As someone who personally believes that almost all social media companies are currently overvalued, it doesn’t come as a surprise to me that Snapchat has run into some financial problems. Only a few months after their unique Spectacles launch, CEO Evan Spiegal announced that they will be doing a 180° change in their plans.
Their recent Q3 earnings report show an abysmal 18% decline in their share price. Revenue fell $30 million short, user growth slowed to 2.9%, and those Spectacles had $40 million of product going unsold. This led to the company losing another whopping $443 million. Along with SnapChat falling behind in innovation, competitors such as Instagram introduced their Stories which effectively acts exactly like Snapchat, and has 300 million daily users, while Snap’s whole app has just 178 million total.
The first of these new strategy changes include now targeting adults. Snapchat has always considered itself as the cool app for teens, but this not only excludes a large market of potential customers, but it leads to you targeting the group of people who have the least amount of disposable income to spend with advertisers. Spiegal called on the Q3 earnings, “In order to further scale our user base, we need to accelerate the adoption of our product among…users above the age of 34. This means that we will have to make some changes to our product and business.”
The thing that Instagram and other social media channels have been great at that Snapchat has fallen behind in is easily allowing influencers to reach a large audience. Snapchat spent years shunning social media influencers, denying them ways to monetize, provided weak analytics, ignored requests, and even refused to verify celebrities until recently. Without the ability to make money or know how to expand their reach, influencers slowly left the Snapchat platform for more lucrative avenues.
Spiegel recently said, “We have historically neglected the creator community on Snapchat…In 2018, we are going to build more distribution and monetization opportunities for these creators…Developing this ecosystem will allow artists to transition more easily from communicating with friends to creating Stories for a broader audience, monetizing their Stories, and potentially using our professional tools to create premium content.”
Working With Android
I can personally attest to this problem. I use an Android phone and was always shocked at the poor quality of the video and photos that I would post. I had read previously that rather than using my phone’s camera processor, it would just screen record, making anything I posted look like I used a camera phone from 2004. Snap admitted in its IPO filing that “although our products work with Android mobile devices, we have prioritized development of our products to operate with iOS” – because that’s where its early users were.
Spiegal now said on the Q3 call, “In order to further scale our user base, we need to accelerate the adoption of our product among Android users . . . and users in the Rest of World markets. We are taking action both internally and externally to improve connectivity for our community. Internally, we are focused on product improvements like our new streaming architecture for Story playback . . . Externally, we are exploring partnerships with select wireless carriers who can help us to provide our service at a lower cost to our community.”
Snapchat is well known for being a bit confusing to use and understand since it allows for individuals to seem cool when they show off the unique features unknown to the average user. This ties into the first strategy change since adults in particular had a hard time understanding the app and prefer to use Instagram instead. When Snapchat filed their IPO, Spiegel actually wrote “Even when we have the right solution, it’s often in the form of a new product that might take a while for our community to learn how to use. Just because products are sometimes confusing when they’re new doesn’t mean we are going to stop building innovative products for our community. . . These new behaviors . . . are not always intuitive to users . . to date, this has not hindered our user growth or engagement, but that may be the result of a large portion of our user base being in a younger demographic and more willing to invest the time to learn to use our products most effectively.”
Going the way of just about every other tech and social media app, Snapchat is now decing to simplify their interface. Spiegel said on the Q3 call, “One thing that we have heard over the years is that Snapchat is difficult to understand or hard to use, and our team has been working on responding to this feedback. As a result, we are currently redesigning our application to make it easier to use. There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term, and we don’t yet know how the behavior of our community will change when they begin to use our updated application. We’re willing to take that risk for what we believe are substantial long-term benefits to our business.”
Snapchat initially got its growth by being the cool app that is different than Facebook. This strategy doesn’t seem to be working though now that Snapchat is as mainstream as any of the other social media networks. This means that Snapchats mentality kept it from embracing a news feed style algorithmically relevancy sorted for the user. For instance, Instagram Stories shows the people you are most likely to watch first, and that has led it to the 300 million daily active users we mentioned earlier.
Snapchat will now personalize your story feed so that you see what you are most likely to watch first. As Spiegel said, “We are going to make it easier to discover the vast quantity of content on our platform that goes undiscovered or unseen every day. We are developing a new solution that provides each of our 178 million Daily Active Users with their own Stories experience, leveraging the tremendous benefits of machine learning without compromising the editorial integrity of the Stories platform that we have worked so hard to build . . . We hope that showing the right Stories to the right audience will help grow engagement and monetization for our partners and for Snapchat.”
According to a source speaking toBusiness Insider, Snapchat is planning to launch this new design around December 4th that puts all messages and Stories from friends to the left of the camera, and all celebrity, publisher, search and Snap Map content to the right.
I would personally be hesitant to think that these changes will cause a massive overhaul of the growth and user base of Snapchat. Even if it does, not only will Snapchat have to overcome its $443 million loss, it will actually have to turn a high profit in order to justify its stock price to its investors. Snapchat is currently valued at just under $15 billion, and without a profit in site, I would be hard-pressed to think that this valuation doesn’t come down further.