Narrative: Snapchat is Maturing
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Narrative: Snapchat is Maturing (Jan 28, 2017)
Written: January 28, 2017
When Snapchat first launched as an app, it was seen by many (especially outside its target demographic) as a sexting app – why else would you want your pictures to disappear after they’d been viewed? This Business Insider piece from that period is characteristic of this perception. The reality, though, is that Snapchat was never really intended to be a sexting app, and it’s certainly come a long way since, especially as it prepares for a 2017 IPO.
The genius of Snapchat as an app is that it takes all the pressure out of sharing with friends – while Facebook and Instagram have trained a generation of teenagers to carefully curate highly-managed feeds of images and videos from their lives, Snapchat sends the opposite message: share whatever you want, because it won’t live on. This frees users to send pictures, videos, and messages they would never send on other platforms, not because they’re lewd but because they’re raw and candid. Snapchat is arguably the first social network to truly recreate the level of candor of in-person sharing, where you know the moment will be gone before you know it. This, and not sending naughty pics – is the real appeal of Snapchat, and it’s why it’s gained such a massive following among teenagers and young adults tired of the curation and preening that goes into sharing on other platforms.
Snap (as the company behind Snapchat is now known) has parlayed the audience it’s garnered with its app into something much more, as one of the fastest-moving major apps on the market. It has regularly released new features, from video sharing to Stories to ephemeral texts to video chat to Snapcash to Discover to filters and sponsored geofilters, to lenses and Memories. While other apps like Twitter seem paralyzed at the thought of any sort of major change, Snapchat has charged ahead and makes big changes on a regular basis. Along with the many enhancements to its sharing features over the years, easily the biggest change has been the Discover tab, where brands and content publishers present content to users. This has been one of the most promising avenues for advertising within Snapchat, and is a major focus as it gears up for its IPO. It’s been plagued by a reputation for racy content, something the company recently addressed in a new set of content guidelines for publishers.
The company’s name change was sparked at least in part by the launch of its first hardware product, Spectacles, which were announced at the same time. The company demonstrated a talent for marketing with the launch of Spectacles, which were sold only through vending machines which apparently randomly roamed the country until several put down semi-permanent roots in a storefront in New York City. Spectacles as a product were well-received, though it’s clear that they’re a niche play only and not a massive new revenue stream for the company. But they could also be a foundation layer for more interesting hardware in future, whether other cameras (Snap now calls itself a camera company) or an augmented reality play on the Spectacles form factor.
The biggest challenges facing Snap at this point are twofold: convincing advertisers that it can be a serious platform like Facebook or Google, with all the analytics and demonstrated ROI that come with that role; and demonstrating that it can keep its audience growing beyond its current demographics. It’s been working hard to beef up targeting, analytics, and measurement capability in recent months, but there have also been signs that its user numbers might be flagging a little. We’ll see when its IPO documents are filed exactly what its own user numbers look like, but there will have to be a clear upward trajectory if it’s to convince investors that it’s got Facebook- rather than Twitter-like potential.
The Snapchat as TV thing is getting a little hackneyed, but it works because it’s increasingly true – it appears Snapchat is increasingly prioritizing video over other content in its Discover tab, and perhaps especially original video created for the platform. That could push other content (and its publishers) further down the listing of Stories within Discover, or could potentially demote all non-video content into a different area entirely. That’s not terrible news for those content partners who major in video, but would obviously be much worse for those who focus on articles and the like. My guess is that those already get much less viewership than the video stories given the setting and the audience, but it is going to push Snapchat to become much more video-oriented overall.
In a sense, there’s really nothing new here – the key quote comes from the S-1/A filing from a month ago. The article, though, argues that Snap will make money from higher ARPU over time rather than from user growth. While it clearly won’t be going for user growth in emerging markets for the reasons stated in its S-1/A, I don’t read that as not being focused on user growth – it clearly will be but that focus will be on mature markets, where it still has tons of headroom, at least in theory. It’s worth noting some other things here: Kurt talks about Facebook as the comparator, and it’s clearly the obvious one, but Twitter is another. And whereas Facebook has now reached a nearly $20 ARPU in the US quarterly, Twitter has stagnated at around $6-7 over the past year. Just because Facebook was able to keep growing ARPU seemingly indefinitely, that doesn’t mean Snapchat will be able to. And I’d argue that with such a simple, non-stream-based interface, Snap probably has far fewer places to put ads, meaning its ceiling is likely quite a bit lower than Facebook’s. It’s also worth remembering that Facebook’s ARPU numbers are at least a little misleading – the user number is only for the core Facebook app, whereas the revenue number includes Instagram, WhatsApp, and Messenger too. Lastly, part of rising ARPU at Facebook is price per ad, not just more ads shown, which is a reflection of new demand outstripping new supply, something else that’s not guaranteed with Snapchat. Overall, I’d be very wary of drawing too many conclusions about Snapchat’s potential from Facebook.
The attitude reported in this piece is not new at all – the New York Times reported on this a while back, but it’s been part of Snap’s DNA from the beginning: it simply doesn’t engage with “influencers” or creatives who use the platform to promote themselves in the way other platforms do. What’s new in this BuzzFeed piece is that it claims influencers are leaving the platform for others where they’re treated better. Snap’s official comment in the article couldn’t be more blasé – it basically says it cares more about its customers and official media partners than these “creators” – but it can probably afford to be that way. The reality is that these influencers aren’t likely nearly as important on a platform that has lots of official, professionally produced content from brands and media outlets as it is on a user-generated network. Between content from friends and content from these official partners, Snapchat likely has plenty to keep users interested and engaged without having to kowtow to independent creators.
Snap’s shares pop after $3.4 billion IPO – Reuters (Mar 2, 2017)
Snap’s IPO was widely expected to come today, and it ended up being a great debut for the stock, which rose 44% by the time the market closed, though it’s lost a little since and seems to be fairly volatile. As I’ve argued, the IPO itself comes at an extremely risky time for Snap and its investors, because there has been slowing growth but not enough time to see whether that growth will rebound, making future growth uncertain. The pop today wasn’t a surprise – the market has been so hungry for a major tech IPO for such a long time, and Snapchat is such a hot property, that retail investors chasing the next big thing were always going to jump in in a big way. At this point, Snapchat’s growth could still recover and it could go on to become one of the big success stories of the 2010s, or it could become another Twitter – there’s really no way to know at this point.
It’s almost certainly not a coincidence that not one but two rumors about Snap working on additional hardware have sprouted the week of its IPO, both apparently well sourced yet conveniently vague on whether a product will actually ever be launched. This is good hype fodder for an IPO with some serious question marks over it, and yet non-specific enough that the company can afford never to release either of these two products (the Times reports a drone, while TechCrunch discusses a 360 degree camera). None of this is to say that Snap – which now calls itself a camera company and has one piece of camera hardware already in Spectacles – won’t release more camera hardware in future. In fact, I’d say it seems very likely. But when it happens, we’ll see whether that’s actually a bet that ends up moving the needle or just ends up being a novelty as Spectacles seem to have been. I’m still not convinced that Snap will ever be able to make a serious business out of hardware, its marketing genius notwithstanding.
Parents adopting Snapchat as their kids exit – Axios (Mar 1, 2017)
We’ve seen this happen so many times now with social networks that it’s a cliche at this point – as the parents arrive, the kids start leaving. That’s still an exaggeration with Snapchat at this point, and certainly the arrival of the olds isn’t the cause of the departure (technically, slower growth) among youngsters, but a maturing of the base is natural over time as Snapchat already has massive penetration among younger demographics, at least in its biggest markets. These eMarketer numbers, though, still don’t paint a picture of very rapid growth at Snap, which continues to be the biggest worry ahead of this week’s IPO.
Snapchat Parent Snap Inc. Sets Valuation at $19.5 Billion to $22.2 Billion as IPO Approaches – WSJ (Feb 16, 2017)
It’s hard to avoid the sense that this valuation coming in at the low end of the previous target range is a sign of dampening excitement in the Snap IPO following the release of the S-1 and other worrying signs. That’s a sign of a certain amount of humility and realism from the company, which is a good thing. It’s still a massive valuation for a company at Snap’s stage of maturity, and it’s always possible the valuation will come down still further (or go up) following the roadshow, as investors get to kick the tires a little more. I’m more curious than ever what happens when the IPO finally kicks off because – as I wrote the other day – Snap is debuting at a terrible time in its history.
Snapchat is Struggling On Android — The Information (Feb 14, 2017)
I’ve tweaked the headline here to reflect the content of the article: the point here that Snapchat doesn’t work as well on Android as on the iPhone, where it began and where most of its employees and many of its users are. This wasn’t an accident – Snap is open in its S-1 filing about the fact that it has prioritized iPhone until now, and that’s not an unusual strategy for developers pursuing the high end market. However, it works a lot better as a strategy for a news, video, photo filter, or other non-social app than it does for a social app – by definition, social apps need broad reach to create the kinds of network effects that make them successful. It’s not that Snapchat hasn’t had an Android app for a long time – it launched it in October 2012, when it still had a relatively tiny number of users – but that it’s rather neglected the Android app. It explicitly called out some bugs and underperformance as a reason for its lackluster user growth late last year in its IPO filing, but this Information piece argues that it’s not moving fast enough to improve the experience there. And yet it has to be good there if it’s to grow, especially outside the US and major European markets.
via The Information
Yet more ammo for the “Snapchat is TV” crowd, though that feels more and more literal all the time, since Snapchat’s content is more and more actual TV content from actual TV companies, as with A&E in this case. What’s unique here is that the show is both unscripted and not based on an existing show – i.e. it’s original content for Snapchat, though importantly not original content by Snapchat a la Netflix/Amazon/HBO. Snapchat did spend $13.3 million more in 2016 than 2015 on content creation, but in reality that’s about collaborating with existing providers on content rather than creating its own. For now, Snapchat remains a great way for existing TV brands to reconnect with the large portion of its target audience which has abandoned traditional TV.