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Foreign I'm Dan Runcy and you're listening to trapital, and you're about to hear our breakdown on the rise of Reels and how Meta turned A business unit that was often thought of as a pure copycat of TikTok, a business unit that was struggling in its earlier years but is now generating enough annual revenue to be one of the top 100 companies in the world from a revenue perspective by itself. And what's even more impressive, it's done it with a fraction of the cultural relevance of other short form video platforms or companies. On the surface, this may be a story about social media, but it's really a story about incentives. What is the job to be done by a social media platform and how each platform in this business does it a little bit differently, even if the products may look pretty similar. If your business relies on any social media to reach your customers, reach your audience, grow your platform and your brand, this episode is for you. If your business advertises on any social media platform to convert leads to your website, to drive sales, downloads or any other metric, this episode is for you too. So I hope you enjoyed it as much as we did. Let's dive in. This episode of trapital is presented by linktree, the Link in Bio tool that lets artists house everything in one place, streaming links, tour dates, merch videos, audience collections, socials, and more. With 60 integrations across the platforms you already use, like TikTok, Instagram, Shopify and Lelo, linktree allows you to centralize your ecosystem, save time, and optimize your entire online presence. From one place, fans can tap one link and choose their preferred streaming platform, whether it's Spotify, Apple Music, Amazon Music, or any others. To easily listen to your releases and make discovery seamless, you can build hype before the release day with Spotify Pre Save links and automatically use those to convert to streaming links when your track goes live. You can also own your audience by collecting fan emails and phone numbers directly through your link tree and build a list that you control instead of depending on algorithms. You can also see which cities engage most with your music, which links get clicked, and when fans are active. Plan your tours and releases Smarter. Use code TRAPITAL50 for 50% off your first three months of Linktree Pro. That's T R A P I T A L5O. You can get started at linktree.com or tap the link in our Show Notes. Terms and conditions apply. For more info, tap the link in our Show Notes to view the landing page. Do you ever notice how Avatar is one of the most commercially successful film franchises of all time. But people aren't out here quote in Avatar movies like they would a Marvel comic book movie. People aren't building their whole personality around characters from the Avatar movies like they have with the Star wars movies. These Avatar movies make Avengers money, but have the cultural relevance of a Godzilla versus King Kong movie. But yet the movies print money. Now take that same concept and apply it to video because Meta has built a business unit that from a revenue perspective, rivals YouTube and Netflix, even though it isn't nearly as relevant culturally. CEO Mark Zuckerberg said on Meta's Q3 2025 earnings call that Reels now has an annual revenue run rate of over $50 billion. $50 billion. That's bigger than some of the most well known companies in the world like Uber, Coca Cola and Nike. It's easy to look at Reels within the lens of short form video. I've done it myself at Trapital where we've done breakdowns on the short form video wars. But here's the thing. Short form video is not a winner takes all trophy. There's three big components that I look culture, time, and money. In culture, the winner is TikTok. It's not even close. In 2024, 84% of the songs on the Billboard 200 global went viral on TikTok. TikTok is the new MTV. When we talk about the TikTok generation, everyone knows what we're talk talking about. Words get added to the Dictionary because of TikTok. Pop culture, especially with younger generations, starts there. The winner for time is YouTube. Users across the world watch over 1 billion hours of content on a daily basis on YouTube. YouTube is also taking over every screen we have, whether it's mobile phones, desktops, and now more than ever, TV screens. YouTube is where people spend the most time during their viewing sessions, more than any other social media platform. But Reels, on the other hand, is quite different than the other two for culture. When's the last time that you heard someone say, hey, check out this reel that's going viral? Or the Reels generation? People don't talk like that. From a time perspective, the average person only spends a few seconds on average watching a reel. But from a monetization perspective, that's where Reels wins. So let's dig into that money piece to make some real comparisons. Netflix told its shareholders to expect $45.1 billion in annual revenue in 2025. And if you look at YouTube's ad revenue, looking at Q1 Q2 Q3, and what we expect from Q4, 20, 25, it'll be hovering around $40 billion in ads. If you add YouTube subscriptions, you do get north of $50 billion. But still, Reels is within territory of that. So that's the business that we're in. And Reels, unlike YouTube, is not a standalone company. The products are Instagram and Facebook. But Reels is a vehicle to deliver the content that those platforms offer. And that business line itself. Reels is the one that has a higher annual run rate than Netflix currently right now. But if we evaluated Reels on all three of those metrics, Culture, time, and money money. Reels is hitting its bang for its buck better than anyone else. But from a time perspective, and especially from a culture perspective, it isn't even close. So how does Reels do it? Because not only does Instagram now have over 3 billion monthly active users across Meta's family of apps, the company is approaching 4 billion monthly active users. That's half of the people in the entire world. No other social media platform can say that. When it comes to social media, Meta and its family of apps is the closest thing to TV that there is. And it's the default. It may not be the sexiest option out there, but it is the default. And there is always tons of money to be made in being the default option. So Reels didn't have to win on distribution, didn't have to create its own distribution. It inherited it. And from the advertiser perspective, there was no friction because a lot of the same advertisers were already advertising pretty regularly on Meta's feeds for both Instagram and Facebook, but also on Stories. Now advertising on Reels is checking another box and letting Meta do its magic. Another reason that Meta is low on that cultural aspect is because the creator relationship is completely different. Let's compare it to YouTube. Because YouTube is so much higher on both time and culture, the relationship that it has with creators is completely different. YouTube's creator revenue share is one of the aspects that people love about using YouTube as a platform. It's been highly debatable. There's plenty of music executives that have issues with YouTube's payouts compared to how the digital streaming platforms may pay music artists. But from a creator perspective, YouTube's revenue share out is a lot more impressive than what Meta currently has. If YouTube is sharing 55% of the ad revenue that comes in with its creators, it is definitely not that way on Meta. At this point, someone will always say Reels is just meta copying TikTok the same way that Instagram Stories copied Snapchat. Sure, they copied the format, but if you think that the format's the advantage, that misses the key point. Everyone can copy a feature. They all have the same functionality. Most of them have some form of short form video today. But copying a feature is not the same as copying the outcome. A short form video feed is not a moat. The moat is the machine behind it, how you distribute it, measure it, price it and sell it. And that's what Reels and Metamor broadly has been able to do so well. This isn't just about social media. This is about creating an ad market and delivering on that product for its advertisers. Because Reels isn't monetized like a channel. Reels is monetized like inventory in a machine. Anytime that you open up one of your social media accounts that's connected to Meta and there's an advertising unit that comes up, Meta runs an internal auction within all of its advertisers to determine determine which piece of content should be placed in that area. And before Meta places any ad in your feed, in your reels, or in your story, it considers the bid that the advertiser has for that reel, the quality of the ad, and how likely that ad is to deliver on the intended outcome. For the advertiser, it isn't just highest bidder wins, it's the most valuable bid that wins that is most likely to lead to that goal for the advertiser. This is performance marketing, because most advertisers, when they advertise in Meta, they're not just advertising on one platform. They may have reels, they may have stories post on the feed, and those can vary on Facebook, Instagram and others. So when you have your advertising budget, the platform then decides, okay, let's put the ads in the reels here, because the reel could be more likely to convert for this intended outcome. But, oh, there's a potential shift right now, and there's an option to put it in stories because it may lead a bit better for this. It does this automatically with everyone's products and everyone's advertising as well. And a machine like that is less about cultural relevancy and frankly less about time spent on the platform. Not that those aren't important goals for Instagram, Reels, Facebook, Meta or any of these products, but it's not something that is required for the efficient monetization, at least up to this point. This is how Reals has gotten to be a $50 billion annual run rate business. And in Meta's Q3 2025 earnings call, Mark Zuckerberg also spoke about the improvements to Meta's AI ranking system. When you compound that with the learnings and the insights that Meta has across all of its family of apps, it creates this compounding effect that can make it very hard for the other social media apps to compete with, whether it's on a performance marketing perspective or or on any job to be done by delivering success for its advertisers. If the machine behind Reels is as strong as it is because it sits under Meta, then why hasn't the same been true for YouTube and TikTok, given the massive tech conglomerates that those companies sit under, especially Google? Google is the largest search engine in the world, which powers the second largest search engine in the world in YouTube. And Google is also the champion of of performance advertising, over $200 billion annually from search revenue and Google continues to dominate in the space year after year. But the job to be done from an ad on a Google search is quite different from YouTube, especially given the origins of YouTube as a creator first platform compared to Meta, where the job to be done by an advertisement on its feed or stories is much closer to the job to be done on an ad on an Instagram or a Facebook reel. YouTube though, has a much more delicate balancing act than reels does. YouTube is a more multifaceted product and at its core it is still optimized for longer form video. And because it's optimized for longer form video with things like pre roll ads and mid roll ads and other aspects, the relationship it has with the underlying people who create that content is much more important given the creator revenue split that YouTube has from ads, which is 55%, 45% in favor of the creators. And even though YouTube's advertising business is massive, makes up a majority of its revenue, the subscription product is nothing to Sneeze at. Between YouTube Premium and YouTube Music, it has over 125 million paid subscribers. That is a legit business itself, generating billions and billions of dollars of revenue. So when you look at all of those aspects, it does create a very fundamentally different product in a way that YouTube and Google, even though they may still be in the same umbrella, are quite different in a way that Reels can fit neatly into the existing Feed and Stories family of apps that already live within Facebook and Instagram as products. TikTok, on the other hand, has a more unique dynamic TikTok's for your page is how TikTok rose to power the fact that they could create a social media platform that didn't require you to curate following list, but was able to use your intent based on what you watch and didn't watch to curate your feed is how TikTok became as powerful as it is. But that same aspect has made TikTok a bit more chaotic for advertisers. There's less reliability that advertisers are going to find the people that they want to reach on TikTok plus, if TikTok's demographic skews a bit younger as it does being a platform that, although it's gotten older in recent years at its core is still seen as a Gen Z hub. Well, those Gen Z users don't quite have as much disposable income as the Millennials as the baby Boomers and other generations that can convert more effectively for advertisers, which again gives a platform like Reels and Meta more broadly a much higher advantage when it comes to monetization. Let's take a break for our chart metric stat of the week. One of the most streamed albums of 2025 was from 2007. Kanye West's Graduation had over 1.5 billion Spotify streams last year. A big boost came from I Wonder, the fourth track on the album, which got a new life last year on TikTok and Reels. It's the third song from graduation to be streamed over 1 billion times on Spotify, and I Wonder now has nearly twice as many streams on Spotify as Good Life. I never would have guessed that. But songs do take a new life over time. Plus Stronger remains a staple on workout playlists. Graduation is still going strong after all this time. Meta's monetization strengths are real, but just because it's real doesn't mean it'll last forever. Things can change fast and Meta has spoken about this already. One of the biggest risks is AI. Mark Zuckerberg has talked about how the use of AI slop and the content itself can degrade the value of experience on the platform. Adam Mosseri, the head of Instagram and Threads, has talked about this as well. This is a real threat for the business, and arguably a bigger1 than YouTube and some of the others that are more creator centric. Where if Meta and Real specifically is a place to reach the largest number of consumers, it can be looked at as the go to place to see and make sure that the AI generated content can reach as many eyeballs as possible. The second risk is regulatory. Meta has made some strong efforts to improve its standing with the current presidential administration. But that doesn't mean that a policy decision that is made to improve user privacy or to improve the quality of experience for users who may be commenting on their personal health or their mental health because of the use of these apps and of these products. A few changes there could hurt Meta's ability to track user data, which again is one of those key ingredients to how Meta and Reel specifically has been so effective at advertising. The third risk is the ad load. I wish I had a dollar for every time that someone has complained to me about the number of ads that they see on Instagram, the number of ads they see on Facebook. And it's a complaint that I hear about those platforms more than almost any others. And it's always this fine line. These platforms, especially a platform like Meta, which is clearly known for how well it monetizes that, has served the business well. But if you're too reliant on that and haven't relied on other aspects to be able to build the business effectively, that could lead to challenges down the road. The fourth risk is competitive. Part of that is from the existing companies you've Talked about. Can TikTok, YouTube and its parent companies further leverage the popularity that they have with both time spent and cultural impact, gain even more of it? And does that become an even bigger threat to Reels and Meta overall? Or can either of those platforms learn from what Meta's been able to do effectively bring some of that in house and improve their own monetization within the time and cultural relevance that they already capture? It wouldn't be easy, but the upside potential is huge. The other risk for Meta in Reels that's arguably a bigger one, is looking at how it monetizes performance driven ads. If we take a step back away from social media, we I look at OpenAI's ChatGPT, Anthropics, Claude and Google's own product, Gemini, as platforms that create personalized media, personalized information that don't currently advertise but could and I can't think of a better performance driven advertising product than something that can give you an ad the same way a Google search could, based on the nuanced prompt that you may have from a product and when I won't even say if. Let's not be naive. This is the Internet. Advertising drives the Internet. When that happens, could that compete against some of the dollars that are currently being captured by Reels, by Meta and by all of these companies? That's the real risk. Again, Reels didn't get to the position that it's in because it had the most culturally relevant content or the highest time spent from any social media. It's because of the job to be done with delivering on advertising and performing on that advertising from a high level for its advertisers. So any platform that can do that can be effective with that. And AI is the next frontier with that. But the rise of Reels has been fascinating to watch. Started in 2020, still finding its footing in 2022. By 2023, $10 billion in annual run rate, and by 2025, 5x that number. Where will we be by 2027? Who knows? But this is one thing that we do know. The rise of Reels is a reminder that cultural relevance and economic dominance are no longer the same when it comes to social media. The two worked more hand in hand back in the 2000s with the rise of Facebook and even some of the early traction of MySpace. But by the time that Twitter rose to prominence in the 2010s, it was clear that a platform that had cultural relevance may not necessarily be the biggest monetization engine that we seen. And more and more, a lot of platforms may grow in their cultural monetization and the time spent in hopes of later being able to convert on the money perspective, you capture the attention and you hope that you can convert that attention into revenue. Each platform does it to varying levels of success, but Reels has arguably been one of the best positioned business units inside of a larger company to do it. To date, Reels didn't win because the users were loyal, but Reels won because of predictability, the frictionless environment that it created, and the fact that it was just there. Again, nearly 4 billion people on Meta's family of apps, the economies of scope are bound to trickle down and support a business unit and the line like this. One final thought. Three years ago in my Short Form Video wars piece, I Talked about how TikTok was the Phantom of short form Video Phantom, referring to the Rolls Royce Phantom and every other social media app being the Chrysler 300. Referencing the famous Katt Williams joke, a Chrysler 300 looks like a Phantom until a Phantom pulls up. Now, the joke was right, but for the wrong reasons. Here's what I mean. The joke itself is meant to put the two in hierarchy that the Chrysler 300 is here, but the Phantom is here. And I used it to show that TikTok was so far ahead of the other social media apps. And that may be true culturally, but from a money perspective, it isn't even close. They make maybe a couple hundred Rolls Royce Phantoms every year, but at the peak of the Chrysler 300 they were making thousands of them and even though they were sold for a tenth of the price, the volume outshined what the Rolls Royce company was putting out for the Phantom and the total revenue also exceeded Chrysler three hundreds generated more revenue than the Rolls Royce Phantom. So again, to bring the analogy full circle, yes, you can call reels the Chrysler 300 in this scenario because it did generate more revenue on a regular basis than the Rolls Royce Phantom did and by extension all of these other social media apps, specifically around short form video. It all comes back around full circle and that is a wrap. I hope you enjoyed this breakdown on the rise of reels. Reels may not capture all of the cultural mindshare, but it is a economic revenue generating machine. Thank you to our audio and video producers G and Eric for everything that you do to help make trapital possible. Thank you again to our sponsors and thank you for listening. If there's one person you know that would really enjoy Trapital and get a lot out of it, whether it's this episode on Reels or any of the conversations that we have, send them a link to the show. Word of mouth is still the best way to grow, so if you could help us spread the word, that would be great. Trapitol is home to where business shapes culture and these are the kind of conversations we have. If you haven't already, if you could leave us a review or leave a comment on the podcast player of your choice, whether it's Apple, Spotify, wherever that helps the algorithm do its thing and make sure that trapital reaches the right people. And if you're not already following us, then tap that star button and make sure that you're following us so you'll get the next episode once it drops. Thanks again. Talk to you next time.