat and TikTok respectively. Mimicking Twitter, Threads is just the newest product on that list.

The author is a product manager with years of experience in the AI & software industry, and a graduate from the Indian School of Business where he was awarded for academic excellence and leadership