MorningWord 11/30/15: On Mobile Social Apps & Services $AAPL

by Dan November 30, 2015 7:47 am • Commentary

Bear with me, this is a bit of a think piece.

Short form multi-media messaging appears to be the “killer app” of the mobile social web.  I have never found a use for Facebook’s core offering, and aside from a very small close network of family and friends on Instagram and occasional friend overseas on WhatsApp, I often wonder why all of their separate apps exist, not to mention WhatsApp which they bought last year for $22 billion, which is essentially an alternate version of their Messenger App.  This post is not really about Facebook, there is little dispute that they are dominating the mobile social web in terms of users, apps and as a destination for traditional ad dollars, but it’s more about who buys what next to compete with Facebook.

Over the weekend, a Business Insider reporter had an interesting article about about teen usage of social apps:

I just spent a day hanging out with teenagers — here are the apps they say are cool now.

Obviously the sample size of one 13 year old is a sparse, but it’s important to remember that this one individual is part of a SOCIAL NETWORK.  When I cross check some of the writer’s findings with that of my 12 year old daughter and her friends, I walk away with some similar conclusions.  The author describes:

Facebook is cool again. Facebook is essential for her social life. Mostly, she likes Facebook Messenger to talk to people whose phone numbers she might not have.

They can’t get enough of Snapchat. they use Snapchat as a messaging service to talk to friends, second only to Apple’s iMessage

VSCOcam > Instagram. We wrote an explainer about VSCO earlier this year, but it’s basically like an artsy version of Instagram with better filters.

Teens don’t care about Twitter. Unless they’re huge followers of bands like One Direction or 5 Seconds of Summer, which have huge followings on the platform. But don’t expect mainstream teens to contribute much to Twitter’s recently flat MAU growth.

They don’t just have one Instagram account. Some of their friends have several Instagram accounts: a general one, an “artsy” one for their “photography”

As stated above Facebook has created an ecosystem of mobile Apps, and the service looks very different in terms of usage than it did just 3 and half years ago when the company ipo’d (obviously there has been a massive shift to mobile from desktop).  Teens don’t use WhatsApp from what I can tell, but most that I see in NYC (which is an interesting demographic, think iPhone users) is that they actively use iMessage on their iPhones for group messaging and direct message & group chats on Instagram & Snapchat. VSCOcam is a thing with my daughter’s group, but I rarely hear much else about it. And yes they do have multiple Instagram accounts.  So the question here is what is the return on investment if a mobile ad is targeting the same user more than once on different accounts? I suspect there is a lot of that going on.

SnapChat kills among my kid’s peeps, but of course from what I can tell I see few ways as of now where they can monetize teenage usage aside from in app purchases of emojis and crap.

Lastly Twitter. Whoah is it DOA for teens.  For a company that has had stagnant user growth, one would think they would be using their nearly $3.5 billion cash hoard to buy fledging mobile apps like they did early this year with Periscope (for less than $100 million) and throw a ton of stuff up against the wall and see if any stick like Facebook did with Instagram back in 2012 for a mere $1 billion.  Maybe Twitter should buy Flipagram, recently profiled in Forbes (here).

So despite the sample here being just one 12 year girl, and one 13 year old girl I don’t know, these trends with the youths are worth keeping an eye on.

My Take-away, aside from the fact that Twitter needs to find something that the kids will think is cool (causing them to go to Twitter daily), Snapchat is the Bomb, Facebook’s App ecosystem seems oddly fragmented, WhatsApp will likely be monetized through peer to peer payments as opposed to ads, and the kids won’t put up with too many ads in their short form messaging apps, they will merely move on to the next thing (that Facebook will eventually buy).

And that brings me to Apple. In January of this year the company announced that it sold its one billionth iOS device, wow, a massive mobile computing ecosystem worldwide, not far behind that of far lesser priced Android. It’s just odd to me that Apple has not set its sights on creating a cross platform mobile social ecosystem with some of its most popular apps/services that are locked on iOS.  There is a model for Apple to branch outside iOS devices, as the company recently introduced a version of their subscription Music service for Android, the first time they have done this since the App Store came into existence in 2008 to compete with Amazon Music, Pandora, Spotify etc etc.

For instance, how about introducing the following to Android and Windows App Stores:

  • iTunes to compete with every download and music/video management services (Samsung, Amazon, Netflix, Google etc etc)
  • turning iMessage into a formidable WhatsApp competitor.
  • re-jiggering Facetime, to not only compete with Microsoft’s Skype, but also make short form disposable video messaging to compete with SnapChat.
  • Create a far more social and sharing interface for Photos, allowing users to have an alternative sharing network similar to Instagram.
  • Offer iCloud Mail/Calendars to compete with GMail.
  • iCloud Drive to compete with Amazon Cloud Drive.
  • Augmented Maps to compete with Google Maps, Open Table, Yelp, Zagats & Zillow
  • Find My Friends to compete with FourSquare (not sure its still a thing though).
  • Siri to compete with Google’s voice search
  • In their September iOS 9 update the company introduced an App called News, which was an obvious attempt to replicate Flipboard‘s news app, it just seems odd to me that they would stop with Music and News.
  • Recently it was rumored that Apple is looking into creating a peer to peer payments system to leverage off of their ePayments offering Pay for iPhone users (which should also be on Android) which would compete with PayPal’s Venmo.

I guess my point is simple.  Investors have assigned a $300 billion market capitalization to Facebook, a company that relies almost solely on advertising revenues for its expected $17.5 billion in sales this year and $24 billion next. I suspect the company hopes to broaden out revenue contribution from epayments and virtual reality (they bought Oculus for $2 billion last year, adding to consensus expectations of 38% sales increase year over year.  Trades 37x expected earnings and 12x expected sales.)

Google (Alphabet) has a $523 billion market cap, with expected sales next year of $70 billion, growing 17% year over year, and yep, nearly all advertising.  Trades 22.5x expected earnings, and 7.5x sales.

In comparison, Apple sports a $650 billion market cap with expected sales of $245 billion this fiscal year, growing just 5%.  It trades just 12x expected earnings and 2.7x sales.

Yeah yeah, it’s an apples to oranges comparison, especially when you consider the growth rates, but if I were Tim Cook, given the saturation of the high-end smartphone market, the declining growth of iPad and the tepid response to the Watch, Apps and Services, as I have and many others have opined in the past, is the next opportunity for double digit revenue growth for the company.  I get it, the integration of Apple’s software to its hardware makes it unique to Android, but I am not sure it outweighs the potential monetization outside its current installed hardware base. It’s my sense that a formidable multi-platform app ecosystem could serve as a sort of trojan horse for Apple as users on Android may accelerate the trend of “switching” to Apple’s ecosystem if they have access to their apps and services. Additionally, Facebook has proven an ability to monetize many of these apps and services, or have paid very high premiums on the belief they can do so in the future.  Google generates billions of dollars a year advertising on iOS devices. If Apple were to tap into their massive hardware ecosystem, and monetize their users with their unique services, then they should quickly buy Snapchat and Twitter and start building an App/social ecosystem for quickly evolving mobile landscape which is seeing less and less differentiation on the hardware front.