Is Threads Unravelling the Social Media Market Fabric?

While former British politician Joseph Chamberlain lamented that “in politics, there is no use in looking beyond the next fortnight,” modern counterparts Mark Zuckerberg and Elon Musk must now concur that a day is a long time in the digital marketplace.

On July 5, Zuckerberg’s Meta launched its text-sharing platform Threads in direct competition with Musk’s Twitter. Within four hours, Threads had logged 5 million users, with brands such as Billboard, HBO, NPR, and Netflix setting up accounts within minutes of launch. Three hours later, 10 million sign-ups had been reached. Less than a week later, it crossed the 100 million user mark potentially making it the fastest-diffusing internet app ever.

So what does this reveal about the competitive environment in which it is playing?

First, it illustrates that Twitter did not wield as much market power as conventionally thought. A large number of signed-up users may suggest numerical dominance of market share but says nothing about the extent to which the firm can exert market power to harm consumers. Such power derives from the ability of the firm to constrain its rivals’ actions in order to (unfairly) exert its dominant position at the expense of consumers. Threads has faced few (if any) barriers to entry in the US market and the more than 100 other countries in which the application is able to be downloaded.

Second, it underscores the power of consumers. Twitter cannot prevent any of its existing customers from signing up to Threads, as there is no requirement, explicit or implicit, that consumers must single-home (sign up to only one app) in the text app space. Consumers are signing up for Threads because the benefits of joining exceed any additional costs. This may be because Threads offers them utility not available on Twitter. And this benefit accrues even though signing up for Threads requires the user to first have an account with Instagram (i.e. Threads must be “purchased” in a bundle with Instagram). Indeed, having an Instagram account arguably makes Threads more appealing for new text app consumers than a new Twitter account, as it allows them to automatically link their Instagram followers to their Threads account (a cost saving). Yet, it would appear from registration numbers that both Instagram and non-Instagram users are finding the Threads offer compelling—that is, the benefits from the bundle exceed the additional costs of signing up for two apps for non-Instagram users.

Third, it reveals some major distinctions in the regulatory environments in which the apps operate, when one considers who is not signing up for Threads. So far, residents of the European Union have not been able to download or sign up to Threads, because of the identity of the firm offering the product. EU regulations constraining the activities of firms with large numbers of customers in any digital market space from utilizing their existing positions to enter adjacent market spaces currently prevent EU consumers from partaking in the benefits offered by Threads in the US and over 100 other countries.

This is because digital market regulation in the EU focuses first on firms rather than the markets in which they operate. Large firms with vast numbers of customers, and existing assets that could be leveraged into other markets face constraints in their activities, regardless of whether the actions they plan are of net benefit to consumers. While it is not beyond the realms of possibility that Threads may eventually be able to operate in Europe, first it must be subject to extensive (and expensive) inquiry and evaluation by regulatory authorities to assess its likely effects. On the one hand, if Threads does later prove to be harmful, EU consumers may have been spared some pain. But if it is net-beneficial, they bear the costs of benefits deferred until clearance is given. Ironically, this may mean that Twitter, while not the preferred text app in the rest of the world, receives a regulatory shield from competition provided by Threads in Europe while the inquiry proceeds.

On the face of it, it may be that bundling Instagram with Threads may give Meta a competitive advantage over a new text app provider with no market presence. But that very presence via Instagram allows Meta to offer a benefit to consumers not available to a new entrant. Depriving all consumers of benefits from the new app because it is provided by a current market participant, even for a short period may prove costly.

Because, as we have seen, digital market effects are measured in days, rather than the weeks, months, or even years required for regulatory inquiries.