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(Bloomberg) — As Meta Platforms Inc. pursues In an expensive and unproven metaverse strategy, success depends in part on Instagram being able to pay the bills.
Instagram is a major growth driver for the company, with 2 billion monthly active users worldwide, closing in on the 2.96 billion that use Meta’s Facebook. Meta’s stock is down more than 70% this year, with investors unsure about two big bets. There is a long-term investment in the metaverse, building hardware and software for the virtual reality internet of the future. And in the near future, there is a project to improve the social media company’s comment algorithm, to better highlight comments from people you don’t know – especially in Videos , the video format that Instagram is taking over.
More revenue for Reels depends on advertisers being comfortable with the format, encouraging creators to share there and improving recommendations, said Adam Mosseri, CEO. of Instagram, in an interview. As time goes on, investors will become less patient with dollars going into the metaverse. And Instagram is moving “a lot faster,” Mosseri said. “I’m trying to balance that momentum and make sure we don’t make a mistake by pushing too hard or too fast.”
Instagram is locked in a battle for relevance between current social media users and those of the next generation. The app is relying on its short-form video feature, Reels, as a way to get people to spend more time on the app, a nod to Bytedance Ltd.’s TikTok, which popularized the format. Instagram’s move to stay relevant to online tastes is important for maintaining user growth and encouraging marketers to spend on the platform, even though the numbers are dwindling. trading budget, according to James Lee, director of Mizuho Securities.
“Instagram, right now, is probably a bigger strategic asset to Meta” than the rest of its family of apps, Lee said. The number of users on Meta’s legacy Facebook app has grown the most in the past 18 months, while revenue per user has fallen to its lowest level in six quarters. .
But waiting to see if Instagram’s experiment pays off isn’t good for investors. Although CEO Mark Zuckerberg said that Reels will start contributing significantly to revenue in 12 to 18 months, it is now focusing on other areas of Facebook and Instagram that will generate more revenue. – an opportunity cost of over $500 million in the past, Meta has invested heavily in experimenting with virtual reality and artificial intelligence. The stock has lost nearly a third of its value since the report and has become the second-worst performer in the Nasdaq 100 this year.
Still, the fact that Reels is so popular is dramatic, Mosseri said. Time spent watching videos, he explains, is “one point.” People on Instagram reshare Videos 1 billion times a day via direct messages, the company said last week. That’s a great metric for Instagram because it mixes new, short videos from people you don’t follow, with friendly posts.
The second Milestone, he said, is to remove Reels ads so that money can be quickly transferred to other areas that marketers can spend on the app. “We’ve reached the first level – we’re doing well but we haven’t reached the second level yet.”
Instagram is moving away from only showing photos and videos from your friends and the accounts they follow, to what the algorithm selects and what it collects for the needs of the user. people. A significant investment in specifying artificial intelligence tools to achieve this is a work in progress and the technical infrastructure to enable it. Much of the growth expected in additional capital spending across the Meta next year will go to data centers and equipment.
“The proprietary system that tries to publish what we call photos and videos from sources from you, accounts that you don’t even have, is a different technical problem than photos and videos from accounts you’ve followed,” Mosseri said. “I’m encouraged by the progress over the last six months, but I think there’s still a lot of room for growth.”
To improve that ranking system, it will not only help to capture the attention of Instagram users – it will help to inform the advertising agencies. Meta is trying to find new ways to target users with relevant promotions that follow the privacy rules from Apple Inc. which made it more difficult to collect user data on iPhones.
Some of Instagram’s ways to increase relevance also require attracting the best talent to its platform. The company is still trying to win over fans and professional developers by offering more ways to make money, such as selling NFTs or subscribing to special projects.
These features were announced at an event in Los Angeles on Wednesday, with social media stars in attendance. The historic Lombardi Victorian-style mansion was transformed into a playground for video production. Employees with “Content Crew” T-shirts shot the videos in a variety of backgrounds, including a basketball court painted in Instagram colors, and walls framed by large speakers.
“If they can fix the core business and turn it around – the IG reels are making money and they can maintain the relationship – I think a lot of investors will feel better about the investment metaverse,” Lee said. “If they don’t fix it, then you know there’s a bigger issue going down.”
©2022 Bloomberg LP
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