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.