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Facebook's 'copycat' Reels video feature poses risks to beleaguered TikTok

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Facebook's 'copycat' Reels video feature poses risks to beleaguered TikTok

Facing an already uncertain future in the U.S., video-sharing app TikTok Inc. could soon lock horns with tech behemoth Facebook Inc.

Facebook-owned Instagram LLC recently unveiled a rival offering, Reels, that lets users record, edit and share 15-second multiclip videos on their own feeds as well as the broader Instagram platform. The timing of the Reels launch comes as TikTok faces pressure in Washington, including notably from U.S. President Donald Trump, who issued a pair of executive orders banning transactions involving TikTok and messaging app WeChat by American companies beginning 45 days after the order's release, or on Sept. 20. TikTok said it plans to challenge the ban in court.

Analysts say TikTok's mounting political woes presents Facebook with an opportunity to utilize its strong cash position and massive reach to steal share from TikTok, which is widely considered the leading video-sharing app among younger users.

Facebook has a long history of remaking products introduced by competitors and including similar features in its own offerings. Most notably, the company's Instagram unit in 2016 debuted Instagram Stories, a Snapchat-like feature in which photos disappear after 24 hours. Earlier this year, Facebook launched Hobbi, an app that assists hobbyists in organizing pictures of projects into themed collections, which closely resembles social network Pinterest Inc.

SNL Image
Instagram Reels allows users to share short-form multiclip videos
on their own feeds
and on the wider Instagram platform.
Source: Facebook

TikTok CEO Kevin Mayer in a recent blog post called Facebook's latest venture a "copycat product," adding: "To those who wish to launch competitive products, we say bring it on."

While not directly responding to Mayer's claims, Facebook in a blog post this week said Instagram Reels provides people with "new ways to express themselves" and allows them to "discover more of what they love on Instagram."

"Facebook is just kind of jumping after all these trends and copying it and utilizing their really well-built infrastructure and user base and continue to monetize off it," said Wendy Johansson, global vice president of experience at digital business consulting firm Publicis Sapient, in an interview. "It is really hard to compete against them."

Mizuho Securities analyst James Lee in an Aug. 9 report upped his price target on Facebook stock to $315 from $285, predicting the company's Reels product could help the company generate nearly $15 billion in incremental revenues, representing an approximately 15% upside to the analyst's fiscal year 2022 forecasts.

"We view the likely sale of TikTok positive for Facebook as the company recently introduced a competitive product (Instagram Reel) to capitalize on TikTok's uncertainty in the U.S. and the ban in India," Lee wrote.

Microsoft Corporation is in discussions with TikTok-parent Beijing Byte Dance Telecommunications Co. Ltd. to acquire the video-sharing app in the U.S. If the deal goes through, TikTok would be able to continue operating in the U.S., as Trump's executive order outlines actions against ByteDance and not the app itself.

Social media player Twitter Inc. has also reportedly been in talks to buy TikTok's assets.

TikTok has been downloaded more than 2.3 billion times around the globe, and it generated the most downloads for any app ever in the first quarter, according to data by Sensor Tower. However, its monthly downloads declined in June and July following a ban in India, its largest market.

Forrester analyst Jessica Liu, who has expertise in social marketing, holds a slightly more positive view on the outcome of TikTok and Facebook's battle, saying it is still possible for both companies to coexist successfully.

"Every social network has a unique value proposition and serves a specific customer base. Meaning, I wouldn't view TikTok's loss as Facebook's gain or vice versa," Liu said in emailed comments.

But overall, Facebook's ability to dedicate vast resources to its research and development efforts make it a force to be reckoned with, said Craig Huber, managing partner and equity research analyst at Huber Research Partners, an independent equity research and advisory firm specializing in media, internet and information services companies.

For 2020, Huber estimated that Facebook will spend about $18 billion on R&D. By comparison, the company spent $13.6 billion on R&D in 2019, up approximately 32% from 2018.

"You don't want to underestimate Facebook," he said.