Company / division: Snap
Yet another use for Facebook’s very successful cloning of Snapchat’s Stories feature in Instagram, this time coming to WhatsApp. This is also another feature-level attempt to take share from Snapchat, which again seems to be what’s finally working for Facebook, in contrast to the whole-app approach it once favored. In this case, Facebook is ditching the Stories name and instead putting this feature in the Status slot in WhatsApp, but it looks like the format is very much the same.
I always figured Snap would put Spectacles on sale online eventually – its bot-based model was great for creating intrigue and interest early on, but clearly wasn’t great for making the glasses available to everyone who wanted them. Now that the initial excitement has long since worn off, selling whatever remaining inventory online makes sense, though I’d argue they should have started this new phase much earlier, towards the end of last year. The initial hype didn’t seem to last that long, and the New York City store had long since stopped having a regular stream of customers.
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.
This is another one of those times where it feels like the Facebook copying Snapchat narrative might have been a little over-applied. It seems as though Snap has hired and/or acquired an engineer and his firm in Switzerland, whose expertise is making it harder for outsiders to reverse engineer code. The Facebook read here implies that Facebook is actually reverse engineering the code rather than simply building equivalent features from scratch. To the extent that this is about preventing copying, it’s far likelier to be a response to smaller outfits cloning Snapchat than Facebook, which has many engineers more than capable of building these features without reverse engineering code.
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
Instagram Stories is stealing Snapchat’s users – TechCrunch (Jan 30, 2017)
This would be very bad news if it turns out to be true – celebrities and those who manage celebrity and other accounts on Snapchat claim they’re seeing a significant reduction in views of their Stories on Snapchat as a result of both Instagram’s launch of its own Stories feature and Snapchat’s move to kill the Auto-Advance feature for Stories in its own app. This kind of thing is always worth taking with a pinch of salt – the ranges discussed here are very broad, and some of the data might be outliers – but the trend seems to be consistently downward, and is backed up by some app download data as well. The positive spin from Snap here would be that it’s actually focusing engagement more by only showing users the Stories they actually choose to see, but I’m not sure investors will buy that. Again, any day now we should have some real data from Snap to go on to evaluate engagement and usage, but this is another specific concern they’ll need to address in the S-1 filing. In the meantime, more evidence that Facebook and Instagram’s strategy here is paying off, and that when Facebook broadly launches its own Stories feature the impact could be even more severe.
I changed the headline here both to capture the main point of the article and to avoid a different connotation with the word “streaker”, which appears in the original. Teenagers in particular, but also some young adult users, work hard to keep “streaks” of activity between themselves and friends on Snapchat alive as long as possible, much as Apple Watch users might try to keep a stand or move streak alive. But the Snapchat behavior verges on obsessive or addictive, and much of the actual sharing between friends ends up becoming meaningless as user post for the sake of posting. Snapchat deliberately encourages this kind of behavior, and it drives usage of the app, but it doesn’t necessarily drive meaningful engagement, which is technically something different. Those users aren’t necessary spending emotionally significant time in the app, and they’re not necessarily looking at the parts of the app where they’re likeliest to see ads. When Snap makes its IPO filing public, digging for signs of this disparity between usage time and real engagement with content and ads is going to be key. It’s really the Discover and other content tabs rather than the one-to-one sharing features that will drive ad viewing and revenue, and Snap needs to be transparent about where users are actually spending time.
This is a great bit of reporting on how Snapchat’s Discover feature has evolved since it first launched, and how Snap’s relationship with publishers and content providers has evolved with it. Discover continues to be the most obvious place for Snap to deliver growth in ad revenue, and having quality content is a big part of achieving that goal. Snap is also putting more emphasis on competing with TV for millennial viewers, an audience which is both overrepresented on Snapchat and underrepresented in traditional TV viewership. There are lots of good comments in this piece from publishers who have worked with Snap and seen good results, some of them driving decent profits from their channels and others merely experimenting with a new format. Well worth reading the whole thing.
I’m so looking forward to this filing being made public – it’s always a lot of fun to suddenly be able to dive deep into a formerly private companies finances and metrics. I’m very curious as to what they show and I’ll certainly write an in-depth analysis when I’m done investigating. The things I’m most interested in are revenue run rate and profitability. Snap has been trying to get commitments from media buyers to spend more in 2017, but I’m not sure there will be any evidence of that in the filing, which will typically be backward- rather than forward-looking. I’m assuming Snap isn’t profitable, but just how profitable and what the trajectory looks like there are big questions – Twitter famously still isn’t profitable several years after its IPO, while Facebook is one of the most profitable tech companies out there, so this is another area where Snap will want to demonstrate it’s more like the latter than the former.
Snapchat NYC Spectacles store is mostly empty – CNBC (Jan 26, 2017)
Snap’s foray into hardware coincided with its new company name, and the marketing strategy for the Spectacles was genius – very short supply combined with a sales model that made availability even narrow by focusing it on single vending machines that moved around, combined with a single permanent store in New York City. However, it’s becoming apparent now (if it wasn’t obvious from the start) that Spectacles aren’t going to be massive sellers. Yes, hundreds of people lined up early on to buy them, but the crowds have now disappeared. I’m somewhat surprised Snap hasn’t put Spectacles up for sale anywhere else yet – it’s still basically impossible to buy a brand new pair at list price unless you live in or visit NYC or happen to be in one of the other places where the moving machines have turned up. That suggests, though, that this move into hardware was more experimental than strategic, and raises the question of whether we’ll see more of this from Snap in future. There’s certainly potential for some interesting new functionality around AR in future versions, but there are few indications at this point that Snap has any big plans.
Instagram Stories seem to have worked out really well for Instagram, increasing engagement and gaining rapid adoption, while Snapchat’s growth seems to have leveled off a little lately. It now appears Facebook plans to bring stories into the core Facebook experience too, which makes lots of sense: for all Instagram’s popularity, Facebook’s user base is several times as large, and so Facebook can easily extend the feature to many more people in this way. The attraction of the Stories format (and Snapchat’s ephemeral approach in general) has always been that users didn’t have to work so hard to post the perfect picture to live forever on the site. Snapchat users gravitate towards the throwaway nature of sharing on the platform, and Instagram’s Stories feature has been a nice antidote to the false perfection that’s characterized a lot of sharing among teens in particular there. Facebook should benefit in the same way from this feature, especially since organic sharing is said to have fallen recently. Live Video was supposed to be part of the solution here, per Mark Zuckerberg, but it hasn’t quite worked out that way.
via Business Insider
Snapchat Is in Talks for Big Ad Deals Ahead of IPO – WSJ (Jan 25, 2017)
Another day, another story about Snap trying to grow its ad revenue, this time focusing on getting up front commitments from major ad agencies’ ad buying arms. Given how nascent Snap’s ad business is, convincing potential investors that it has a predictable run rate for ad spend is critical to a successful IPO, so getting some promises from major buyers to increase spending in 2017 would be a useful first step. But of course that increased spend will only come if the ROI is there, which has been the other piece of this puzzle for Snap over recent months, trying to demonstrate that advertising on Snapchat can be more than just speculative.
DCN report shows publisher revenue from Google, Facebook, Snapchat – Business Insider (Jan 24, 2017)
This article (and the report it’s based on) frustratingly focuses on average numbers across a range of very different publishers, rather than providing something more detailed, which limits the usefulness of the data, but there’s some interesting stuff in here regardless. For one, this reinforces the sense that publishers are between a rock and a hard place when it comes to supporting the major new content platforms – on the one hand, they feel they can’t afford to be absent, and on the other systems like Facebook Instant Articles and Google’s AMP don’t seem to allow them to monetize as they do on their own sites. One surprising finding is how strongly Snapchat shows here relative to its overall share of ad revenue. The picture is muddied by the fact that the report covers both video and news content, and so YouTube makes a very strong showing overall too. The key takeaway for me is that these companies continue to tread a difficult and dangerous path as they work with these platforms, ceding a lot of control to them and potentially seeing less revenue as a result.
Update: the actual report is now available here in full.
via Business Insider