Social media giants are pivoting away from social commerce to refocus on advertising to drive revenue growth

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Many of the major social media platforms invested heavily in the social commerce sector following a global pandemic-induced spike in online sales. However, the decline in consumer interest to buy from social media platforms and the overall drop in revenue has resulted in social media giants pivoting away from social commerce to refocus on advertising to drive revenue growth.  For instance,

• In September 2022, Instagram, the Meta-owned social media platform, announced that it will pivot away from social commerce initiatives to focus more on efforts that drive advertising revenue. This announcement comes after Meta reported its first-ever year-over-year quarterly revenue decline. Notably, the average price per ad for the firm declined 14% in Q2 after declining 8% in Q1 2022.

This development – the shift from social commerce to focus on advertising revenue – is a significant pivot in the strategy for Meta, which has spent the last two years prioritizing e-commerce.

One of the biggest issues that forced Meta to reassess its strategy was the changes that Apple announced to its user privacy policy. Notably, in 2021, Apple announced significant changes to its user privacy policy which meant that people had more control over their data, resulting in opaqueness and complexity for advertisers. With Apple implementing these policies, advertisers were expected to be the biggest losers, and the earnings reported by Meta in Q2 2022 show a clear impact on advertisers.

In 2022, the changes in the user privacy policy by Apple are expected to cause US$10 billion losses to Meta. These issues have been further compounded by Facebook and Meta's decline in reputation due to misinformation and harmful content. All of these factors combined have led the firm to refocus its efforts on its strength, which is advertising.

• In addition to Instagram shuttering its Shopping page in favor of a less personalized and simpler version, Meta also announced its plan to phase out the live shopping feature on Facebook by October 2022.

While Instagram is expected to shift its focus away from social commerce, it will continue to offer direct shopping capabilities. However, the firm is looking at Reels, the short-form video feature on the platform, to achieve this over the next three to four years. Looking at the success achieved by TikTok in the short-form video space, Meta is aggressively pushing its Reels feature on Instagram and Facebook.

Notably, the growing TikTok prominence among advertisers globally is also one of the major reasons behind the decline in revenue reported by Meta in 2022. TikTok also announced three new ad formats for streamlining its social commerce solution, with the aim to simplify the entire process for digital marketers. Amid the growing competition in the space, YouTube has also announced a revenue-sharing model for its Shorts creators.

• In September 2022, YouTube announced that it will be sharing ad revenue, thereby allowing Shorts creators to earn from their content. This move is part of the firm's strategy to drive more creators to its platform worldwide. Shorts creators will now be eligible to enter into the YouTube Partner Program, thereby allowing them to earn 45% of the ad revenue from their videos.

While no other short-form video platform has been able to figure out an ad-sharing revenue model yet, YouTube announced that all the revenue from the Shorts ads will be pooled together and will get shared with creators. The sharing of ad revenue means that YouTube Shorts will become the biggest competitor for TikTok going forward.

For Meta, the refocus on ad business means that the firm is betting on initiatives that can deliver results and while cutting down on those which cannot. Consequently, rather than focusing on social commerce sales to drive revenue, Meta is now shifting its focus on how social commerce can increase its ad revenue and drive business growth again.

To know more and gain a deeper understanding of the social commerce market in the United States, click here.