Photogs: Latest Cash Cows of Social Media Giants

Palwasha is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

As Twitter gears up for its IPO, expected in 2013, competition will likely get fierce in the social media space. Another company will come under market scrutiny as it joins the race to getting investor dollars. However, the biggest competitor in this space, Facebook (NASDAQ: FB), which is still in its post-IPO nascent phase, can't let a rival already take its place now can it?

Arguable yet somewhat true, Twitter has a more serious audience of grown-ups than Facebook. Twitterati typically discusses news--politics, sports, celebrities, humanitarian issues, etc. Its simple format and wide popularity has led it to have its own tv-ratings. Facebook on the other hand mostly has a younger user base, looking for fun and connecting with family and friends or local businesses. Despite an overall difference in format and target audience, both essentially compete in the same space, a.k.a. the social media industry.

With the growing shift to smartphones, the biggest criticism Facebook received was its lack of mobile-monetization. Twitter on the other hand was able to achieve it before Facebook. As the war between the two aggravated, both tried to combat each other's growing stronghold--a trailer of which was seen when Facebook bought the photo-editing/sharing application Instagram, which has now become a bone of contention between the two. Both wanted to buy it but Facebook made away with the deal, after which Facebook disabled photo-sharing from Instagram to Twitter. To this, Twitter responded by adding Instagram-like features to its own app. It remains to be seen if Twitter's IPO would be a Facebook-like debacle or a hit; however, rivalry between the two will continue.

The question is, why is having a photo-sharing application so important to the two peers? Because this is how they plan to partially make money. Facebook is currently the biggest online library of photos. It has allowed hundreds of thousands of amateurs, professionals and hobbyists around the globe to display their photography for free, receiving appreciation and recognition like never before.

However, as they say, when the service is free, you're actually the product being sold. Facebook didn't pay a billion dollars to Instagram for nothing. The idea was obviously to eventually monetize this service and stop letting rivals benefit from it. But as Instagram announced a change in its policy earlier that (incorrectly) translated as, 'your photos will appear in ad banners,' the internet resounded with negative comments. Twitter flooded with tweets of Instagram subscribers who, both implicitly and explicitly, threatened to abandon the app in wake of the changed user policy. Some celebrities and even National Geographic became party to this threatened boycott. Whether it was the poorly written policy statement or audience's misunderstanding, Instagram co-founder Kevin Systrom had to write a clarification and retract/rephrase the the language of the policy.  

Although he clarified the wrong perception, Systrom did explicitly mention in his blog post that Instagram is meant to be a business. Monetizing the service by allowing third parties (other businesses) to connect with users via user-directed ads is one way to do business. Another could be selling photos and photography products and services like Shutterfly. Whether Facebook would venture into that sector is uncertain at the moment, but what's certain is the millions of current Insta-users that have now gotten added to Facebook traffic. 

Yahoo's CEO Marissa Mayer couldn't have overlooked this 'photo sharing adds traffic' factor which is why she didn't take time to revamp Yahoo's photo-editing/sharing app Flickr. Google (NASDAQ: GOOG), which is always looking for ways to make money from changing trends, has also jumped onto this new opportunity. Take Google's acquisition of Instagram competitor, Snapseed, as a proof. Google's social media, Google+, also became more popular amongst photogs when it allowed them to upload high quality photos with up to 2048 pixels long before Facebook, which upgraded to that size only last year. Google, Facebook and Shutterfly are also a part of the consortium, along with Apple, to which Kodak has recently sold its digital imaging patents post its bankruptcy. 

As competition grows, Facebook needs to weigh the trade-off between retaining users and making money. When biggies like Google and Yahoo! are now providing equally good substitutes, Facebook can not risk losing a valuable user-base at the expense of its lawyers' misleading legal jargon--expecially when the stock is finally starting to regain some lost buyer interest.

PalwashaS has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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