Snapchat

Snap’s Story: The next big thing or a disappearing act?

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Written by Kamil Arli

Forbes Tech Columnist Mark Rogowsky published an article on the snap IPO filing.

The Snap IPO filing might be best summed up by one of the app’s most famous visual effects: puking rainbows. On the one hand, the visual effect of endless rainbow streams evokes the prodigious revenues and sometimes magical innovation Snap has achieved in its short history. On the other hand, the company’s massive losses, negative gross margins, and slowing user growth could cause investors to throw up in the years to come. And whether Snap’s future is blue skies or the bottom of a toilet might very well rest on its ability to create hits like puking rainbows. Queasy yet?

SEE ALSO:   Facebook teases Snapchat by revealing Instagram Stories user numbers

ON THE PLUS SIDE, SNAP’S REVENUE GROWTH IS ASTOUNDING

On the plus side, Snap’s revenue growth is astounding. With $404 million last year, Snap grew sevenfold over 2015. For a 5-year-old company to be closing in on half a billion in revenues and having the 10-figure mark well within its sights is a rare achievement even in the “unicorn” club. When CEO Evan Spiegel was rumored to be focused on monetization in the early days of Snap, critics suggested that kind of thing could wait. “Build the user base first” was the somewhat nonsensical mantra of what was once called the Web 2.0 era. Spiegel, all of 26, is about to marry a supermodel while taking his company public and putting his net worth north of $4 billion. That’s higher than the $3 billion he turned down for all of the company just 3 years ago. Game, set, match, Spiegel.

SEE ALSO:   Snapchat now lets you search over 1 Million stories

THERE IS ALSO A GREAT DEAL OF UPSIDE

There’s also a great deal of upside. Here in FORBES, Kathleen Chaykowski highlighted a major difference between Facebook and Snap: the social networking giant is earning far more per user. But that’s not a negative; it’s opportunity for the much younger company. Facebook has grown average revenue per North American user to $19.81 in the quarter that just ended vs. just $2.15 for Snap. Sounds bad until you realize Facebook has boosted that figure nearly 5x in the past four years. Given the relative newness of Snap’s advertising products and the inherent visual richness of the platform, it isn’t difficult to imagine similar growth. With even more runway overseas it also isn’t hard to imagine Snap growing significantly from here just by selling more advertising to existing users.

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Copycat? No this isn’t Snapchat. It’s Facebook, Messenger if you’re hungry.

But there’s where it starts to get scary. Something is already broken in Snap’s growth story. In the past 6 months, daily average users have only grown by 15 million users. It was 36 million in the prior 6 months, which shows a dramatic slow down in growth. That might be OK if Snapchat already had hundreds of million of users, but it doesn’t. The year ended with just 161 million, including 68 million in North America. While that too would seem to leave a big opportunity to Snapchat to grow, there are plenty of red flags. First, 85% of users are between 13-34. It’s simply not clear Snapchat is a product that will appeal to as wide a demographic as Facebook or even Twitter. Second, growth outside of North America and Europe has literally stopped for the moment. Third, not everything grows forever — just ask Twitter.

ITS GOOD TO BE CLEVER, BUT HARD TO PROTECT INNOVATION

It’s good to be clever, but hard to protect innovation. Snapchat blames part of the growth slowdown on technical problems and there were issues with its Android client last year. But there’s little doubt that an important copycat played a role too: the 900-pound gorilla Facebook. Playful filters now are present in Facebook’s Messenger, which has more than 1 billion users. And Facebook’s Instagram last summer added a Stories feature that mimics Snapchat’s. With 400+ million users, it represents more formidable competition. In Asia, an app called Snow has caught on with Snapchat-like filters and tens of millions of downloads. Clones don’t always hurt, but the numbers here suggest they’re affecting Snap.

NETWORK EFFECTS AINT WHAT THEY USED TO BE

Network effects ain’t what they used to be. This perhaps presents the biggest challenge for Snap. In a world with few social networks the boost from adding users to one increased its value significantly. In a world with lots of networks, users value each of them relatively less even while they belong to many. Facebook was willing to spend billions to acquire both Instagram and WhatsApp because it saw the importance of maintaining leadership in image sharing and chat to orbit around its core social network. Snap has extraordinary popularity with its users but those who don’t use Snap have multiple ways to reach friends who do, even with similar kinds of interaction as filters, stories, and ubiquitous image sharing have proliferated.

See the rest of the article here  forbes

About the author

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Kamil Arli

Editor of DigitalReview.co. Digital Media Consultant

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