Last month, many industry titans, such as Walt Disney, Apple, IBM and Comcast, abruptly halted their advertisements on the X platform. This abrupt move was triggered by Elon Musk‘s controversial antisemitic posts and comments on the X platform, which stirred considerable unrest on the platform. In response to this fallout, a significant number of major US firms, including Walt Disney and Comcast, have strategically increased their advertising budgets on Instagram and Snapchat, according to a Sensor Tower report.
Disney’s commitment was particularly pronounced, with an impressive 40% surge in ad spending on Instagram, while Comcast raised its spending by about 6% during the two weeks following November 20. During the same period, Paramount, a media and Entertainment giant, tripled its spending on Snapchat.
The advertising expenditures of the world’s major companies on Instagram and other social media platforms have presented a significant challenge for Elon Musk. Despite Musk apologising for sharing the controversial post, the aftermath has left a lasting impact on advertiser confidence. Musk’s public outburst, particularly directing profanities towards specific advertisers like Bob Iger, the Disney CEO, further strained relationships.
Commenting on the situation, Felipe Thomaz, Associate Professor of Marketing at the University of Oxford, remarked, “Brands exhibit discernment in making these decisions, and any apprehensions regarding brand safety will prompt a strategic reallocation of budgets, steering away from platforms entangled in controversy.”
Thomaz’s observation highlights the strategic acumen of brands in safeguarding their image and avoiding association with platforms facing issues that could compromise brand integrity or safety.
Elon Musk’s acquisition of the X platform in October 2022 has sparked a notable shift in advertisers’ sentiments. Sensor Tower’s data reveal that 51 out of the top 100 U.S. advertisers on X, formerly Twitter, have halted their advertising spending as of November 2023. This substantial withdrawal of advertising support indicates a significant loss of confidence among major advertisers in the platform under Musk’s ownership.
The financial implications for X are significant, with projections pointing to a 40% YoY drop in ad revenue, reaching approximately $2.5 billion by the close of 2023.
Compounding the challenges, the post-acquisition period has witnessed a 16% decline in monthly active users on X. Despite this downturn, a positive note is in the form of stable user engagement. Amidst the adversities faced by the platform, this resilient engagement among its existing user base signifies a crucial aspect of stability in maintaining audience interaction.
One might wonder why social media platforms like Instagram, TikTok and Snapchat are attracting advertisers, while X, despite its niche appeal to tech professionals, business leaders, and investors, is witnessing a substantial decline in ad revenue. Is Elon Musk’s controversial online presence the sole culprit, or is there more to the story?
Decoding the Allure
One compelling reason could be the magnetic allure of Instagram and Snapchat for the younger demographic – teens and young adults – who consistently dedicate 2-3 hours daily to content consumption. Advertisers find these platforms particularly lucrative, especially during peak seasons like holidays and the new year, where ad engagement rates skyrocket. The trend of users increasingly opting for direct shopping experiences on social media platforms further amplifies the allure for advertisers.
So, what’s the secret sauce behind this magnetic attraction?
This is primarily attributed to changing user preferences, with people increasingly prioritizing visual content, such as photos and videos, over text-based content. As the digital landscape continues to evolve, the preference for visually engaging content becomes a pivotal factor influencing the choices of both users and advertisers alike.
Another reason for advertisers leaving the X platform is the good CAC (customer acquisition cost) and ROAS (return on advertising spend) metrics on other social media platforms. In a CNN interview, Kevin O’Leary, Shark Tank investor and entrepreneur, disclosed that his decision to leave X advertising was unrelated to Musk’s controversies, emphasizing his focus on placing investments where they yield customer returns.
Walmart also stopped advertising on X, clarifying that “this has nothing to do with Musk’s statements on or off the platform,” and that “we’ve simply decreased spend over time to align with performance.” A Walmart spokesperson also informed Reuters that the company is not advertising on X, having found other platforms more effective in reaching their customer base.
With advertisers redirecting their attention from X to Instagram, Elon Musk faces the challenge of enticing users and advertisers to sustain significant revenue. The subscription business on X emerges as a viable strategy to generate revenue from verified users, providing them with exclusive benefits compared to non-verified users, including a share in ad revenue. This approach aims to create a compelling value proposition to attract and retain a dedicated user base while fostering advertiser interest in the platform.
