Snapchat epitomizes the non-traditional model of growth the digital world has wrought. Introduced to the world in 2013 as the social app with disappearing messages—many thought it would disappear quickly itself.
Snapchat quickly captivated young people with its premise of ephemeral content, playful features and differentiation from Facebook’s WhatsApp. Currently, about 41% of Americans aged 18 to 34 use the app daily with 150 million globally spending time on it every day.
In a classic case of business evolution, Snapchat has aggressively pivoted to products that last while transforming itself from an internet/communications company into a camera company. Indeed, the word “camera” is mentioned 79 times in the IPO filing, notes Bloomberg.
“We believe that reinventing the camera represents our greatest opportunity to improve the way that people live and communicate,” the filing reads. “Our products empower people to express themselves, live in the moment, learn about the world, and have fun together.”
Experimenting with AR and wearable devices, Snapchat is set to leverage the ubiquity of cameras on smartphones and is selling Spectacles for $130 so users can record video from line of sight.
“Facebook creates permanent records of users’ lives; Snapchat offers liberating impermanence,” notes The Economist. “On most social media sites, people post about their achievements to a huge circle of acquaintances; Snapchat’s users share images of themselves looking silly with smaller groups of friends.”
The company is trying to avoid mistakes made by Twitter during its IPO in 2013—with user growth slowing and losses mounting despite revenue gains. “Twitter went out for their IPO and in their road show just talked about how ubiquitous they were going to be,” noted Pivotal Research Group analyst Brian Wieser, in Bloomberg. “I think if Snapchat embraces that it’s a niche platform, it could be a good thing.”
Snap reports it had 158 million daily active users at the end of 2016, with an average of 2.5 billion “snaps” being created every day. But it warns that daily active user growth is likely to be unpredictable, notes Bloomberg. “Contribution from Spectacles, Snap’s glasses for taking short videos, so far isn’t material. Even if investors embrace Snap as a narrowly focused product, advertisers will be asking the same questions they asked Twitter.”
Snapchat explains why growth is slowing. They could have just said, "Instagram Stories." pic.twitter.com/ihHBDbI7v3
— Ben Sandofsky (@sandofsky) February 2, 2017
The filing acknowledges that the growth in daily active users was relatively flat in the latter part of the quarter ended September 30, 2016. The reason? Snap points to rivals such as Instagram, with 600 million monthly active users “borrowing” Snapchat’s features. “Our competitors may mimic our products and therefore harm our user engagement and growth,” the filing said.
Advertising remains the key revenue driver for Snapchat. Brands such as Nordstrom, Shazam, Discover, Gatorade, Taco Bell, Chipotle and Mountain Dew have signed on for ads or sponsored lenses.
According to Ad Age, in a Bare Minerals ad starring social influencer Amy Pham, Snapchat reported “30% of people swiped on the ad to view longer-form video from the spot, spending 30 seconds with it on average. That led to two times more search traffic to its website.”
For Starbucks, Snapchat claimed 117 million views for a multifaceted campaign on the app, including a sponsored lens that got 23 seconds of playtime on average, notes Ad Age. Snapchat also said it helped drive 42,000 people to a Wendy’s location over seven days.
Still, the IPO “stands as evidence that Snap wants to stay independent. But Facebook or Google could still buy it,” notes Wieser in The Economist. “The coming years will show whether Snap is predator or prey.”