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 1% drop in user retention leads to losses of millions of dollars, as fewer users engaging on your platform means lesser revenues via 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% 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% 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 and Facebook cater primarily to a “closed” and private group of friends and acquaintances. Instagram is more flexible, but again, friend circles are rigid and discoverability is low. Furthermore, Instagram's Reels (the most "open" part of the app) have a visuals-first necessity, forming a high barrier of creation, reducing the quantity of content.

As we can see, most of the current portfolio is for private groups 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 Meta's 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. This format also drives virality and boosts engagement, which could be a reason why Twitter, with only 400M users , is thriving where Facebook, with nearly 3B users , is failing. As such, Threads is very complementary to the Meta ecosystem.

Combustive Popularity & Competition

Within a week of launch, Threads already has 100 million users signed-up . This explosive growth is not a surprise. Meta launched a pop-up notification on Instagram (an app with over 1 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. Other social networks, like Bluesky or Mastodon, face the problem of momentum - 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. Another particularly cunning 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. Most users open these networks for finding engaging content and consider them interchangeable substitutes. As more content is generated on Threads, more the reason for users to open it before Twitter, and eventually completely replace it with 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 $8/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.” This hypothesis seems to prove true, as Twitter’s traffic “is tanking” since the launch of Threads. 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% 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 an opportunistic 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 decentralized 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 that 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 monetized ).

Monetization & Competitive Advantage

Zuckerberg has stated that he will not monetize Threads until it reaches 1 billion users . Considering Threads accounts cannot be deleted without also deleting their respective Instagrams , it is unlikely the number of users will go down. However, it should be noted that even in Twitter’s peak, it only capped at 400 million users, hinting at a potential glass ceiling to this format of social media. But with already 100 million users (without even launching in the EU ) and proper funnelling from other Meta platforms, it is possible Threads will reach this benchmark.

Threads will likely be monetized in the same way Instagram is - via ads and a “blue-tick” subscription fee. Other Meta monetization models, like Facebook Marketplace and Facebook Dating, have failed so it’s likely Meta will stick to a winning formula here. However, this is contingent on strong user engagement and retention - since Threads has been out for less than a week so far, its D7 and D30 retention data is unknown. Furthermore, 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 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 an 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 mobile 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.?