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.
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.
It’s not just Google — Snap has a $1 billion cloud services deal with Amazon, too – Recode (Feb 9, 2017)
Snap has filed an amended version of its S-1 IPO filing, and it’s added a few extra tidbits here and there. This Recode piece picks up on the most notable: earlier this month, Snap signed a deal with Amazon’s AWS which is worth at least $1 billion over 5 years, for redundant infrastructure (i.e. as a backup to its primary reliance on Google’s Cloud). Unlike the Google commitment, which requires a steady minimum of $400m spent per year, this deal ramps from a minimum of $50m in 2017 to $350m in 2021 (which is probably about how much Snap spent with Google in 2016). That’s a rapid growth rate, and implies that this level of redundancy may be new for Snap, perhaps triggered by investor concerns over its sole reliance on Google. Combined, that’s a minimum $3 billion commitment for just these two infrastructure companies over the next five years, which is about seven times its 2016 revenue – that’s a big commitment and increases the risks associated with slowing growth. Also new in the S-1/A are a couple of paragraphs intended to reassure investors about the multi-class stock structure and the disclosure they will receive with their Class A shares, as well as some expansion on its slowing user growth and the lower engagement levels its Rest of World users exhibit relative to its US and European users.
More evidence that Snapchat is TV for millennials? (As Ben Thompson, Kerry Flynn at Mashable, and today Christopher Mims at the WSJ this morning have each suggested.) Perhaps more interestingly, though Snapchat has been described as trying to win over TV advertising dollars, this is actually a promotion of sorts for a traditional TV show itself, with shorter-form, vertically-oriented videos on Snapchat as a sort of taster. There will actually be ads within this video as well, so this isn’t advertising per se, though its goal is clearly to drive viewership on BBC America here in the US. As with its Google relationship, Snap’s relationship with TV is likely to be complicated, as it both seeks to steal ad dollars from TV while also taking ad dollars (and content) from the TV industry. At any rate, if you haven’t seen Planet Earth II yet, I highly recommend tuning in when it airs – it’s fantastic.
This is interesting additional detail around the Snap IPO filing I covered yesterday (and which I wrote about in depth at Beyond Devices today). Snap recently signed a 5-year deal with Google to use its cloud services to the tune of at least $400m per year, and the companies have worked together on some stuff in the past two, including some projects that never made it to production. But Google was also listed among the handful of competitors Snap specifically cited in its S-1, so this relationship is, as Facebook might say, complicated. That’s particularly the case around search, which is one of the areas where Snap was partnering with Google but eventually pulled out and decided to build its own platform instead.
The long-awaited Snap S-1 was released this afternoon just as Amazon and GoPro were reporting earnings, so it’s been busy. I tweeted some of the most interesting tidbits I saw at first glance earlier, but will do a deep dive for a blog post at some point in the next 24 hours too. Some highlights: the company is growing very rapidly in revenue terms, as it ramps ARPU fast, but still makes 88% of its revenue from North America, even though a majority of users are overseas. User growth has been decent, ending 2016 with 160 million daily active user (its only user base measure), but has slowed in recent months, which Snap blames on both a poor Android update and competitive moves (such as Instagram Stories, though it’s not mentioned by name). It loses money in massive amounts – there’s no clear path to profitability here any time soon, even with rapid growth, as cost of revenues alone outweigh revenues. Engagement is mentioned 103 times in the filing, as was widely anticipated, but the only measure mentioned beyond DAUs is time spent, and it’s not provided on a consistent basis. That’s a worrying sign at a time when Snap needs to be demonstrating that its users are not just using the app daily but spending more time in it. Other tidbits: Apple is mentioned in a list of competitors, and Google is Snap’s cloud provider, with a massive commitment to future spending with the company. This blog post goes into a lot more depth on the filing.
Yet more signs that Snapchat is suffering both as a result of Instagram’s recent feature additions and perhaps because of broader cloning of its feature set by local alternatives in Asia. We’ll hear from the horse’s mouth shortly how Snap sees these changes, and it’ll have to work hard to refute these negative signals about engagement and growth in its app when it releases its public IPO filing shortly. The narrative around Snap is quickly turning negative, and it’ll have to intervene quickly to reset it (if it’s able to do so).
Snap Is Working on Smarter Lenses (AR) — The Information (Feb 1, 2017)
AR has seemed an obvious area for Snap to invest in, given its focus on cameras and camera-centric experiences, and its existing Lenses product. So it’s not that surprising to hear that the company is working on AR-style lenses for something other than mere selfies, using the rear-facing camera. It sounds fairly basic for now, and very much in keeping with the idea of superimposing objects onto the real world for taking and sharing pictures. But of course once the technology is there it could theoretically be repurposed for other things too, including a potential future version of Spectacles with AR capability which would overlay virtual content onto the real world seen through its glasses. Lots of potential here, and as ever it’s still very early days in AR (and in the broader AR/VR battle).
via The Information