Narrative: Snapchat is Maturing

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    Narrative: Snapchat is Maturing (Jan 28, 2017)

    Updated: July 15, 2017

    This narrative was the subject of the Weekly Narrative Video the week of July 10-14, 2017, and the essay below was updated at that time too. You can see the video on YouTube here, and it’s also embedded at the bottom of the essay below.

    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.

    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 addressed earlier this year 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.

    Snapchat has also evolved as an ad platform, in ways which threaten to cross the “creepy” line CEO Evan Spiegel has in the past said he never wanted to cross. But that evolution has been critical to attracting advertisers and increasing their spend on the platform, because simply trusting that Snapchat has the key demographic advertisers are looking to reach is no longer enough when competing apps like Instagram and its parent Facebook have far bigger overall audiences and more mature ad platforms. Snapchat has been working on this, making acquisitions and forming partnerships as well as evolving its capabilities organically in order to offer advertisers better tracking and analytics to demonstrate how their ads are performing and whether they’re achieving the desired results. Recently, Snap has been said to be looking to acquire an ad tech company such as AdRoll.

    Meanwhile, another form of maturity has become more apparent since I first wrote this essay in January 2017: slowing user growth. That slowdown began in the second half of 2016 after very strong growth in the first half, though those numbers wouldn’t be made public until Snap’s IPO filing earlier this year. But there were already signs in third party data that the launch of Instagram Stories at around the same time was sucking some of the growth out of Snapchat. At the time of the IPO, it wasn’t yet clear whether this would be a temporary setback or a permanent slowing, but the Q1 results released a couple of months ago confirmed that it’s the latter, which undermines Snapchat’s growth story significantly. Though the other ways in which Snap is maturing should help ARPU continue to grow, without underlying user growth Snap looks a lot more like Twitter than it would like.

    At this point, Snapchat continues to mature and evolve both as a company and as a product – it’s making a big push into video, working with major TV companies to get exclusive and original content optimized for the vertical format Snapchat favors, and if the shows are successful, that should help increase time spent in the app beyond the half hour or so per day it currently drives, and thereby also drive increased revenue per user. But the fundamental challenges remain user growth and the difficulty of competing with much larger and more mature ad platforms, which is why we’re seeing the stock currently trading below IPO price and even major IPO underwriter Morgan Stanley back away from the stock.

    ★ Snapchat Adds Context Cards for Ride Sharing, Restaurant Booking, Other Services (Oct 10, 2017)

    Snapchat has added one of its biggest new features in recent memory with the addition of Context Cards, which will be reached through a swipe up on a Snap tied to a specific location. The Context Cards will offer various additional details about the place, and also provide links to ride sharing and restaurant booking services as well as information like address, reviews, and so on. This is yet another move by Snapchat beyond its original limitations, along with the addition a while back of outbound linking from Snaps. What both of those features offer is a way to add additional detail and context to a Snap beyond the limited photo/video formats Snapchat has supported natively. It’s also an interesting alternative to voice assistants, bots, and other ways to add context to what’s currently happening on screen without the user having to type text into a search box. The feature certainly lends itself well to monetization opportunities in future too, whether advertising or revenue sharing with the initial or additional partners. However, as with other Snapchat features, it doesn’t feel particularly tough for others to emulate if successful.

    Also worth noting, briefly, is the fact that Evan Spiegel, who has rarely done press interviews, did not one but two as part of the launch of this feature, as a sort of follow-on to his recent comments that he realizes he needs to do more public communication now that Snap is a public company.

    via Snap

    eMarketer Cuts its 2017 Ad Revenue Forecast for Snapchat by $128m (Oct 2, 2017)

    eMarketer, a research firm which offers projections of ad revenue by company, has lowered its 2017 US forecast for Snapchat for the second time this year. It’s now projecting a total of $642m for the year, down from the most recent forecast of $770m, and the original forecast of $800m. Projecting Snap’s ad revenue is difficult for several reasons, not least that the company itself doesn’t provide any guidance, but also because its shift to serious revenue generation began so recently that there’s no reliable growth rate to base future projections on – year on year percentage growth has slowed from over 400% to 286% to 153% in the last three quarters even as dollar growth has been pretty strong. Snap’s North American revenue in the first half of 2017 was $277 million, meaning that eMarketer is projecting roughly 30-40% growth in the second half over the first half. That’s fairly modest, but as we’ve seen recently Snapchat’s user growth has been modest too, and although ARPU is rising fast, it may not continue to do so at the same pace. There’s growing skepticism about Snap’s business overall, and this report feeds into that overall skepticism, but I suspect it may be a little too pessimistic based on Snap’s strong second-half revenue performance last year. But we’ll know soon enough what Q3 looks like, at least.

    via Business Insider

    Snap Cuts Jobs, Changes Management for Hardware Unit (Sep 21, 2017)

    Snap Inc has apparently cut about a dozen jobs and shuffled management in its hardware unit in recent weeks, according to Bloomberg. The only hardware this group has shipped so far are the Spectacles camera-glasses launched late last year, which had sold less than 150,000 units as of the end of June by my estimates, and accounted for less than 5% of revenue during that time. Hardware may still end up being an important future revenue stream for the company, but that future certainly isn’t here yet, even though there have been reports about drones and other hardware in the works. Eliminating marketing people from the group suggests either that Snap was unhappy with their work or that it won’t have new hardware to market anytime soon (or both), which reinforces the sense that a meaningful hardware revenue stream is still way off. To put the job cuts in context, though, 12 people represent a tiny fraction of Snap’s overall employee base, which sat at 2600 at the end of June and has likely risen significantly since then (it was under 2000 at the beginning of the year). I argued at the time of the launch that the vending-machine-based scarcity marketing for Spectacles was a very clever way to get far more attention than raw demand itself would warrant, but it never led to much more actual demand.

    via Bloomberg

    Snapchat Adds Content From College Newspapers With Ads for Monetization (Sep 8, 2017)

    Business Insider reported a few weeks back that Snapchat was starting to approach college newspapers about contributing content to its Discover tab, and now the company has made it official. Critically, Snapchat will run ads in those Stories, which will allow the newspapers to make some money from the partnership, so this should be something of a win-win for both sides. As I mentioned in my first comment on this (linked above), Snapchat is here going in the opposite direction from Facebook, which started out college campus-based and expanded from there, but the college age audience is clearly a big part of Snapchat’s target demographic, so it makes a ton of sense to provide increased localization and more content to keep users in the app longer (and see more ads). I’m very curious, though, to see how effectively newspapers make the transition to the format required in the Discover tab – I’m guessing most of the contributors will at least be familiar with the form, but it’s very different from writing articles.

    via Snap

    Snapchat Finally Starts Courting Influencers as Instagram Makes Gains (Aug 25, 2017)

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    Snapchat Content Head Says Scripted Shows Coming, Mobile Not a TV Killer (Aug 23, 2017)

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    Facebook Use Among US Teens Will Start to Fall, Says eMarketer (Aug 22, 2017)

    Analyst firm eMarketer has revised its usage forecasts for Facebook, Instagram and Snapchat for the coming year, and although there’s lots of data there, the point the media has latched onto is that it’s predicting use of the core Facebook app among US teens will fall this year. Though I have to imagine eMarketer is basing all this on some kind of survey of teens (notoriously difficult to do), there’s no mention of any such survey in the article from eMarketer, so I’m curious to know precisely what the foundation is, especially given that falling Facebook use by teens has been talked about for years but never seems to have materialized in a discernible way in Facebook’s reporting. None of this, though, is all that surprising, given that Snapchat and Instagram between them seem to have a lock on teens’ social media use, both driven by the increasingly raw and personal sharing these platforms enable in contrast to the broadcast nature of most Facebook sharing. While Facebook has steadily embraced its identity as a time sink filled with content loosely connected to people you know, these other platforms continue to major on true social interactions and therefore are more appealing to those at a stage of life where that’s the most important aspect of social media. Without Instagram, Facebook would potentially be staring a massive liability in the face at this point given that all its organic efforts to compete with Snapchat have crashed and burned, but with it, the company has managed to participate in rather than merely suffer from this trend among teens. And it’s now seeing the upside at least as much as the downside, with several times the user base of Snapchat overall and nearly equally high engagement. As such, I’m not sure any of these needs to be a worry for Facebook even if it’s true, as long as the trend doesn’t spread to older age groups and lead to broader disengagement from Facebook, and as long as Instagram is able to continue to capture its share of teen social media use.

    via eMarketer

    NBC’s Daily Snapchat News Show has had 29 Million Unique Viewers (Aug 18, 2017)

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    Snapchat Adds Feature Creating Seamless Multi-Perspective Videos From User Snaps (Aug 14, 2017)

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